Market update at glance february 2014

“WHICH TEA LEAVES HAVE MEANING?”

With two months of the year completed, still questions about which indicators best discern the direction of the market. First let’s look at closed transactions, February 2014 continues with fewer homes closed, number of closed sales in Yellowstone County are 235 as compared to 269 in 2013, a 13% decline, the same percentage as in January, even with record cold and snow, the market did not fall further behind, so the question is, does this tea leaf show strength in the underlying market.  

Single family permits: we see total single family permits have a decrease of 45% for February year over year (2014 32 permits, 2013 58 permits),  then from August to February we have seven months year over year monthly decrease in permits issued. This is trend worth watching as spring arrives, since I have no doubt that weather may have played a wee bit of havoc with starts in February.  Residential pending unit sales are up 1% year over year, as a comparison;  2013 unit sales were up 16% over 2012 February, again with the weather, does this tea leaf indicate strength?

The residential active for properties sale units are up 5% year over year, as a comparison, in 2013 unit inventory was down 18% over 2012 (did the weather increase inventory?).  Both the single family new construction and single family resale are continuing showing a decrease of velocity in the market place (the question is how much weather are in the numbers?). Market time has a decrease of 8% year over year, as a comparison in 2013 market time was 23% lower than 2012.  The absorption rate shows an increase of 3% in time year over year, as a comparison January 2013 absorption time was down 15% year over year (so is weather the culprit in increased absorption time).  Now for residential rentals, Through February of 2014 the market place average 471 units advertised for rent each Sunday, a year over year in increase of 38%, as a comparison in 2013 inventory for rent was up 6% vs. January 2012. An argument can be made for both weather and an increased supply of new rental available in the market place, yet weather probably has more sway since available has of rental has increased in all price categories. A factor affecting the market place other than weather is interest rates, According to Freddie Mac, February 2013 had an average interest rate of 3.53% and February 2013 the rate is 4.3% for a 30 year fixed rate. To show the impact, the payment on the average sales priced house in February of 2013 was $1,242 PITI, January 2014 it is now $1,507 PITI. This change in price and interest rate translates in an additional $11,357 yearly income needed to qualify for the average sales priced home in February 2014, which is an increase of 21.33% in payment compared to February 2013.  When talking about interest rates, loan qualifications are also a player in the market, the additional scrutiny caused by the problems of liar/no doc loans has most probably reduced the buyer pool. I saw one report that estimated the buyer pool drop of 33% nationwide, in Yellowstone county I would estimate it about 15% to 20% decrease in buyers.  

Credit scores play a major role in obtaining a loan and there has been a slight “loosening” of credit score required to obtain a loan: FHA loan, 2014 average FICO for a closed loan is 688, 2013 it was 695 and in 2012 700.  Conventional loans, 2014 average FICO for a closed loan is 727, 2013 it was 747 and in 2012 763.

Interest rate most probable direction is up during 2014 and if prices continue to move upward, these twin trends will moderate sales and pricing trends. The caveat would be employment and incomes, strong employment and income can drive sales.  The latest figures available as of December 2013, there are 1672 more people working in Yellowstone County than in December of 2012 and 4025 more working than in December of 2011. The number of persons employed is at historical highs. Yellowstone County unemployment is now 3.9% compared to 5.4% State Wide.The trends requires watching when thinking about the health of the market overall. I hope you find the information both useful and enlightening, if you  have any questions about either buying, selling or the market in general do not hesitate to call or email