Market Update at a Glance April 2014

APRIL 30ST 2014

“APRIL SHOWERS, BRING MAY FLOWERS?”

Now one third of the year completed no question about how much winter effected the direction of the market. First let’s look at closed transactions,  April 2014 continued with fewer homes closed, number of closed sales in Yellowstone County are 519 as compared to 519 in 2013, a 12% decline, one percentage point  less decline than  in January,  February and March, the market showing  a little strength in the underlying sales.  

Single family permits: we see total single family permits for the first four months  have a decrease of 29% for year over year (2014 105 permits, 2013 148 permits),  then from August to April we have Nine months year over year monthly decrease in permits issued(probably will continue through May since 56 single family were issued in May 2013). The single family new construction is continuing showing a decrease of velocity in the market place. The single family new construction is continuing showing a decrease of velocity in the market place.

 Residential pending unit sales are 7% year over year, showing some signs of pent up demand caused by our true Montana winter, now we need to see how much and long will the increase in demand last.  To  compare;  2013 unit sales were up 14% over 2012 April, using that same bench mark pending sales in April 2014 are up 22.4% over April of 2012 (2012 308 pending , 2014 377 pending).

The residential active properties  for sale inventory in April  is up 4% year over year, as a comparison, in 2013 unit inventory was down 12% over 2012 (comparing 2012 to 2014 inventory is down 4.83%- 2012 600 units for sale ;2014 571 units for sale ).   Market time in April shows a decrease of 2% year over year, as a comparison in 2013 market time was 18% lower than 2012(so both years show a positive trend).  The absorption rate shows an increase of 47% in time year over year, as a comparison January 2013 absorption time was down 34% year over year (so with the other demand features of the market positive , weather is the culprit in increased absorption time).

 Now for residential rentals, Through April of 2014 the market place average 446 units advertised for rent each Sunday, a year over year in increase of 39% (or 126 more units  each Sunday), as a comparison in 2013 inventory for rent was up 15% vs. April  2012. An argument can be made for both weather and an increased supply of new rental available in the market place, as we progress through May & June if availability of rentals stays substantially increased then increased inventory will be the solo explanation. A factor affecting the market place other than weather is interest rates, According to Freddie Mac, April 2013 had an average interest rate of 3.45% and April 2014 the rate is 4.34% for a 30 year fixed rate. To show the impact, the payment on the average sales priced house in April of 2013 was $1,278 PITI, March 2014 it is now $1,487 PITI. This change in price and interest rate translates in an additional $9,385 yearly income needed to qualify for the average sales priced home in April 2014, which is an increase of 16.35% in payment compared to April 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 from stricter guide lines.  

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. As a side note Wells Fargo announced they were using lower credit scores to qualify buyers, since the refinance market has essentially dried up with the increase in rates

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 March 2014, there are 3396 more people working in Yellowstone County than in of 2012 and 5267 more working than in March of 2011 and we are 545 more employed than 2013. The number of persons employed is close to historical highs. Yellowstone County number of unemployed March 2014 is 3709 compared March 2012 3999 and 4408 in 2011 with 194 fewer unemployed than February 2013.   

All the trends require 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