Market Update at a Glance May 2014

“Winter of discontent and other Myths”

Safely into late spring and the beginning of summer, worth one last time to ask how much winter effected the direction of the market. First let’s look at closed transactions, May 2014 continued with fewer homes closed. Number of closed sales in Yellowstone County are 716 as compared to 788 in 2013, a 9% decline, so in June sales would need to increase approximately 29% above June 2013 to reach the same midyear units closed and put 2014 on track to match 2013, an unlikely event, when May had close to perfect weather and a decreasing interest rate environment and in May, unit sales were still approximately 9% less than in May of 2013.

Single family permits: we see total single family permits for the first five months  have a decrease  33% for year over year (2014 137 permits, 2013 204 permits),  then from August 2013 to May 2014 we have ten months of continuing decrease  year over year monthly decreases in permits issued. For May  2013  56 single family were issued in May 2014 only 32 single family permits were issued, a drop of 43%, a little hard to blame that drop on adverse weather conditions. If single family permits were to get on a track to match 2013 105 single family permits would need to be issued in June 2014  a 276% increase over 2013 , a highly unlikely event. The single family new construction is continuing to show a decrease of velocity in the market place.  So the question to ask is “in an increasing job market, increasing income and population environment with interest rate in slight decline, what would be the cause?”

Residential pending unit sales are down -3% years over year, so the increase in pending sales year over year that we saw in April stopped in May.  To compare; 2013 May pending unit sales were up 17% over 2012 May.

The residential active properties  for sale inventory in May  is up 11% year over year, as a comparison, in May 2013 unit inventory was down -8% over 2012 (comparing 2012 to 2014 inventory is up 1.8%, 2012 there were  611 units for sale ;2014 there are 622 units for sale ).   Market time in May 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 18% in time year over year, as a comparison May 2013 absorption time was down -17% year over year bench marketing against 2012.

 Now for residential rentals, Through May of 2014 the market place average 438 units advertised for rent each Sunday, a year over year in increase of 38% (or 120 more units  each advertised Sunday), as a comparison in 2013 inventory for rent was up 17% vs. May  2012. An argument could have been made for both weather and an increased supply of new rental available in the market place, now progressing through May and into June, if availability of rentals stays substantially increased, then increased inventory must be the solo suspect for an explanation.

A factor affecting the market place other than weather is interest rates, According to Freddie Mac, May 2013 had an average interest rate of 3.54% and May 2014 the rate is 4.19% for a 30 year fixed rate. To show the impact, the payment on the average sales priced house in May of 2013 was $1,279 PITI, May 2014 it is now $1,490 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 May 2014, which is an increase of 16.4% in payment compared to May 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. Of course with that happening it increases the renter pool, thus the increase in building of apartments the last few years, and heading for saturation/over supply from the high demand of the past. Typical cycle in the supply/demand world.

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 direction had been up during 2014, until May then moderated lower, prices continue to show move upward movement, yet as compared to 2013 moderating to about 5% year over year. In 2013 the highest price gains in the market occurred though about august so the moderating year over price gains should continue.

Employment and incomes can drive sales all other things being equal.  The latest figures available as of April 2014, there are 3325 more people working in Yellowstone County than in April of 2012 and 3918 more working than in April of 2011 and we have 416 more employed than 2013. The number of persons employed is close to historical highs. Yellowstone County number of unemployed April 2014 is 2733 compared April 2012 there were 3573 unemployed and 3818 in 2011, we have 750 fewer unemployed than April 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

Chart comparing Yellowstone county home sales 2014 to 2013 (interesting note February home sales in 2014 were closest to 2013 so far this year and that was with three of snow)

In single Family permits you can see the effect of three feet of snow in FeBuary