http://www.realestatemontana.com/Blog/Market-Update-at-glance-May-2015
“Inventory Shortage and other Myths”
Mays market update starts with discussion of a comment both locally and nationally that there is a “shortage “of inventory. Actually though when you look at activity in the market place it says something quite different. First let’s define inventory, my belief is you can look at one of two ways, one would be the “active homes for sale only” or when trying to understand the market in total, inventory includes “active pending and closed” (this represents total inventory activity). When looking at the only “active” you would say yes, inventory is down, May 2014 622 active units May 2015 573 active units seems pretty simple to say yes there is an inventory shortage. Yet when we look at the second definition of inventory (active ,pending, closed) a different story emerges, May 2015 inventory activity indicates 1764 total units, May 2015 1819 units or plus +3.11%. So why the conversation about “inventory shortage” one word velocity? The speed of the market has increased so to find a client an appropriate home it requires more work on the agents part and quicker response times. It is important to understand that you cannot have a “shortage of inventory” when pending sales and closed sales have increased since if there was a “shortage” it would be impossible to create more pendings and closed.
If you want to see what actual shortage looks like read some articles about Venezuela and the availability of items in stores caused by the government “fixing” pricing low while inflating the currency.
At the end of May 2015, closed sales up +12%, pending sales up +4 %, inventory down -8%, and interest rates down -8% from the year earlier.
As of the end of the week of May 29th the rig count in North Dakota is down -92 rigs since last year, 77 working in 2015 and 169 working in 2014. So the Million dollar question for 2015 remains the same “Will the decline in energy costs and interest rates offset any possible decline in business and jobs dues to the decrease in energy/oil costs?” So far, with the rapidity of the decline in the rigs working in North Dakota, no major discernable effects to the Yellowstone county economy. As a little historical perspective in May 2009 there were just 37 rigs working, interesting to think about the rapidity of incline and decline in six short years.
First let’s look at closed transactions, Number of closed sales in Yellowstone County, 817 through May 2015 as compared to 730 in May 2014 showing an increase in closed transactions of +87, which translates into a +12% increase year over year. May 2013 there were a total of 788 closed sales.
Residential pending unit sales in 2015 are up +4% year over year (429 units pending). To compare; 2014 May pending unit sales (412 units pending) were down -4% over May 2013 (426 units pending).
Interest rates decreased year over year comparing May 2015 (3.87%) to May 2014 (4.19%) interest rates declined -8%. Going back a year May of 2014 (4.19%) to 2013 (3.54%) interest rates were .65% higher, a +18% increase from May 2013,
The residential active properties for sale inventory in May 2015 (573 units active) is down -8% year over year, as a comparison, in May 2014 (622 units active) unit inventory was up +4% comparing 2013 (562 units active) (comparing 2013 to 2015 inventory is up +1.74%).
Market time (the time to receive any offer) in May shows an decrease of -5% year over year(53 days 2015 vs 56 days in2014 and 58 days in 2013) , as a comparison in 2014 market time was -3% lower than 2013. The absorption rate of inventory shows an decrease of -24% in time year over year 129 days 2015 (hence the comment about velocity early), as a comparison May 2014 absorption time was up 18% year over year 170 day’s (probably weather and interest rate related) bench marketing against 2013 140 days.
Single family permits: total single family permits for 2015 have an increased +15% for year over year (2015 158 permits, 2014 137 permits). For May 2013, 56 single family permits were issued, in May 2015 45 single family permits were issued a decrease of -19.64% over 2013 (May 2014 saw 32 permits issued). A huge increase in single family permits happened in February 2015 due to code changes that became effective March 1st that add $2 to $3 dollars per square foot cost to a new home) March saw a slight decline in permits issued then an increase in April and May so a positive for the market place. Again single family new construction has been gaining velocity in the market place held back only in people’s ability to finance without their present home sold.
Now for residential rentals, Through May of 2015, the market place had an average of 383 units advertised for rent each Sunday, a year over year in decrease of -12% (or 50 less units advertised each Sunday), as a comparison in 2014 inventory for rent was 433 units advertised in Sundays, up 36% vs. May 2013, only 318 units were advertised each Sunday. Rent average asking price for an apartment have moved up $753 for May 2105 as compared to $721 for May 2014 an increase of +4%, as a comparison May 2014 was +4% higher than May 2013 ($691 asking price). So rents are increasing slightly faster or at the national consumer price index. Homes for rent, through May 2015 average asking rent is $1,173 for 2014 asking rent for a home was$1,151 an increase of 2% year over year on top of a 5% rise 2014 over 2013. (2013 average asking was $1,099.)
A factor affecting the market place is interest rates, According to Freddie Mac, May 2015 had an average interest rate of 3.67% (down -8% from 4.19% May 2014) and May 2013 the rate was 3.54% for a 30 year fixed rate an increase of +3.67% for 2015 from 2013. To show the impact, the payment on the average sales priced house in May of 2015 was $1,413 PITI (average sales price $244,605), May 2014 it was $1,494 PITI (average sales price $242,716), May 2013 it was $1,293 PITI (average sales price $227,438). This change in price (up+ $1889) and interest rate decline translates in a decrease $3,600 yearly income needed to qualify for the average sales priced home in May 2015 as compared to May 2014 (using FHA guide of 27% of gross income for payment). Which explains a lot of the activity.
When talking about interest rates, loan qualifications are still a player in the market; the additional scrutiny caused by the problems of the housing collapse has most probably reduced the buyer pool. To give this some perspective in Yellowstone county since the peak year of 2006 when 2040 residential sales took place, we have approximately 7,000 more people employed, about 19,000 more residents in Yellowstone county, average income is up about $10,000 a year and interest rates are down about -43.12% (2006 interest rate was 6.45%) with all those positives the yearend sales for 201 were -8.5% lower than 2006. Based on the velocity of the market so far in 2015 we have chance of beating total sales of 2006 this year.
So even with the demographic shifts in renting versus buying I would venture that Yellowstone County has a very stable base in home sales as compared to economic activity.
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
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