High Inventory and Low Sales: Which Goes First...the Chicken or the Egg????

By
Real Estate Broker/Owner with LKN Realty, LLC 242267

The Chicken AND the Egg

It has occurred to me as I have been doing my year end market reports and reading so many others on ActiveRain that I could learn a lot about how my Lake Norman housing market is going to progress this year IF ONLY I could get some true insight from those of you who have hit your bottom and have pretty healthy absorption rates.

From Florida to Michigan to California I am reading fascinating year end reports that are showing some real signs of improvement while my area sales have dropped 50%.

My Lake Norman real estate downturn was very late to the party.  We saw a slight drop in sales starting in March of 2007 but weren't truly starting to feel real pain until 2008.  Here is our problem:

  1. Our inventories are still very high even though they are down from almost 1800 to 1400.
  2. Our sales are very very low
  3. Our absorption rates remain in the 23-34 months of supply on hand!
  4. Average prices have only dropped about 5%

As I look to 2009 I keep wondering HOW are we going to GET THE ABSORPTION RATES DOWN to 8 months of supply?  How are we going to get our inventory down and our sales up?  I am guessing we are going to have to see some serious price reductions BEFORE we see an increase in sales significant enough to impact our months of supply of active listings.  But we aren't seeing nearly enough as we should.

Am I right?  I think the answers are here on ActiveRain.  Those of you who were hit first and are crawling out can help those of us who are behind you.

What happened first in your market?  How did you get your inventories down and your sales stabilized?  How did you get prices down to the point where buyers felt confident enough to get off of the fence?

 

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Rainmaker
1,079,379
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Our inventory has declined some, and sales have picked up, but our values are down 15% over last year. We have 14 months' inventory. We definitely have overpriced homes that need to come off the market.

Jan 05, 2009 01:40 PM #18
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447,673
Deb Brooks
Brooks Prime Properties Wichita Falls Texas - Wichita Falls, TX

Diane, you are soooo cute! I love the egg. Now, my community is so sluggish it's pathetic. Nothing to write about. Happy New Year! Deb

Jan 05, 2009 01:53 PM #19
Rainmaker
231,989
Emily Lowe
The Lipman Group | Sotheby's International Realty - Nashville, TN
Nashville TN Realtor

Does that happen when the market hits "bottom"?  When the prices go so low that an increase in sales occurs?  I am guessing that is how it will work...

Jan 05, 2009 01:53 PM #20
Rainmaker
645,567
Sun City Grand Homes Surprise AZ Real Estate Leolinda Bowers Designated Broker Leolinda Realty
Leolinda Realty - Surprise, AZ
Sun City Grand in Surprise Arizona

Diane, The absorption rate in my market is 41 weeks - double from where we were last year.  We are presently in our peak season and people are buying.

Jan 05, 2009 02:15 PM #21
Rainmaker
2,763,484
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Diane, I don't know as much about this as I should but found the post and comments interesting.  Oh, and you might want to remove that spam on thiw wonderful post...shame on them!

Jan 05, 2009 02:27 PM #22
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3,315,326
Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Hi Diane!  First of all, congratulations on that little gold star!  Great, HOT topic that needs to be seriously addressed in our area.  I have been telling my Sellers that their mission is to BEAT the market significantly.  Regardless of the absorption rates, which are in favor of the buyers, the sellers that beat those in their market, will be among the first to sell so the market absorption trends won't really affect them.  I tell them that they MUST realize that they're not going to get those 2005-2006 appreciation rates with their SELL but, they WILL realize a 'deal' with their buy--where ever that might be!  Most are pretty receptive to that approach. 

I'm with you though, we're at the tail end of this economic downfall and I'm sure that this "bottleneck" as Lenn called it, is going to tighten up a bit before it opens up!  How long it's going to take is the question!

Debe in Charlotte

Jan 05, 2009 02:29 PM #23
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Roland Woodworth
Q Realty - Clarksville, TN
Q Realty - Power In Real Estate

Diane: Great post here. Our over all number have been down compaired to normal, but thankfully our market has still done well.

Jan 05, 2009 03:28 PM #24
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Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

Diana my market situation is similar, and I think more price reduction is in order to get the inventory down.

Jan 05, 2009 03:42 PM #25
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I think for us short sales and REOs took over and started bringing down other prices and that got buyers to start moving. Though many still are on the fence, many have started to buy.

Jan 05, 2009 03:55 PM #26
Rainmaker
363,351
Susie Blackmon
Ocala, FL
Ocala, Horses, Western Wear, Horse Farms, Marketing

I think once prices get back to 2004/2005 levels, our market will change. But at the moment, I don't think much will change immediately no matter what we do. I'll let you know next year what it takes...

 

Jan 05, 2009 10:14 PM #27
Rainer
292,552
Diane Aurit
LKN Realty, LLC - Mooresville, NC
Lake Norman Real Estate

Lenn: Thanks for your thoughts.  I think our prices are going to have to come down, I just don't know how much.  What has confused me is how little they have come down overall and why?  Is it the agents not explaining the market to them or are the sellers still expecting a better market just around the corner?

Gary: Yes they are very high!

George:  So price reductions have increase sales but you are still overstocked?

Scott: I totally agree...we need to see price reductions but I don't know how low.  Will it take foreclosures and bargains to establish new price levels and then the reductions will be forced?

Jennifer:  That's intersting that you have't seen great improvement even though your inventory levels are lower.  I do agree, if agents had understood we were going down in mid-2007 and priced listings accordingly we would be in much better shape.  I am amazed that sellers are willing to have their homes on the market for months with NO showings and not feel they need to lower the price significantly.  In these cases my guess it that their agents aren't explaining the market to them!

Jan 05, 2009 10:49 PM #28
Rainer
292,552
Diane Aurit
LKN Realty, LLC - Mooresville, NC
Lake Norman Real Estate

Kathy: I agree as well!

Jan 05, 2009 10:49 PM #29
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Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Is Lake Norman a vacation area?  'Just asking because the name suggests it.  If so, it may be one of the last places to "come back"...  The Crofton real estate market, where I work, is very insulated from all this because of its proximity to the Federal Government and, in particular, the "BRAC Factor" which brings a steady stream of relocating buyers to us.

Jan 05, 2009 10:57 PM #30
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Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Diane - it's an interesting question. Saw your question about this on my post on our year-end market data. Our absoprtion has remained under 14 months and even less in my service area for some time, despite the drop off in sales, drop in prices, etc. I am not convinced we are at bottom, certainly not in some communities where there are many distres sales. The good news is that the volume of sales ini those areas has gone way up as prices come down. The inventory is down from last year in most communities as well so we may be reaching a point of stabilization.

The thing that sellers need to realize is that even though absorption may be reasonable low, there are mnay homes that are sitting on the market for extended periods. If not priced well, their homes will be one of these, rather than one that sells within the "absorption" period.

Jeff

Jan 06, 2009 01:35 AM #31
Rainer
292,552
Diane Aurit
LKN Realty, LLC - Mooresville, NC
Lake Norman Real Estate

Jackie:  GREAT comment!  We are just now getting comps from Foreclosures and distresses sales so I think that will help agent to price homes properly from the beginning.  I like that:  one of the 5 cheapest homes.  Thanks!

Marie: Good for you!

janeAnne:  Is your market any better than ours?

Bill: Thanks for your feedback.  Yes, I agree it is all related to pricing but I wanted to hear that from all of you out there too!

Missy:  Thanks for your input

Terry: That is what I am wondering...will the markets that began the party leave the party first?  We late bloomers are still trying to get sellers to price to sell based upon the reality of our sales, not on old comps.

Colleen:  Yes, I agree...very low prices...but it's hard to convince sellers when our average prices haven't gone down that much yet.

Brian: Agreed...we need to match up our supply and demand.  New construction for us is now only 30% of our inventory so it's up to the resales to start pricing lower and selling.

Rita:  Thank you so much for sharing about your local market.  It sounds a lot like mine.  I'm afraid that we are going to be flooded with new listings in the spring too!

Sharon:  Thanks for your input!

Jan 06, 2009 04:15 AM #32
Anonymous
Col Orson Swindle

Think about it from a buyer's perspective, who does not have "skin in the game" yet.

If I know that homes in a neighborhood were selling for $140,000 in 2003, why would I pay $190k - $210k today? I would think twice at paying $160,000.

Just look at the spread on mortgage rates vs. mortgage bonds! Banks freely admit that they are charging very high rates to borrow, because they anticipate prices falling further. Why would I pay more to borrow money on a depreciating asset?

It is frustrating, it is almost as if sellers (and their Realtors) think buyers are a bunch of morons.

Col Swindle

Jan 06, 2009 04:24 AM #33
Rainer
292,552
Diane Aurit
LKN Realty, LLC - Mooresville, NC
Lake Norman Real Estate

Deb: Thanks...I couldn't resist the picture:)

Emily:  Yes, I agree!

Leolinda: Well, it is good to hear that people are buying...are your prices going down too?

Carole: Removed the spam...thanks!

Debe:  Excellent comment.  Yes, that's the question...how long.  I honestly don't see our areas improving until 2010 unless something really dramatic happens in the national economy.  And, in hand with that I think our greater Charlotte area/Lake Norman prices are going to go down further than this year's modest 5%.  I'm seeing it particularly in new construction and expect it to move to resales soon.

Roland:  You are very fortunate!

Jennifer:  Yes, more price reductions!

Christine:  Thanks for that input.  That is what I have been wondering since we haven't had a large number of short sales and foreclosures our prices are remaining higher but I have a feeling that will change very soon!

Susie: Yes, it's hard to know with the world-wide financial crisis how much we can expect our markets to be impacted beyond the obvious housing struggles.   We are beginning to loose jobs and that concerns me as much as the housing slow down.

Margaret:  Yes, we are somewhat a vacation/retirement area as poeple do move here for the Lake.  We are greatly impacted by slowdowns in other states where buyers still have to sell their homes before moving here.  Good point!

Jeff:  It was your market numbers that inspired this post.  Your inventory seems so much better than ours but I am guessing it is because you have better priced homes which explains your higher sales trends.  It does seem to come down to price no matter what, doesn't it?

Jan 06, 2009 04:30 AM #34
Rainer
63,274
Sonja Adams
Samson Proprties - Purcellville, VA

I've been ignoring the absorption rates as well for the latter part of this year...had figured that I would do a year end comparison and am working on all that...

Jan 06, 2009 05:48 AM #35
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1,541,335
William Johnson
Retired - La Jolla, CA
Retired Real Estate Professional

Hi Diane, I typed 3 paragraphs and touched something and it disappeared. Go figure. I was suggesting that I believe that this year will prove to be the year of dramatic improvement in the housing markets. I suspect that those absorption rates will melt away as buyers return to markets with interest rates that tending to set records. At least I want to believe , so I do, lol.

Jan 09, 2009 02:32 AM #36
Rainer
42,329
Wendy Welborne-Kimery
Keller Williams-Lake Norman Mooresville,NC - Mooresville, NC

Diane, This is another great one.  I hope I get as good as you with my posts.  I haven't been on active rain since August.  These responses where very interesting.  See you tomorrow.

Jan 29, 2009 11:38 AM #37
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Diane Aurit

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