The Westerly Real Estate Market Report

The Westerly Real Estate Market Report

The Good, the Bad and Reality

The Year 2008 In Review

 The events of 2008 may live in memory for generations to come. Looking back we understand that the first headlines posing the question "When will the real estate bubble burst?" were just the first faint sparks of the firestorm that would follow. The subsequent implosion, however, was not just about the housing industry, but still, the real estate market got caught in the maelstrom. Maybe it's because bricks and mortar are easier to understand than the complex issues related to selling, packaging, re-selling and short-selling securities as well as the now infamous credit swaps and excess leverage. The news media needs to communicate something to a public who is listening, and homeowners listen. We all care about our homes.

In complex global markets, predicting the future is, at best, a roll of the dice. Forecasts that home heating oil would reach $5 and higher per gallon resulted in millions of Americans locking in the price of fuel in advance for $4 and above. The lucky ones who gambled are buying oil for half that amount. Who knew?

The Sky Did Not Fall

If the sky had fallen, no houses would be selling. In 2008, the number of sales of single family homes equaled 85 percent of 2007 numbers and the number of sales of condos equaled 99% of 2007 numbers.. The number of sales is one of three primary market indicators used to assess the market. The number of deposits and inventory levels are also important, and it is the interrelationship of these indicators that gives us the truest picture. 

Closed sales measure the past, not the present. There can be three or more months between signing a purchase contract and the date of closing. A sale that closes in December could have been contracted in September or October and reflects the market place at that time. That's why it's important to watch the number of deposits. Historically, at least 70 percent of deposits actually close.  

Here's a simple example of how the interrelationships of the indicators work using contrived numbers. In a particular community 1,000 homes are on the market and 150 close per month. Dividing the two indicators gives a supply time of 6.7 months (to sell the inventory down to zero). While markets normally do not sell down to zero in real estate, the supply times give a good picture of what the market is like. This example is oversimplified, since different price ranges in a given town perform differently with varying supply times. 

As of December 31, 2008 there were 26 single-family and 9 condominium units under deposit with approximately 189 single-family homes and about 83 condominium units on the market in Westerly. 

The actual average supply time of single family inventory as of December 31, 2008 is shown in this table:

While some supply times are higher than in the past, they do not indicate distress.  Inventory levels decreased in the fourth quarter of 2008. Average marketing times have actually decreased. They are higher than two years ago, but again, the figures do not indicate anything alarming. It is also normal for marketing times to vary by the type, and more importantly, price level of the property.

Median Sales Price vs. Home Value

In general, median sale prices are lower in 2008 than 2007 (for single family homes $334,500 as of 12/31/08 compared to $350,000 as of 12/31/07...only a 4.4% decrease).  There can be several reasons for this, including a shift in the price class and range of properties selling. Remember that the median price represents the mathematical middle of the sales prices for closed homes.  It does not predict the value of any specific home. 

 If a particular community shows that the median price has either risen or fallen, it does not mean that all properties in that town have risen or fallen.  The only way to assess true market value for any individual property is through a market analysis.

It's also important to note that short-term median home price adjustments are really suspect (while sometimes tempting to make). If a number of high-price homes sell in a particular community in November, that median price could swing noticeably. December sales might be mainly low-priced homes and swing the price back in the opposite direction.

The Glimmer of Hope for 2009 

When the final 2008 data arrives, we expect new housing permits will be down from last year and in line with the drop in sales. That means there is no large excess of inventory on the market.  Rhode Island builders did not over-build for speculation as builders in states such as Florida and Nevada did. Additionally, marketing times are not excessive. Properties priced where they should be in the current market are selling. 

Mortgage rates can be volatile, but they are still at 25 to 30-year lows. Qualified buyers can still get mortgages. Subprime loans are gone (thankfully), but conventional as well as government insured loans, like FHA, are readily available. Lastly, we all expect any day now some type of economic stimulus package that will spark activity in the real estate market. 

 Consumer Confidence and Trust

Smatterings of Radio, TV and even print news stories are beginning to hint that it might be "a good time to buy." That's good news for the market, because the media has a strong influence over consumer confidence. We will continue to struggle through economic conditions that are less than ideal, but, this is a cycle and it will end as each cycle like this has done before. Expect our real estate market to be somewhat erratic until this happens, but as all of the factual data presented here shows, there is market activity out there.

For ongoing information regarding our real estate market subscribe to this blog or contact me directly at 401-348-8259 (home office) or by e-mail at wendyfbrown@cox.net.