September’s closings in Ada County were up 23% over the same month last year, one of the largest same month gains this year. Pending contracts, signed and in escrow, were 22% higher than they were at the same time last year, an optimistic note for the future.
Inventory is down 11% compared to this time last year, leaving us with 2.4 months of homes: 1.9 months of resale homes and 4.4 months of new homes. However, as we said last month, only a little over 30% of the new home inventory is finished, ready to be occupied. Taking that into account, the finished new home inventory is even lower than the available resale inventory: 1.5 months for finished new homes and 1.9 months for resale homes.
Imagine what sales would be like if buyers had a more plentiful supply of homes from which to select.
The market’s performance through the first three quarters is remarkable: sales for the first 9 months of this year are 13% higher than sales for the comparable period last year despite a shrinking inventory.
The chart below shows how new and resale inventory compare.
Ada County closings this August topped closings last August by 16%, considerably higher than the year-to-date improvement of 11%, primarily due to a surge in new homes sales: resale closings were 6% higher and new home closings were 77% higher than they were last August.
Pending contracts – or contracts in escrow – were 25% higher at the end of this August than they were at the end of last August, mainly because pendings on new home sales were 47% higher than they were last year at this time.
We have 2.5 months of residential housing supply, 2.0 for resale inventory and 4.4 months for new homes. However, it’s interesting to note that, out of approximately 800 new homes on the market, only one-third are finished and almost 40% haven’t started construction. So our inventory is even lower than the numbers suggest.
The chart below shows the breakdown of the new home inventory.
As July keeps pace with the hot market this year, more people are asking if we are headed for a bubble. We certainly don’t expect an always-improving market, and there’s always a possibility of a “Black Swan” event, but we see several reasons that today’s market is on a more stable footing than the market that lead to the crash in 2008-09.
1. First, there are no “no doc” loans that created financial instability. The financing instruments are more traditional, requiring cash down payments. There’s more “real” now in real estate.
2. Second, our prices and number of transactions are rising more steadily now than the abrupt rise in 2005-2007, when properties were selling within hours of going on the market. July’s closings were 11% higher than last July and year-to-date closing are also 11% higher than last year’s respective closings. Average prices for the previous twelve months, despite the brisk market, are only 6.5% higher than the previous twelve months.
3. Third, even though prices are rising, buyers are not over extended. Low interest rates are keeping residential real estate carrying costs affordable. Mortgages are now averaging 15% of average income, much lower than the historical rate of 20%.
4. Finally, newly constructed homes, where a lot of the speculation occurred prior to 2008, are selling well, but we still have 4.6 months of new home inventory.
The charts below show what has happened this year in closings, pendings and inventory.
The first six months saw an 11% improvement in the number of residential properties sold in Ada County: a 6.5% increase in resale units and a 34% increase in newly constructed properties.
The average price for the trailing twelve months increased 6.8% for all properties, 6.5% for resale, and 5.4% for new homes. Inventory is down 11% from the end of last June but has increased 28% from the beginning of the year as homeowners are taking advantage of this great moment in the market to sell.
New home sales have increased as a percentage of the whole market from under 8% eight years ago to almost 20% so far this year.
May residential closings in Ada County were 14% higher than they were last May, while pending transactions at the end of this May were 21% higher than they were a year ago. Inventory is down 8% due to the hot market leaving us with 2.5 months of properties.
Resale closings in May were 10% higher than they were last May, while pending contracts were 12% higher. The inventory of resale properties decreased 17% over the past year, leaving only 57 days of properties available to buy.
New homes made great strides, selling 32% more units than last May and pendings were 43% higher. Inventory actually increased slightly yet we have only 5.1 months of new homes in various stages of completion available for purchase.
A recent twist is that price increases of resale homes continue to outpace the increases in new homes, 9.3% to 6.5%.
Closings this April outpaced closings last April by almost 15%. This puts us 11% year-to-date ahead of the hot pace of last year.
Can this last?
Inventory is 16% lower than it was at the end of last April and pending sales contracts are 21% higher; yet average prices are up only 7%. Despite the hot market, we haven’t seen huge increases in prices.
The chart below shows the movement of unit sales and average prices since 2005.
As you can see, the dramatic increase in unit sales in 2006, fueled by the availability of “no doc” loans, created unsustainable price increases which began to correct in 2008. However, since 2005, average prices have increased only 32%.