By Scott Swick, First Weber Group. Article originally appeared in July 14, 2009 in the FdlReporter
When my parents enrolled me in school, there was a widespread belief that if a kid started early, he or she would do better in school.
But unlike the early education opportunities we have today, this just meant you were the youngest kid in your class…and I didn’t do so well at first.
My elementary school days were marked with great fear and trepidation twice a year: report card day for each semester. It wasn’t until my junior high years that my grades started steadily improving. So in my elementary school days, most of my dad’s withering inquiries into my grades (he was a college professor), my response was frequently something like, "Yes, but…"
So today, as we look into Fond du Lac Real Estate’s mid-term report card, I can offer three "Yes, buts…" for people to understand the current real estate market accurately.
Home sales are lower than at this time last year
Yes, but they are improving.
By the end of June, home sales in Fond du Lac County were down 24 percent year-to-date compared to 2008. If we take a look into 2008, home sales were down that year as well, but were improving steadily as the year went on. By August, sales were showing year-over-year increases each month.
But then the "second 9/11" happened. It was during the ninth month of 2008 that the banks, starting with Lehman Brothers Bank, started filling Chapter 11 (bankruptcy). The stock market dropped dramatically, Americans stopped spending, and the real estate in the stable markets like Wisconsin fell off 30 to 35 percent each month year-over-year.
This continued into February of 2009, and then we started to a lessening of the real estate sales decline. The decreases in March, April, May and June were not as bad of decreases compared to October through February.
But the real news for Fond du Lac is the big jump in buyer activity (showings, offers and accepted offers) that has occurred over the last 45 days. These will translate into higher sales (closings) in July, August and beyond. In our office, we had more than twice the number of accepted offers in June than in May (117 percent increase) and July is also ahead of June. And we’re starting to get calls from people who, as they watch their neighbors’ homes get accepted offers, now want to get their homes listed as well.
The biggest question that remains for Fond du Lac right now is simply: What will happen with Mercury Marine?
Our nearest neighbor, the Milwaukee metro market, has already seen improvement in home sales this year. For the last two months in a row, Milwaukee County sold more homes in May and June than they had in the same two months of last year. The surrounding counties saw less decline than they had since the banks started imploding in September.
There is an adage in real estate that the market always heals itself from the bottom up. The lower-priced homes, for first-time home buyers and foreclosures, are selling well now. As these folks sell their homes, they are ready for their move up homes, and these sellers can see their home sold, and so on.
Home prices are holding
Yes, but those who have homes over $300,000 to sell have taken a hit.
Depending on which report you read, the Fond du Lac real estate market’s home prices have either increased approximately 1 percent or decreased approximately 1 percent since a year ago. Either way, it is safe to say that, contrary to the rest of the country (especially the bellwether states of California, Arizona, Nevada, and Florida), people here have not been losing value in their homes over these tumultuous two years.
In fact, there are several "sweet spots" in the Fond du Lac market. For three-bedroom ranch homes between $100,000 and $140,000, prices have actually increased for many sellers. The other price ranges that have done well so far in 2009 are: $140,000 to $160,000, under $50,000, and homes between $200,000 and $250,000.
For homes valued at more than $300,000, this has been a tough price range to sell so far this year. In the entire county, Fond du Lac has seen only seven homes sell for more than $300,000, and only one of those sold for more than $400,000.
Except for two of those homes, the sale price was 76 percent to 85.8 percent of the original list price. Ouch! These sellers probably had to take the loss because of the need to sell. But on the whole, home prices are holding up well in Fond du Lac County.
It’s still a buyers’ market
Yes, but this window will most likely close by the end of the year.
It has been a buyers’ market for the last two years. A buyers’ market is measured by many things, but one of the most reliable methods is called the absorption rate. This compares the pace of home sales to the amount of inventory currently for sale.
In Fond du Lac County, our last sellers’ market was in 2005, when we had only 7.7 months of inventory for sale at that sales rate. We moved into a balanced market in 2006 (around 10 months supply), but by the later half of 2007, we moved into a buyers’ market.
Every market shift has a beginning and an end. Why do I say that the buyers’ market window is closing? Consider these facts:
Between October 2008 and March 2009 we had 18 to 23 months of inventory for sale. But by the end of June, it had dropped to 11.7 months. We’re getting close to a balanced market.
The list to sale ratio is improving. My last five homes I had listed, I negotiated an average sold price of 97.5 percent to the list price. The closer to full price, the more the seller is in control.
Foreclosure rates are down. That means fewer homes are being dumped on the market. Good homes are being listed and the buyers are starting to increase their urgency to get those homes.
Couple this with a gradual increase in interest rates, as well as an $8,000 tax credit for first-time home buyers, and it’s apparent many buyers are starting to feel confident enough about the economy and their jobs, and are ready to jump back into the real estate market again.
A seller could wait until next semester’s report card, but then it might be too late.