Marblehead 2012 housing review and 2013 outlook

People often ask: how’s the market? Well, there rarely is one “market”. The answer can vary by price (the under $500,000 market may be active while another price range is less so) and location (quiet wooded cul-de-sac versus busy main road).

This review of 2012 SFHs will follow my usual pattern of breaking down 2012 sales by price range, as well as looking forward to 2013.

And as so often, detailed analysis of the data reveals some surprising conclusions. Let’s get started.

First, sales:MHD_Sales_Mov_Av_2001_12

As previously reported, sales in 2012 reached their highest level since the boom year of 2004.

Next, median prices:

MHD_SFH_Median_2003_12

This chart shows quarterly numbers. It shows how the median price for all sales dropped sharply in Q4 2011 and Q1 2012 before recovering. This is the phenomenon I have explained in previous posts showing the shift in the percentage of sales taking place at lower prices.

I will show why this does not indicate a drop in prices, but a statistical fact that when more sales occur at a lower price range – in this case under $500,000 – the median price (that above and below which an equal number of sales occurs) will also drop.

First, a table showing median prices for the last 4 years in more detail:

Single Family median prices Marblehead 2009_12

Single Family median prices Marblehead 2009_12

 

Now, a break down of sales, focusing on those under $500,000:

Single Family Sales under $500k

Single Family Sales under $500k

 

This shows the shift to more sales at lower prices in Q4 2011 and Q1 2012 which had the effect of lowering the median price for the market overall in those quarters. Since Q1 2012, more sales have taken place above $500,000 and consequently the median price has increased.

In a  previous article Big Papi Strikes Again I explained that this represented a clearing out of the market at lower prices as investors and first-time buyers competed for properties.

Assessed Value to Sales Ratio (ASR)

Another way to look at sales data is to compare assessed values (AV) to sales. The assessment process was the subject of an article on January 5th Twenty Questions with Town Assessor.  When a house sells for less than AV, the ASR is above 100%. When it sells for more than AV, the ASR is below 100%.

In recent years, the ASR has been above 100% for houses below $500,000 and below 100% for houses above $500,000.

Let’s look at 2012.

MHD_SFH_ASR_Q_2012

Now I know there are a lot of numbers here, but they do tell a story. Look at the first row, the under $500,000 market. We have seen that there were increased sales in this range in late 2011 and early 2012 and my hypothesis was that this reflected a clearing of the market. If so, one would expect a gradual improvement in this segment during 2012.

Wow, it was more than gradual, dropping from 108.5% in Q1 down to 93.0% in Q4. For the year it was 101.1% , an improvement of 6.7% from 2011. The numbers clearly suggest that pricing in this segment improved as the year went on.

Overall for the year the ASR in other price ranges was pretty much in line with 2011, with houses over $500,000 continuing to sell at a premium to AV. The most significant event was undoubtedly the change in the under $500,000 market.

Outlook for 2013

As year end numbers were reported this week, I shall publish a report this weekend on the national housing market in 2012, but clearly 2012 was the year when the market nationally turned up. More importantly, perhaps, it also marked the turn in sentiment, with the view becoming widespread that the market has bottomed and is improving, in some cases sharply. (A recent article chronicled that in some parts of the country buyers in competitive situations were writing “pick me” letters once more to sellers).

There is a further, growing view that mortgage rates have bottomed and may rise this year as the economy improves. Read my January 12th article Mortgage rates to rise on this subject.

With buyers emerging and a concern that interest rates may rise, there is a growing urgency amongst buyers. But there is a problem: a shortage of inventory. My year end review of the inventory on both SFHs and condos in all 17 North Shore cities and towns revealed that there was just 3.1 months’ supply of SFHs and 3.9 months of condos. In Marblehead those numbers were 3.9 and 5.1 months respectively.

I pointed out that these numbers exaggerate the supply shortage as we are at a time – winter – when inventory and sales are typically light, but they are consistent with numbers around the country which show inventory at very low levels.

In the last couple of weeks, two Harborside open houses attracted 18 and 32 groups respectively. Buyers are out there!

My 2011 year end review  “Market Returning to Normal” suggested a market on the mend.

That process continued in 2012, and the outlook for 2013 is positive.

I’ll end with one thought. The pouring of cash into the economy by the Federal Reserve over the last couple of years has contributed to a boom in some commodity prices, while many commentators have expressed concern that the huge amount of cash in the system will lead to inflation when economic growth returns.

One major asset class that benefits from inflation is real estate. Prices generally are just coming off their lows (the stock market has more than doubled since its lows), interest rates are still close to record lows, demand is increasing while supply is limited.

If there is a surprise in 2013, my guess is that it will be on the upside.

 

 

 

 

 

 

 

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