2013 starts with very low housing inventory

After a stronger sales year in 2012 on the North Shore – sales were up 18% for SFHs and 23% for condos -2013 starts with very low levels of inventory, echoing a trend being seen across the country.

Nationally, the latest figures for November show supply at 4.5 months of average sales.

Locally, the market appears even tighter, with just 3 months of supply of SFHs and 3.7 months for condos at the beginning of the year.

These numbers probably overstate the shortage of supply, because our market does not have equal sales throughout the year. We have this thing called winter, which has two effects. First, sellers often either take their houses off the market in the winter, or delay listing until the spring. And, of course, two feet of snow and temperatures far below freezing do tend to keep buyers indoors around the hearth.

Thus, in general, sales in the first quarter tend to be the slowest of the year. Over the last 12 years in Marblehead, for example, sales of SFHs in the first quarter have ranged from 11% to 21% of the year’s total, with an average of 17%. Sales in the second and third quarters have averaged 61% of the total, with the fourth quarter weighing in with 23%.

Could 2013 be different? I think it could for a number of reasons.

First, look at the background to the end of 2012:
The 2012 Elections featured two parties with widely opposite views and caused a slowdown, at least in some parts of the country, in the pace of housing sales
Fiscal cliff worries right up to the last moment – and beyond
Spectre of huge tax increases

But wait a minute: what is that sound we hear? Why, it’s the Energizer Bunny that is the American economy and American entrepreneurism that Congress just doesn’t seem to be able to hold up for too long. And held up it has been for the last few years.

What is the outlook for 2013?
Home buyers have known for some years that mortgages would keep getting cheaper, but there are increasing signs that interest rates may have bottomed or be close enough to make little difference. I read recently that a $1,750 mortgage payment in December 2011 would have been sufficient to buy a home costing $460,000. A year later that same payment would have purchased a $495,000 home, an increase of more than 7%. If rates go up the numbers work the other way.

The housing sector, after being a drag on the economy for several years, is becoming a factor in growth again. And since for the vast majority of us our home represents our biggest single asset by far, we feel better – and are more likely to spend money – when we believe our home’s value is increasing.

Clearly, there was a momentum shift in the housing market in 2012. As importantly, the conventional wisdom changed to one where many more people believe that the housing market in general has bottomed and that this is a good time to buy.

If Congress manages to come up with at least some gesture to rein in out of control spending (ok that’s a big If), then the laws of demand (high) and supply (low) may come into play.

More and more it is looking like we are close to being in a normal housing market, meaning neither boom nor slump.

And then there’s the weather. We all know that after last year’s mild winter we are due for payback this year. But, apart from a couple of cold days last week, the winter has been quite mild so far and the outlook for January is also for mild weather. In fact, a couple of days this week look great for golf. And for buying houses.

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