Salem 2013 Condo Review and 2014 Outlook
The condo market in Salem is larger than the SFH market in terms of number of units sold and so I am writing separate report on each segment. Here’s the condo review.
The headlines: sales continued to recover, but the median price was down 7% from 2012 and remains 18% below the peak of 2005. A median price decline, however, can reflect either an overall reduction of prices or a change in the mix of sales. As this report will show, it was a mix change in 2013, and, as another calculation will demonstrate, underlying prices actually increased.
Sales continued their recovery from the low of 2011 but remain well below the levels of 2004/05. When looking at sales numbers on their own I use all sales, including distressed sales – foreclosures and short sales.
Distressed sales have only been a factor since 2008, which is why there were no such sales in 2005. The following table shows that non-distressed sales are still 38% below 2005 levels while even total sales are still down 31%.
Now let’s look at median price. For any calculations involving price I exclude distressed sales (many studies have shown that distressed sales take place at a substantial discount to non-distressed sales but do not, in general, affect non-distressed sale prices).
Here are the quarterly median prices for the last four years:
Apart from the fact that there is no clear trend here, note that Q1 saw the highest for three years in a row, which is counter-intuitive for a seasonal market. Secondly, note that the median price in Q1 and Q2 2013 was sharply down. We’ll examine that more closely in a minute.
Here are the quarterly numbers since 2000. Note that Q1 was the highest quarter in 5 years, with each of the other quarters being the highest for the year 3 times. (The highest quarterly number is in bold.) This suggests a market with less seasonality than one would expect and may be an indication that the condo market in Salem, like Salem itself, attracts young professional people, whose buying decisions may be influenced more by their own position than by the weather.
One of my consistent themes is that the ratio (ASR) of Assessed Value (AV) to Sales Price (SP) can give a good indication of what is happening to underlying prices. If the ASR is above 100% that means that properties are selling for less than their AV. Conversely, properties selling above their AV will have an ASR below 100%.
As we all hope out properties are worth more than the AV we look for an ASR below 100% as a positive sign. Remember that AVs are a lagging indicator: the tax bills that have just been sent out for FY2014 are based on actual sales in 2012. Thus the 2013 sales data, reported in this review, will be the basis for FY2015 assessments.
What this means is that in a period of falling prices the ASR is likely to be rising. The ASR is the AV divided by the SP: if the SP is falling (prices going down), the ASR will rise. And when prices are rising, when the SP is rising, the ASR will fall.
So what we, as homeowners, want is an ASR below 100% and falling. Let’s look at the ASR for Salem condos in recent years:
At first glance 2013 appears to be an anomaly, as both the ASR and the median price fell. This makes me look at the second of the factors I mentioned at the start of this article: the mix of sales. Here is the breakdown for 2012/13 by half years:
First look at H1, the first half of the year. While the ASR dropped from 102.1% to 95.6% so did the median price, quite sharply, from $241,000 to $219,000. Now look at the breakdown by price: 14% of sales in 2013 were under $150,000 compared with just 7% in 2012; and 37% were under $200,000 as against just 26% in 2012. Since the median price is that at which there are an equal number both higher and lower, the fact that more sales took place at lower prices means the median price is lower, but it does not mean that individual sales are taking place at lower prices – just that there are more sales in total at lower prices.
When we look at the second half of the two years, there is grater similarity in the price brackets of sales: 22% under $200,000 in 2012 and 23% in 2013, and the median price is similar in both years.
But note that in both half years, the ASR fell by about 7%, indicating that underlying prices were rising.
Looking into 2013 supply remains tight: there were just 48 condos for sale at the beginning of the year and only 61 now, less than three months of supply.
2014 looks to be a good year for Salem. The Power Plant will finally close in June; a new gas fired plant is proposed, but that will leave plenty of space for development for other uses sch as a cruise ship terminal; the new 715 parking garage at the train station is on schedule to open in October; and residents voted for new blood on the School Committee as Salem continues to work to improve its schools.
All the above leads to the conclusion that the condo market in Salem in 2014 should see modest improvement.
If you are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 781.631.1223 or andrew@HarborsideRealty.com.
Andrew Oliver is a Realtor with Harborside Realty in Marblehead