In real estate it is a good time to take stock of the past 3 quarters and sneak a peek into what the next year might bring. Looking back, 2013 has been a spectacular year for residential real estate. Buyers enjoyed depressed prices and low mortgage interest rates, while traditional sellers came back to the market as prices increased and days on market decreased. In general, there was a confidence in the market that I had not sensed in years. In other words, the residential real estate market recovered. This recovery is not complete, but we are much further along the recovery path than almost anyone anticipated a year ago.
This month I will compare year to date stats (’12 vs. ’13), as opposed to comparing last October to this October. The housing recovery began in the Twin Cities at the end of 2011 and beginning of 2012, so I think the comparison to 2012 year to date is a meaningful comparison. By all measures, 2013 was a better year than 2012 for residential real estate. Here are a few key metrics:
- New listings increased 11.2% – This indicates the increased confidence sellers have. In addition, the major gains in listings came from traditional sellers, as opposed to distressed properties. That makes this stat even more compelling and verifies sellers have become more confident.
- Pending and closed sales increased (9% & 10.6% respectively) – Sales were up, that’s pretty straight forward. Again, the major gains came from traditional sales as opposed to distressed properties. Another sign we are recovering rapidly.
- Days on Market until Sale decreased 29.4% – We experienced a rebirth of multiple offers, homes selling and homes selling within hours of list. This was a welcome development for sellers and maddening for most buyers. Once again, this was affected by the type of listing. Short sales are typically on the market for a much longer amount of time, when short sales decreased the days on market did as well.
- Median Sales Price increased 15% – This is the most relevant stat for home buyers, sellers and the media. Currently the median sales price is $192,000. Typically, a 15% increase is not healthy for a market because it is not sustainable (see 2002-2006). However, we are still in a recovering market and a lot of this increase has to do with increased share of traditional sales.
Looking forward: I had the opportunity to see Lawrence Yun, Chief Economist for the National Association of REALTORS speak last week. The way he sees it, and I agree, is that 2014 will be a lot like 2013 for residential real estate.
It is almost guaranteed that we will once again start the year with low listing inventory. Currently there is 3.5 month’s supply of homes on the market; this number should continue to decrease until the market is rejuvenated by new listing in the “spring market”. I don’t expect an influx of new listings until after the Super Bowl and there are still many buyers looking for the right home. That means we will see a steady decrease in supply for the next 3-4 months. This low supply and high demand will drive prices higher.
Interest rates will increase. This is no-brainer, they can’t get lower and all indications from the Federal Reserve are that the rates will rise modestly depending upon the recovery of the broader US economy and employment. That said, the rates should remain favorable to buyers.
Keep an eye on Washington. One thing that could throw the market out of whack is a damaging move by the powers in Washington, mainly to do with banking regulations and Fannie Mae/Freddie Mac. These institutions grease the wheel for real estate lending which has been vital to the housing recovery. If tighter regulations are imposed (some have been proposed), we could see a dramatic slowdown. That being said, all economists agree that the US housing market is crucial to the US economic recovery and that is something that shouldn’t be messed with. Because of this, it is doubtful that they will mess with something that is currently working. But as we have recently learned, Washington is neither logical nor predictable.