Another Real Estate Bubble Ahead?Posted by Marc Rasmussen on Wednesday, November 28th, 2012 at 3:00pm.
I was at a Realtor social last night. This is where people in the industry get together once a month to mingle, network, let off some steam and tell stories about working in the real estate trenches. An interesting topic of conversation was the similarities between our current market and the one we experienced from 2003 to 2005. You remember. The one where everyone became a real estate expert overnight. Where you couldn't get hurt because prices rarely if ever go down. This was the bubble market that nearly caused a financial meltdown in 2008.
Realtors are comparing the two markets because they feel the same. Inventories are down, sales are up. Buyers are having a hard time finding a property and when the do they might have to compete for it. Home builders are buying land and cranking out houses. The "WE BUY HOMES" signs are popping up on many street corners. I am starting to receive "We would like to buy your home" letters in the mail. So, I thought it might be interesting to compare the two markets.
2003-2005 Sarasota Real Estate
Here is the craziness from 2003 to 2005. Sales were huge while inventories were low. Lines of buyers would form outside of new construction projects to get a piece of the action. You can find the raw sales numbers below. All of this data is pulled from the MyFloridaMLS system.
|Months of Inventory (Closed Sales)||5.1||6.5||6.1||3.4||3.4||3.8||3.3||3.6||4||5.6|
|Months of Inventory (Pended Sales)||5.5||5.8||4.7||3.4||3.6||4.5||3.6||3.5||4.4||5.6|
|Absorption Rate (Closed Sales) %||19.5||15.4||16.4||29.5||29.4||26.6||30.7||27.9||25.2||17.9|
|Absorption Rate (Pended Sales) %||18.1||17.3||21.4||29.3||28.1||22.4||27.8||28.9||22.7||17.8|
|Avg. Active Price||672||690||745||840||907||940||1006||976||921||847|
|Avg. Sold Price||299||299||339||396||340||370||378||460||480||488|
|Avg. Sq. Ft. Price||176||174||202||226||196||212||218||261||273||283|
|Sold/List Diff. %||95||94||96||95||96||96||97||97||96||96|
|Sold/Orig LP Diff. %||93||93||94||93||95||94||96||96||95||96|
|Days on Market||82||92||85||83||69||75||65||60||61||63|
During this time period inventories were as low as 2,879 in December 2004 and the highest was 4,704 in August of 2005 and ultimately to over 13,000 in 2007.
Fast Forward to 2011-2012
The chart above represents our real estate data for the last 2 years. Inventories have dropped substantially from around 7,000 to October numbers of 3,771. Below are the raw numbers for October 2011 to October 2012. Even though inventories are lower at 3,771 they are still 892 properties higher than the low period of December 2004. The number of pending and sold properties between the two time periods seems to be pretty similar.
|Months of Inventory (Closed Sales)||12||10.5||6.5||7.2||7.2||7.9||4.1||4.8||4.8|
|Months of Inventory (Pended Sales)||9.1||6.9||6||7||6.1||4.8||4||4.4||3.4|
|Absorption Rate (Closed Sales) %||8.4||9.6||15.5||14||13.9||12.7||24.5||21||20.9|
|Absorption Rate (Pended Sales) %||11||14.5||16.6||14.4||16.4||20.7||24.9||22.8||29.2|
|Avg. Active Price||472||481||509||504||502||527||572||556||561|
|Avg. Sold Price||205||209||251||258||224||216||263||246||264|
|Avg. Sq. Ft. Price||123||126||148||147||133||135||158||142||152|
|Sold/List Diff. %||91||92||90||89||91||93||91||93||92|
|Sold/Orig LP Diff. %||81||80||83||77||82||86||87||87||87|
|Days on Market||104||121||121||122||121||106||112||98||91|
Interesting observation - Notice the average sold price at the beginning of the bull market in 2003. It was $299,000 and it eventually went to $488,000 in August of 2005. In October of 2012 the average sold price is $264,000.
Probably not. Even though we have a low inventory today and the buyers are motivated I don't think we will see a real estate bubble. One glaring difference between the two markets are the buyers and how they are paying for the properties. Many of today's buyers are paying cash and/or put 20% or more down when they purchase. This makes for a much more stable market. In 2003 to 2005 banks were extremely aggressive in lending money and anyone that could fog a mirror could borrow money. Waiters making $30,000 a year were using liar loans to borrow $500,000 to buy homes. It is pretty easy for a buyer to walk away from a home when they put little to nothing down. However, a buyer might have second thoughts if they put 25% down.
Personally, I'm not worried about repeating the bubble mess of 2003-2005 anytime soon.