Market Indecision

by 14 May 2012

Sales Volumes Are Down.  Results Are Mixed.  Forecasts Are Up.  Are You Confused Yet?

Lawrence Yun, NAR Chief Economist

Real Estate has functioned like the weather - this year has been unpredictable and difficult to get your arms around.  March 20th was the first day of spring after a winter that really felt like spring all the way through.  2012 was the fifth warmest year on record, and in the United States, the weather pattern we’ve experienced this Winter/Spring resembles weather systems that generally occur in early summer (May or June).  More than 2000 high weather temperatures were hit in the month of March, making places like Minnesota as warm or warmer than winter retreats in Florida. This makes organizations such as Minnesotans For Global Warming  ( happy as they are sick of the cold.  Other than affecting the second-home market by snow birds, I’d say it was a good winter and spring. 

The real estate market was equally a paradox.  February showed a decline in existing home sales figures after a gain in January, but 8.8 percent above sales volume levels posted in 2011 (yes, that was as confusing to write as it was to read, I am sure).  Lawrence Yun, NAR chief economist, said underlying factors are much better compared to one year ago. "The market is trending up unevenly, with record-high consumer buying power and sustained job gains giving buyers the confidence they need to get into the market," he said. "Although relatively unusual, there will be rising demand for both rental space and homeownership this year. The great suppression in household formation during the past four years was unsustainable, and a pent-up demand could burst forth from the improving economy."

Regionally, the results were mixed.  Declines were realized in the Northeast and the West Coast. The Northeast dropped 3.3% with median prices declining 1.9 percent from a year ago, at around $225,000.  The West posted a 3.2 percent monthly decline but is up 6.1 percent as compared to a year ago, with median prices improving by 3.1 percent; once again, very confusing.  The Midwest and South were both up, rising 1 and 0.6 percent respectively with the media price down to $120,000, the lowest in the nation.  The South was the only ‘up’ condition with the median price of a home up 1.8 percent in the first quarter of this year. 

So are we in decline, are we recovering, should we be optimistic or should we brace ourselves for a difficult 12-16 months?  Well, the answer, once again, is ‘mixed’.  The housing market, like our economy, is clearly in recovery, but as one economist coined it, it is like walking ankle deep through a mud bog; you don’t get any deeper but you still find your feet muddy.  The market is bogged down by existing shadow inventory but these numbers are visibly in decline also; it is a market hangover that is progressively getting better, but our collective head still pounds.  In May’s issue, we will dive more deeply into regional dynamics where 12 different markets (cities/suburbs) will be reviewed in detail; however it is worth noting here a few sales strategies in light of the market dynamics.

Written extensively in this publication is the opportunity that exists with seniors and young adults – aging baby boomers (born 1946-1964) and their echo-boomer children (born after 1981 – 1991).  The echo boomers, otherwise known as the Facebook generation, make up approximately 80 million people while the baby boomers make up slightly less at just under 80 million people.  From advertising, marketing, direct mail, logo design, office appeal and overall sales training, I think if real estate agencies aren’t specifically targeting these two demographics, they are missing a big opportunity.  I suggest even how sales agents dress, speak about the market and also identify the main marketing mediums in which the respective generations learn about real estate, all make a significant difference to gaining that one extra listing.  The Northeast and Midwest are likely to see a large number of older homeowners sell their homes to younger homeowners (within their family).  This generation will purchase 75-80% of the available inventory of owner-occupied housing by 2020. This is a staggering figure.

Why Should Realtors Love Rental Markets? 

Connected to this is the unpredictability of the stock markets as they are connected to the retirement of individuals.  It is much easier in most markets to purchase several properties and sell them at key points in one’s life in order to live off this extra income.  Since the rental markets are on the rise and a percentage of Americans are struggling to qualify for a mortgage, discussing investment options for younger baby boomers to purchase several homes and to rent them for both short-term income and long-term investment options is a good option in this economy.   The market will be more ‘mixed’ between purchasers and renters; however, there are opportunities to place some, and to cultivate relationships with the renters today, buyers tomorrow. 

Builders are also taking notice of these trends, building homes that are smaller and focusing on home health care (baby boomers) and more eco-friendly, community-based designs for the echo boomers.  "Don't expect this to be a broad-based, rocket-ship recovery," said KB Homes Chief Executive Officer Jeff Mezger on an earnings call. "The overall housing market is better, but this is definitely a localized recovery ... and in some cases, it's a zip-code-by-zip-code recovery."  New home sales held above 300,000 units for the sixth straight month; however, this is over 70 percent lower than the peak in July, 2005.  New home sales in 2012 are anticipated to post the first annual increase in seven years, according to Wells Fargo economist, Sam Bullard.   New home sales surged in the Northeast and West Coast but slumped in the South and Midwest.  The growth in sales of new homes is stifled by the excess inventory due to the foreclosure factors and simply inventory that was built but never sold. 

Buying Recovery

It is worth noting that that rates have bottomed out, and eventually home buyers will rush to purchase a home in the next 24 months to take advantage of these low interest rates that are destined to increase.  This will help the primary and secondary home markets, and will motivate renters who are presently saving their money to move from renting to buying a home around April through July of 2013.  The number economists look for is 6 million; 4.59 million homes were sold in February, down from January’s number of 4.63 million, which was the highest since May 2010.  Six million reflects a number that equates with healthier markets.  

It is worth noting, in hard-hit ‘rust belt’ states like Ohio, existing home sales rose 1.2 percent and were up 27.3 percent from the year before.  This is a reflection that the economy is improving slightly, but the confidence of buyers is improving as well.  Condominium sales in the 15 counties that make up northern Ohio jumped 43.2 percent. Economic trends tend to roll from West to East, and these are strong signs for first-time home buyers, which are critical to the housing recovery – in a healthy market this should be around 40 percent of all home sales which in recent months have hovered around 32 percent.   These are improving signs, and over the next 12 months, these numbers are expected to improve. 

In May, we will review in great detail, 12 geographical areas and their real estate markets.  The focus will be on successful tactics by specific agents in each market and how our readers can build their business around them.     

Rick Roque

Any questions or feedback on this article, email Rick Roque, Managing Editor of The NicheReport Real Estate Edition, at or call him at 408.914.5895.



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