Median Prices

2012 Year End Report

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We released our 2012 Year End Report today, and it is a very different report from the past. The format will look familiar but the content seems almost opposite from the past.

Since 2009 when we first formed Nest and started putting out the region’s most complete and authoritative study of the market, we have looked at the Charlottesville area market with cautious optimism at best, and in many cases very clear concern for our future pricing. For the first time, we are very comfortable stating that all of our indicators are positive. Across almost every product type in almost every geographic part of our area, we are seeing growth: Growth in sales, Growth in Median Prices, Drops in Inventory, Drops in Days on Market. You name it, things look good.

We have said since 2009 that we wouldn’t feel comfortable until was saw 18 months of growth. Well, guess what? For 6 straight quarters, we have seen year-over-year growth in sales numbers.

SalesByQtr

 

This graph shows the total number of sales in Charlottesville City and Albemarle County going back to 2002. But the graph is for a full trailing 12 months, not individual quarters. It allows us to see the sales patterns while removing the seasonality of quarter-to-quarter changes. When you look at it on a visual basis, the trend becomes incredibly obvious. Here’s to a great 2013. Follow the link above and check out our whole report.

Decade of New Construction

Better to Buy or Build?

This question comes about in almost every new client conversation I have. There are those diehards that refuse to live in a new house, and there are those who want a maintenance free home from the start. (no such thing by the way – but new homes are certainly less). Personal tastes aside, there is always a financial question regarding which is better. It is the goal of every seller, whether builder or homeowner, to maximize their price at the sale of a home. There may be some other factors on the table regarding timing, but it all comes down to the final net price to seller. Always.

So, prices tend to go up and down in tandem for resale and new construction. Sometimes, one lags the other, but in general, when prices are rising, they are going up for both types of sellers. For that reason, the percentage of sales that are new construction tend to be pretty flat in good times and bad. I’m not saying that new homes keep selling, I’m saying that as a percentage of total sales, they remain fairly constant.

When we look at the last decade, this is certainly what we see. From 2003 to 2011, the percentage of total sales that were new construction (Albemarle and Charlottesville only) remained between 16.7% and 18.0%, and in 7 of those years, it was even tighter, between 16.6% and 17.1%. Not a lot of variance.

But in 2012, we saw a major shift. In Oct of 2011, builders began getting advance warning from their suppliers that prices were going up. Drywall, lumber, you name it… Prices went up. And we’re not talking 2% here. In 2012, prices on drywall went up roughly 30%. And in January of this year, prices went up another 20%+. 2012 saw lumber prices up 44%. And that drives new home prices up. Nationally, the average new home contains roughly 45% of it’s cost in materials. And when they go up as significantly as they have, there is little way to protect the profit without ratcheting prices up.

But good news may be on the horizon. Lumber commodity future point to as much as a 25% decline in prices from mills as China demand decreases and output from Canada increases.

So, here is the interesting thing. 2012, saw the first major drop in new construction. Builders may not have even noticed. The actual number of new homes sold in 2012 (266) was the highest in any year since 2007 (376 – so we are still a long way off the bubble path). But while there was a 4.7% increase in new construction sales in Charlottesville and Albemarle, that paled in comparison to the 15.7% increase in total sales. End result is that the percentage of homes sold in Charlottesville and Albemarle that were new construction went from 16.7% to 15.1%. (Explanation of the Graph: Blue and Green columns represent the total number of homes sold and total number of new construction homes each year. The yellow line is the ratio of new construction to total market.)

NewConstructionWhat brings this back? Two things are possible, likely a combination of the two will play out.

The first is that material prices come back down. As the lumber news points, there should be some relief from manufacturers as output increases. This won’t bring it back to par, but it will allow some relaxing of prices.

The second option is that resale homes will see a price increase. (It has been many years since I said that and it feels pretty good.) As long as resale prices remain depressed, the builder market will have a tough time competing. My bet is that 2013 sees better numbers than 2012 for new construction, but not back to the 2011 16.7%.

Quick Look Back

New Year, New Plan…

I have found over the last year since I studied and wrote consistently that I have really missed it. I have missed the conversation. I have missed the structure. But I have genuinely missed just digging into data. I am going to do my best to get back to a schedule that is doable and valuable. While I have continued to stay on top of numbers, probably not as much as I should have, and certainly not as much as I used to. Time to get back to that.

Looking at 2012 is a tough thing to do at this date. While all the closings that will happen in 2012 have indeed happened. It is not true that all those closings have been entered into our MLS and thus the data is not right. But, what we do know is that all the data is too conservative. Very little probability that closings will disappear. Very high probability that two weeks from now a good number of new deals will be in the MLS changing our data and making the year look even better. So where are we right now?

City2012

To the left are some brief numbers on the Charlottesville City market. Sheer number of closings are up 23.4% from year prior and 31.6% from two years ago. Total volume is up an even more impressive 26.8% from year prior. And shockingly, the median price, which fell $15,000 from 2010 to 2011, rose $5,000 to $235,000 in 2012. Still down fairly significantly from the 2007 peak of $280,000 in 2007, this is showing a positive trend that we did not expect to see until we had a more sustained recovery.

County 2012

For Albemarle County, numbers are similar, although not quick quite as significant. Closings are up 12.6% from year prior and 16.4% from two years prior. The median prices in 2012 exceeded both 2010 and 2011, by reaching $292,000. For the county, this is the highest median price since 2008, when the number was $320,000, and takes us back to a pre-bubble median price from 2005 when the median price reached $289,000.

Median PricesKeep in mind that for all these prices and sales figures, while we are showing extrememly positive trends (escpecially in the City), these numbers are to date, incomplete. We anticipate a good number of transactions to be reflected by the MLS in the next two weeks that are still not showing today. We will update them in the near future as they are recorded. In the last 48 hours, we have had 9 closings updated in the MLS going back as far as Dec. 14. It will be likely 10 more days until we have accurate 2012 total data.

The City By Month

For about two years now, I have been creating reports on various neighborhoods throughout the city and subdivisions in Albemarle County. One of the things I have done is to look at homes by the price per square foot, hoping to minimize as much as possible any bias toward the product mix of homes being sold. Last year, big homes were selling, this year, it is the entry level homes that are selling. (When I can get time on my PC and do a histogram in Excel I will. Apple number crunching bites.) One of the things I haven’t done, until now, is to look at the entire city of Charlottesville as a single unit in the same manner.

At first, when I looked at this graph, I was shocked. I thought for sure the market had moved more than the graph appears to demonstrate. Then I calculated out the percentage shifts and realized that actually the market is about where most people thought. In general, pricing in the City is down. And, as known, the pricing is, at best, erratic and, at times, somewhat irrational. The most obvious part of this graph is a quick look at Days On the Market (DOM). We have known that it was going up, and this sure makes that obvious. I had originally figured that I would need to do two scales, one for DOM, and one for Price per S.F. But alas, the DOM actually exceeded the Price / S.F. at one point.

The graph below is fairly straight forward. I have pulled every detached home that has sold since January 1, 2005 in the city of Charlottesville. I then calculated the Price / S.F. for each home and then pulled the average $/SF and average DOM for every month since January, 2005. The results were then graphed.

City_Monthly.jpg When you look at the green line ($/SF) it looks fairly flat, but in reality, that is just the scale. In fact, I looked at the rise and fall over every three month period during the 05-09 years, and found 5 periods that the price showed over 10% drops during 3 months. There were also nine corresponding positive periods in which the prices rose more than 10% over a three month period. Again, erratic behavior.

But as you look at the line over time, you see the trend downward. From the peak in April, 2006 to current month, we find a price adjustment of roughly 10.5%.

I would have guessed a larger devaluation of the market overall, but if you look back three months to March, 2009 the price was showing values 38% below today’s prices. Obviously, the city has not gone up nearly 40% in three months. Instead, what you are seeing is a light month of transactions where a single deal can dramatically change the average.

So where should this line trend in the next few months? I would be surprised if we see what looks like a positive trend continue much more. I think the city has found a good number of sales in lower priced properties for the entry level buyer. At the time of this writing, there are 85 properties under contract in the City. While this is not similar to 2005, it is a fair number of transactions occurring.

I have addressed this numerous times in other posts, but I continue to shout it, because it matters so much: The big “What If” for the city is the unemployment rate. We are still at the top of the state for our numbers, but the rates are no longer as good as they once were. We are way up. The most recent Bureau of Labor Statistics shows Charlottesville as the healthiest MSA in the state with civilian unemployment rates of 5.5%, but that is a far cry from one year ago when we were at 2.5%. This is going to play a major role at how many homebuyers are in the market. No one buys a home when they are afraid of losing all their income. So, we need to keep an eye on it. The BLS numbers project April to be lower than March, but most analysts are projecting the US rate to rise through the end of 2009.

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