January home sales down but prices improved

Flagler’s home sales mix is shifting. There are more cash sales, fewer lender-owned and short sales and fewer realistically priced homes.

Palm Coast, FL – February 18, 2013 – There are many ways to look at real estate statistics. A journalist has a certain measure of flexibility, both in the choice of statistics to report and in methods used in their analysis. Take this article’s heading. I could have said simply, "January home sales down." Actually, 109 single-family Flagler County homes were reported sold (closed) through the Flagler Multiple Listing Service in January, down 11.4% from January 2012. That marks the first month since April 2011 where year-over-year sales dipped. I could leave it at that and many Realtors and homeowners would have a sleepless night or two. But I would be shading the truth.

We are transitioning from a buyers’ market to a sellers’ market. That transition will be marked by muddled statistics. While the number of homes sold was down, the total value of this January’s home sales rose 7.3%. That’s because home prices rose significantly from a year ago. The median selling price (half sold above, half below) in January 2012 was $106,000, joining September 2011 in a tie for the lowest median price since the housing bubble burst. January 2013’s median was $142,000, highest since November 2009.

We would all like to attribute this uptick to a rise in property values, but other factors contribute too. Product mix is clearly in play. Sales of distressed properties (foreclosed or short sales) skew the median. January displayed a dramatic shift in the product mix. Distressed properties comprised only 42.2% of all home sales last month compared to 57.7% one year ago. Both short sale and lender-owned sale percentages were lower. That trend is continuing through the first half of February.

The market also reacts to buyers’ and sellers’ perception of supply and demand. Over the last year, inventory is down 14%. Last year’s abundant supply of distressed inventory has thinned out and buyers have begun to take note that their bargaining position has been eroded. This fact is measurable. One year ago, homes sold at a 5.3% average discount from the listing price. This January’s discount was only 3.1%.

Sellers have noticed too. One Tidelands condominium listed for $245,000 was under a short sale contract. When the contract failed to complete months later, the unit was relisted for $265,000.

Cash buyers are increasingly active and competitive. January 2013 cash sales accounted for 57.8% of home sales (up 12.9%). More important is the competition among cash buyers. Last January’s cash home buyer paid an average of 5.3% below the listing price. This January’s cash buyer was able to negotiate only a 0.3% discount from the listing price.

There were 87 Flagler County foreclosure filings in January, compared to 134 one year ago. Foreclosure sales were down from 94 to 45. Thus, fewer distressed properties will be entering the market. Those that do will likely be sold more quickly. That’s because more investors with cash are discovering the profit opportunities of purchase to rent or purchase to rehabilitate for resale.

January showed a marked increase in the number of cash transactions. February to date, the percentage of cash transactions (66.1%) looks like it will exceed that of January.

New construction is picking up as are the number of builders active in housing starts. Spec homes are appearing among the new mix, signaling increased builder confidence. Spec homes are popping up again. Interestingly, most of the recently permitted new homes are in the county rather than in Palm Coast. I wonder how much of this trend is due to the fact that Flagler County moved to reduce impact fees to spur new construction while the city did not.

The fact that there were 17 more building permits issued for construction of single-family homes in Flagler County and Palm Coast might be more than a coincidence. Apparently some buyers are opting for new construction.

Clearly, the number of distressed properties offered for sale has dropped. Through 2011 and 2012, distressed homes accounted for 50.5% of all home sales. Yet distressed homes represent only 14.4% of the current inventory of Flagler homes for sale. When the inventory component most in demand becomes short in supply, sales are bound to dip.

64 of the 873 homes listed for sale are short sales, representing only 1.6 months of supply based on the last two years sales history. They are priced higher. Today’s median short sale listing price is $146,950 while the median short sale selling price has been only $106,000 over the past two years. These homes are larger than prior sold short sales too; by nearly 300 square feet.

The shift towards optimism could account for the return of discretionary sellers; those who want to sell but are not compelled financially to do so. Under less time pressure than short sellers, discretionary sellers are more likely to test the market with unrealistically higher prices.

The 32 homes listed for more than $1,000,000 represent eight year’s supply in that price category. The 43 homes listed between $500,000 and $1,000,000 comprise more than 29 month’s supply. I suspect that FSBOs (For Sale By Optimist) are masking a tight inventory of realistically priced homes.