“For over 10 years, the author has compiled statistics on the real estate market in the Washington, D.C. area in order to keep clients abreast of the local market so that they can make informed buying and selling decisions.  The October issue appears below.  The information presented might not be the same for your local market, but the concerns expressed are universal.  It is hoped the sharing this will promote your independent investigation of local market conditions. 

The Local Market Bulletin – October 2001 – Re-Sale Homes

The events of September 11 have had a profound effect on the local real estate market.  Therefore, this issue of the Market Bulletin will not discuss seasonal trends in the market, which are well documented and are expected to continue as always.  We will also not discuss September statistics relative to August or relative to a year earlier.  This issue will discuss our local real estate market before and after September 11.

Statistical note: The data analyzed is for 17 days before and 17 days after the event.  September 11, the Labor Day holiday, and the last few days of September (for which results are not yet available) have been excluded from the data as aberrations.  Also, before and after data sets each include the same number of each day of the week (i.e. 3 Thursdays before, and 3 Thursdays after September 11) so that weekly periodicity does not distort the assessment.

Review of the data indicates that sales are down 22% at a time of the year when they normally would decline by about 4%.  To put this figure into perspective, the sales decrease that led to the 1990 cooling of the local market was in the range of 25 to 30%.  Inventory, the number of homes for sale, has increased 23% at a time when it normally would have decreased by 10%.  The unexpected inventory growth is certainly due in part to the sales decrease, but could possibly be the result of an increased number of homes coming onto the market.

Although it is easy to calculate before and after statistics, 17 days does not establish a trend.  There is insufficient data to even try to guess whether the effects of September 11 on the market are worsening and will send us back to the buyers’ market of the mid-1990’s, or whether the shock-effects have already started to fade as real estate gets back to a new “normal.”  Even after September 11, the area MARKET INDEX* is still in hot sellers’ market territory at 1.7 months supply, compared to the 1.2 months supply which was originally anticipated.  So, a strong sellers’ market continues for the present.

While the chilling effects on our market were to be expected, the important question for home buyers and sellers is where the trend will stabilize.  It is expected that this will become clear in a month or so.  As you read or hear market comments, ask yourself whether or not they include statistics that pertain to our local resale market.  There will surely be some anecdotal accounts of specific (and very likely extreme, isolated, and newsworthy) instances, and of the feelings of those who are unconstrained by numbers.

Lower mortgage interest rates are not expected to exert a measurable influence on sales in the near term.  As always, and especially during this time of change, buyers and sellers need the very best local market information.” 

Note: For more information on market statistics, see the author’s article in the April 2000 issue of REALTOR Magazine.

Pertinent sections of the previously published “KNOWING YOUR MARKET” segment are reprinted below.

You will want to keep track of conditions in your local market in order to keep your sellers abreast.  Our business is seasonal, with supply (the number of homes on the market) and demand (the number of buyers buying) increasing and decreasing in some periodic manner each year.  Market information might be available through your local Association or in the news media.  But as we shall see, just because information is published does not automatically mean that it is accurate or meaningful.  You might want to collect the information independently at the source.  Wherever you get it, be sure to get it.  To further your understanding and carve out a niche as a market expert, you might investigate how the information is compiled.  Supply, inventory, or number of homes on the market indicates how much competition your seller will face.  You will find it at its maximum in the late spring or early summer, but do not assume this is true, check it.  Get the facts.

Demand, the number of buyers, can be a bit more elusive.  Many local Associations report closings instead of contracts entered or pending.  By the time the tally is assembled and reported, the information easily can be two to four months old.  Knowing what happened four months ago is not timely enough for either you or your sellers.  At least find out what is being reported so you can avoid drawing untimely and misleading conclusions.  The best measure of buying activity is buyer commitments, contracts entered.  Even when this data is readily available it is sometimes not reported.  Be alert that it is widely assumed that buying peaks in the summer.  This assumption can be out of whack by up to four months.  Even though the "kids are out of school" argument makes sense, it is frequently just plain wrong.  So check it out.  It is critical for your sellers to know whether most buyers are buying in March or in July.

The supply of homes can be combined with the demand for homes into a number that is an important measure of whether there is a "buyers' market" or a "sellers' market."  This market indicator, called the months supply of homes, is calculated by dividing the number of homes on the market at some point during a month, by the number of homes sold in the same month.  A number greater than 6.0 indicates that buyers have the upper hand.  A number lower than 4.0 favors sellers.  A number less than 2.0 is indicative of a "hot" market.

A graphical example of the concept is shown below.  Your home sellers who have a choice will plan their sale so that they are negotiating with their buyers early in the year when months supply is lowest.  Recognize that the market index depends upon an accurate figure for homes sold.  As this is not always available, you might have to generate the data for yourself.

Although you can probably track variations in supply and demand through your local MLS database, a variation in average sold prices is much more elusive.  If you see published data that constantly fluctuates and seems to make no sense, it is very likely inaccurate.  Often the most reliable data on changes in average prices are the regional figures available from our National Association of Realtors.  Do not try to generate this information on your own unless you are a card-carrying statistician.