Fewer homes coming on the market

With home prices around Thurston County continuing to moderate, we are seeing some positive trends that indicate our market is heading for better times. One of the biggest involves the supply of homes. As prices have come down, more buyers have entered the market to absorb the excess supply of homes on the market.
That is good news because one of the big forces driving home prices is the number of listed homes competing for a buyer. When there are too many homes on the market, prices come down. When there are not enough homes for sale, prices jump up more than during a balanced market.

As we have previously commented, Thurston County home prices have come back to levels that have more buyers jumping back into the market (See our 1/12/09 and 1/18/09 postings on price). In January, home sales increased nearly 5% from a year earlier. This is the first year over year gain in sales since December 2006 bested December 2005.In 2005, near the height of our seller's market, we averaged about 900 homes actively for sale at any given time. Prices escalated 21% that year. That rapid price escalation priced many buyers out of the market. At the same time, construction activity continued at its same pace. The combination of those factors meant supply built up. Throughout much of 2008, a year that saw a 23% drop in sales, there were over 2,000 homes on the market. With supply outpacing demand, it was not surprising to see prices drop 5% last year.
And while we don't expect to see prices appreciation jumping back to the unprecedented levels seen from 2003-2006, we see some positive signs that are needed before we will see prices return to more normal patterns.

Perhaps the biggest factor is the pace of new construction. You have seen yourself, there was a large volume of new construction happening around the county during the past 5 years. Over that time, new construction grew to account for almost 39% of the total number of homes for sale. Prior to 2003, new construction represented 25% or fewer of the homes for sale. Builders have eased up on the gas; and new construction now represents just 29% of our market's active listings. That combined with the fact that we have 15% fewer total listings (new and resale) than a year ago, means supply is coming back to better balance with the current levels of demand.

Going forward the supply picture looks even better. Permits issued for new homes have dropped 54% from the peak in 2006. That year, 2,386 permits were issued throughout the county. In 2008, only 1,194 permits were issued. This drop in construction will be one of the factors that helps bring us back to a place of more normal, sustainable price appreciation.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.