Lower Prices Cause Pending Sales to Jump

Pending home sales across the country jumped 6.7% in April, which represents the largest increase since October 2001. The stock market responded postively to this news and closed up again today. Analysts were expecting only a modest increase in sales activity.

The big jump in sales is largely attributable to the lower prices seen around the country. For example, the median price of an existing home in California decreased by over 36% from April 2008 to April 2009, according to the California Association of Realtors. That drop in price led California to a 49.2% increase in home sales.

Closer to home, a 14% reduction in average sales price sparked a 15% jump in pending sales across Western Washington. Thurston County prices, however, have not corrected as much. Our prices are off just 9.6% from a year ago. Consequently, our market experienced a 4% decrease in pending sales.

Our local market continues to have much greater supply than demand. We have 8 months supply at the current pace of sales, which is well above a balanced market with 4-6 months supply. Under those conditions, prices will continue to adjust downward to bring the market back into balance.

From 2003-2006, Thurston County home prices appreciated at an average of 13.4% per year, compared to just 5.9% average over the 20 years prior. Even with the price corrections we have seen since the peak of our market, our average sales price is still nearly 6% above where our historic trendline would place prices today.


Click image to enlarge.

Our market is trending in the right direction, however. The gap between our actual average prices and a sustainable price based on our market's more modest historic growth rates is the smallest it has been in the past 5 years. (California did not start to see more sales until prices came back in line with its historic trendline. When prices got there, sales jumped up.)

This fact is helping a great many sellers find success in our market. Those who are setting asking prices to stay in front of the market trend are selling in near record time, at just 46 days on market. They are also selling for close to full asking price. When more sellers start to recognize the real market forces they too will find success. This in turn will lead to greater absorption of our excess supply, and that will bring our market back to more sustainable and healthy growth in the future.

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