November posted the year’s largest percentage gain in home sales. The month saw a 59.6% jump in sales compared year ago figures, with 273 sales this year versus just 171 in November of 2008.
The looming deadline for the $8,000 first-time homebuyer tax credit surely had an impact in the size of the jump. The credit was set to expire November 30, 2009. The President signed an extension of the credit on November 6th. The credit will now be available on homes under contract by April 30, 2010.
Affordability has also been a driver in home sales. Average prices countywide are down about 8% since this time last year and down 12.4% since the peak in 2007. Those lower prices combined with mortgage rates below 5% have created some of the most affordable conditions on record.
Freddie Mac reported just today that interest rates on a 30 year, fixed rate mortgage are at the lowest level on record. In its weekly mortgage market survey for the week ending December 3rd, the company reports those rates averaged just 4.71%. The previous record low was 4.78%, set in April of this year. Freddie Mac has been tracking these rates since 1971.
These affordability conditions coupled with the recent expansion of the tax credit to cover certain repeat buyers should continue to propel sales through the winter months. The momentum has already started. Pending home sales, which are those under contract but not yet closed, just logged their seventh straight month of besting 2008 levels. In November, pending sales were up a healthy 7.5% over last year.
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In order to better understand the “Average Price” of homes in Thurston County, it is important to understand the impact of the upper-end homes. Once this is understood, it becomes clear that the market correction is overstated for 95% of the home sales this year.
When a mortgage is greater than $417,000 it falls into the category of “Jumbo Loans”, and has a whole different set of much more restrictive requirements for approval than loans for a lesser amount. Homes that require these kinds of mortgages are generally described as being part of the “Jumbo Market”. For the purposes of this discussion, let’s assume a home price of $450,000 or greater falls in this category.
In 2007 (Jan – Nov) these home sales accounted for about 1 in 10 of all the sales in the county, but their contribution to the overall Average Price was much greater. For example, the total volume of sales during that period was just over $1 billion with the Jumbo Market contributing over $200,000,000 to that total.
Contrast that to this year, where less than 5% of the sales have fallen within the Jumbo Market. Let’s focus on the other transactions which make up 95% of the home sales this year. Removing the Jumbo Market from the equation discloses that home prices have only dropped 8% from the peak in 2007, and are off 6% from last year, significantly better than the Average Price would indicate.
Digging a little deeper provides even more context to the Average Price of homes in the county. Sale prices of homes greater in size than about 3200 square feet actually peaked in 2006 and have dropped 25% since then. By comparison, this year the sale of smaller homes has averaged a 4% drop in price since 2006.
While any reduction in home values is difficult, it is clear that for the vast majority of home sellers in Thurston County the drop is not anywhere near the amount that is indicated by simply focusing on the Average Price.
Good comments all. The use of average or median prices for discussion is always a difficult thing. It really provides just a reference point for discussion to show general trends.
In real estate, each house is unique and will return its own gain or loss experience. Contract law recognizes this unique position of real estate in that specific performance as a contract remedy is only afforded to real property.
Therefore, the only true measure of prices is to look at each house individually. Many homes within our market are experience much better results than the "average" or "median" experience. At the same time, many are fairing worse.
Each month, we analyze every property that sells within our community and determine its return. The results of that study are very enlightening on the topic of price gains and losses.
The use of average or median prices, more matter how detailed those numbers are broken down, should only be used for a broad discussion for the market direction as a whole. Those numbers should never be used to analyze the value of a particular property.
Thanks for your great comments.
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