Lydia Taylor September 19th, 2007
THE TALK
To the chagrin of hard working real estate professionals everywhere, the media has been publishing articles about the real estate bubble for more than a year now. From Newsweek to the New York Times, and from big blogs, to medium blogs, to little blogs, all you can hear is blather about the bubble.
What’s very frustrating about all this is that the National Real Estate Market is actually a patchwork quilt of many mini-markets. And to be fair, some of the sites I linked to above have a narrow focus, like the Irvine Housing Blog. While some markets like Irvine are indeed severely depressed, others have done quite well. However, with all the gloom and doom it’s easy to forget that the real estate business is difficult to generalize nationally. Much of what has been reported on have been the worst cases, or a selective look at national statistics; and that is unfortunate.
I can’t help but think that many homeowners have put off buying that retirement home, or moving close to Mom, for nothing more than fear of the real estate market. At what point does the bubble talk become self-sustaining?
I’d like to put to rest some of the uncertainty by putting forward my own picture of the Augusta Real Estate market. One based on facts and historical data. The unvarnished truth, as they say.
THE FACTS
A good place to begin gathering historical data on home sales is a Realtors’ MLS system. Otherwise known as Multiple Listings Systems, these databases allow real estate professionals to make data available on all their home listings to interested parties in a common area for data exchange. An agent or broker has to pay a yearly fee to gain membership to one of these exchanges. This means that a database might not show homes ’sold by owner’ or listings from small real estate brokerages; but thats OK. Any data contained within a MLS system will comfortably indicate the minimum level of real estate activity in the region.
As an Augusta Realtor, I make sure I have access to the GAAR-MLS for my Augusta GA home search. The Greater Augusta Association of Realtors - Multiple Listing System, or GAAR-MLS, covers a huge 17 county swath of South Carolina and Georgia.
The markets in the coverage area for the GAAR-MLS are both rural and urban. For example, one county using this system is McCormick County, located in South Carolina. McCormick has less than 10,000 residents and barely 28 residents per square mile. It doesn’t get much more rural than McCormick County.
On the other hand, the city of Augusta, Georgia, has well over 200,000 residents alone. This makes it one of the largest cities in the state of Georgia.
The strong mix of markets & demographics across two states makes the GAAR-MLS ideal for looking at the state of the real estate bubble in the two-state. The graphic below shows the physical coverage of the GAAR-MLS system.
ABOVE: GAAR-MLS Coverage Area (Click picture for larger version)
I think the next step in studying the state of the real estate market is to select the data we want to look at- and in this case it’s pretty clear we are interested in residential real estate, as opposed to commercial or multi-family housing. The last step is to determine the time window. We need to get ‘before the bubble’ so data from 2004 to the present should be more than sufficient.
Here is that data from our MLS system from 2004 to the present (end-of-August, 2007). I have broken down the residential listings into two main categories. Residential listings consist of two sources: ‘resales’ or older homes that were or are occupied before the sale; and ‘new builds’ or ‘new construction’. The GAAR-MLS allows us the granularity we need to see each type.
(You can click images for larger versions)
You may be surprised to see that the growth in number of listings in 2006 and 2007 from previous years was spectacular - over 25% per year. That’s a whole lot of growth for an industry that was supposedly falling apart! Furthermore, we can see that while new construction was relatively static, the growth was fueled by Resale listings.
Resales are a great bell-weather for a local market. This is because they are an indication of the confidence level of existing homeowners in the area that they can recover their initial investment.
That last thought leads us to the next graphic I have to show you. Are homeowners recovering their initial investment? The media indicates that some homeowners have lost so much equity in their houses (due to deflated home values) that some people owe more on their mortgages than the home is worth! Well let us take a look:
(You can click images for larger versions)
Before I focus on what’s changing in this graph, let me address what doesn’t change. Right away it’s easy to see two metrics that have stayed more or less constant for the last 3 1/2 years: time on the market, and percentage of asking price. It’s generally accepted that the hotter the market, the less time it takes for inventory to sell, and in a cold market inventory takes forever to sell.
Since the time-on-the-market metric has not changed much, I submit to you, my loyal reader, that the market has not changed much either. Now, as for the % of asking price, generally sellers have gotten 98% of the original list, and it’s stayed that way. In a slow market, you might have to negotiate on price, but it’s apparent that not much of that is occurring here. In fact, sellers are getting almost all of what they are asking for.
OK, let’s take a look at that equity question. Are homes plummeting in value so fast that homeowners are sitting tight, hoping to make it through a bull market? Well, the answer is no, and no. I think we’ve addressed the fact that lots of homes are being put on the market- and sale prices have generally increased at approximately 6% per year. Home sale prices are an instant measure of home value. The homes have been put on the market and have sold for the highest dollar amount the market can provide. Home values are not slipping in the area covered by the GAAR-MLS.
MY CONCLUSION
We can talk a lot about local real estate markets, and national real estate markets. Lending practices, building practices, employment opportunities, demographics- they all play a role in building the economic playing field. Are there problems in this country with lending? Yes. Are some real estate markets experiencing a glut of slow-moving inventory? Yes. Are there a whole bunch of real estate flippers that got hurt? Of course. Does the automotive industry slowdown in the upper mid-west hurt the real estate market? Yes.
Is there a national real estate crisis? Of course not.
How is the Augusta real estate market doing? Just fine. Sellers are generally getting about 98% of their asking price. Their homes are gaining, on average, 6% value every year. And this is supported by the fact that an escalating number of homes are listed on the market every year.
So when considering the sale of a home or maybe buying a new property, take a look at your local real estate market. Many local Realtors maintain quick searches so you take a look at the real estate areas you are looking for. (Like this one for Evans Georgia Real Estate.) Ask your local board of Realtors how things are going. You might be surprised by the answer.
*I’d like to give special thanks to the Greater Augusta Association of Realtors, and my brokerage Meybohm Realtors, for sharing the data for this article.
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