February 2014 Market Trends
The first two months of the year have resulted in a slow start to the year in Missoula residential real estate, causing us to consider whether this is simply a seasonal slowdown or the beginning of a stabilizing market for Missoula. However, with under contract numbers on the rise and a recent influx of buyers actively looking for homes to purchase, we believe we are experiencing a winter market rather than a stabilizing market. We believe if more homes become available as we move into spring, there are buyers out there to absorb it.
The Missoula residential real estate market closed out the second month of 2014 with a total of 26 sales, with nearly three-quarters of the homes sold priced under $350,000. The overall average sold price was $253,947 and homes that closed in February were on the market for approximately 192 days before the sale was finalized. At the end of the month there were 110 homes under contract and 322 homes actively listed for sale.
Buyer Recommendation: With continued low inventory and more buyers out looking, sellers whose homes are competitively priced have been entertaining multiple offers and getting very close to asking price or more. Prior to beginning or resuming your search, we recommend that you be prepared with a loan pre-approval letter and ready to look at and make an offer on the good homes immediately to avoid possible multiple offer situations. Average lender rates for mortgages have been increasing steadily and, if rates continue to rise, we anticipate a downward pull on affordability for buyers in the market for a new home. Be prepared to pay 97-98 percent of asking price, on average.
Seller Recommendation: With inventory at such low levels for the last several months, we recommend putting/keeping your home on the market, especially since there are currently more buyers in the market than we have seen in the last several months. Until more homes are listed for sale buyers will have increasingly limited options, thus creating the possibility of a seller getting an offer close to asking price because supply is not quite meeting demand. While it seems average sold prices could increase a little during this time, it is still very important to price your home reasonably and competitively.
Supply & Demand
The inventory of homes listed for sale in Missoula decreased to 322 at the end of February, coupled with 110 homes under contract. There were a total of 26 residential sales for the month, continuing the trend of the lowest number of sales in any given month since January 2011.
The Missoula market is still suffering from a lack of inventory and decreased again in February. Despite the gradual rise in mortgage rates, the lack of inventory is helping sellers garner between 97 and 98 percent of asking price.
Approximately 11.4 percent of inventory turned over this month, compared to 15.8 percent last month and 20.8 percent in December. Most of the activity (roughly 73 percent) occurred in the under $350,000 price range.
Days on Market (DOM)
Homes sold in February were on the market for an average of 192 days, compared to 113 days last month and 132 days in February of last year.
Foreclosure/Bank Owned (REO)
Short sale and REO properties accounted for approximately 6 percent of the active residential listings this month. At the end of February, the MLS was reporting 12 active short sales and 6 bank-owned properties out of a total of 322 single-family listings.
Average Sold Price
Average sold price in February was $253,947, down approximately $3,200 from last month which had the highest average sold price for the month of January for the last couple of years. Prior to January, average sold price had been declining for several months. We believe this increase to be partially attributable to low inventory. However, after a year of increasing average sale prices we do anticipate a levelling out over the next several months as the fed releases its control on the interest rates interest rates begin to rise/fluctuate on their own.
The following graph shows average sold price trends since January 2012.
The health of any real estate market can be recorded by absorption rates, which is the correlation between the number of active homes on the market and the number that sell per month, on average. According to the National Association of Realtors, a normal market is six months of inventory. For the purposes of this discussion we are utilizing a 3-month average for sales.
Overall, the Missoula market performed just below a normal market this month, producing an overall absorption rate of 8.8 months in February, compared to 6.3 months in January. Under contract figures increased significantly from January, some of which may be homes that were under contract in January but did not actually close in January. The area experienced extreme weather in February which, we know in some cases, caused some closings to be delayed.
The increase in the number of under contract properties, reduced number of sales in February, and a slight decrease in inventory likely nudged up the absorption rate. We have been speculating that low inventory over the last several months could be an indication of the Missoula market’s new “normal”. We have also considered that buyers are likely doing one of three things: cancelling transactions because they unable to lock in an affordable rate before it rises; holding off buying and staying in their current homes; or, they waiting for more homes to come on the market (more choices). Whatever it is they are doing, it is clear there are not many home purchases being made. With warmer weather just around the corner, we have noticed buyers beginning showing interest in looking at homes again however, if inventory levels remain low, the absorption rate should not increase much further unless there is a continued decline in sales.
A low absorption rate in your price range may indicate an opportunity to list at a higher price and, conversely, a higher absorption rate in your price range may put downward pressure on your market value.
Inventory and absorption rates are an indicator for how fast our market is recovering. If the number of homes coming on the market is proportional to the number sold, our market will continue to strengthen. If there is a substantial increase in homes that are not absorbed by the number of buyers in the market, expect our market to soften until they are absorbed by the buyers.
This graph demonstrates absorption rate by price range. As can be expected, absorption rates rise at each price-change increase – with one exception – homes priced from $250,000 to $299,000. It is our belief that this price-range is skewed a bit due to homes which are actively listed but not yet built.
Inventory of Homes Listed for Sale
Over the last year Missoula has had a significant shortage of homes on the market. Even with seasonal increases in inventory, inventory levels have remained below that of the last few years. At the end of February there were 322 homes listed for sale.
5-Year Home Sales by Month
Missoula home sales decreased to a total of 26 for the month of February, the lowest number of sales in three years. Under Contract volume increased from 85 properties at the end of January to 110 properties under contract in February. Based on the low number of sales in February, we believe there may have been some properties that were under contract at the end of January that did not end up closing in February.
The following chart provides a monthly snapshot of total homes sold since January 2010. (Green columns represent Under Contract properties for the current year.)
Average List-to-Sale Price
List-to-sales price, the ratio of the price at which a home sells to the price at which it was listed, signifies pricing trends in the market. (For example, if you sold a home for $100,000, sellers are, on average, accepting offers of $96,000 – $98,000, or between 2 and 4 percent less than asking price.) When inventory increases, average list-to-sales prices generally decrease due to added competition in the market. When lower list to sales prices are seen, usually in the summer months, it can be attributed to high absorption rates, primarily because during these months there are more homes on the market, meaning more competition. In that scenario, motivated sellers might have to take less for their home in order to beat out the competition.
The following graph provides the average list-to-sale price, by month, for the last three years:
For the last couple of years homes have been selling at 95 percent to 96 percent of list price and, for the last several months, list-to-sales price has been better than in prior years – hovering between 97 and 98 percent. The lowest list-to-sales ratio in the last year was in March 2013, when sellers averaged 95 percent of asking price. In the summer months following, this percentage moved up to 98 percent. List-to-sale price this February averaged 97 percent.
Overall Short-Term Market Outlook
With under contract numbers on the rise and a recent influx of buyers actively looking for homes to purchase, we are hopeful we have been experiencing a winter market rather than a slowing market.
However, with inventory at such low levels we need to see sellers putting/keeping their homes on the market. Since there are currently more buyers in the market than we have seen in the last several months, buyers have limited options, thus creating the possibility of a seller getting an offer close to asking price. While it seems average sold prices could increase over the coming months, qualified buyers that are prepared to buy are also looking to purchase a reasonably priced home. Sellers whose homes are competitively priced have been entertaining multiple offers and getting very close to asking price or more than asking price. Sellers are currently closing the sale at an average of 97 to 98 percent of asking price.
Full PDFof the Missoula Market Report: Feb 2014 Market Report