The Corson Residential Report

Another statistic that reflects demand in the residential real estate market is new construction building permits.   Over the past 20 years, Harford County has ranged anywhere from 1,500 to 2,700 units per year.  As you can image the wheels started to come off the cart in 2006 with 740 permits.  It slowed to 633 units in 2007 and plummetted to 396 units in 2008.  Within those totals, the county includes: single family detached, townhouses, modulars, condos, mobile homes, and apartments.

Year to date, there have been 437 building permits issued in Harford County which sounds like an improvement, but you have to break the numbers down a little to get some perspective.  Within the 437 permits, 84 were for apartments.  If you look at the stats over the past several years, there were zero permits for apartment units.  If you take out the 84, there were 353 permits for what could be described as mostly owner occupant units.  So we are virtually on the same pace as last year.

I find the apartment statistics interesting.  I can only speculate that there is a perceived demand for rental units as a reaction to the economic conditions.  It is my understanding that many of the BRAC folks moving into the area will be renting.  Perhaps that is a reason.  Maybe another factor could be the large amount of people who have lost there homes because of foreclosure.  Possibly the much stricter mortgage underwriting guidelines have kept many buyers, especially first timers, out of the purchase market.  What do you think?

One way of measuring demand in the local maket is to look at lot sales.  For most of the past decade, Harford County has averaged 10 to 15 lot sales per month.  Over the past couple of years, the pace of sales has decreased by approximately 75 percent.  Year to date, there have been 28 building lot sales as reported by MRIS.  This is an absorption rate of 3.1 sales per month.  The current active inventory is 292 as of this posting.  Given the current absorption rate, there is a a 94 month supply of lots for sale.  This means that if no other lots come on the market, it would take 7.8 years to sell all of the inventory.  All of this inventory relative to demand has placed a downward pressure on prices.  My analysis is showing anywhere from 20 to 30 percent drop in lot prices over the past couple of years.

If you have been paying attention to what has been going on nationally, you know we just came out of the worst three months in American history for the number of foreclosures.  Well, I have been keeping track of foreclosures in Harford County and it is not pretty.

During the first 9 months of 2009, there were 1,108 substitute trustee filings (foreclusures).  In June there were 155 filings and in July there were a whopping 172 filings.  The slowest month was February when there were "only" 93 filings.   During 2008, we had a total of 967 which is bad enough.  We are already more than 100 filings over last year and we still have three months to go. We are on a pace to have nearly 1,500 foreclosure filings in 2009. 

I spoke with a client of mine who handles hundreds of properties in various states of foreclusure.   He told me that the overwhelming majoritiy (95%) of these foreclosure properties are being purchased by owner occupants, not investors.  This situation is forcing prices downward.  I often hear people say they are going to wait to do something until the prices stablize and start going back up.  If you are waiting for prices to return to pre-recession levels, you will be waiting for years.  What we are going through right now is historic.  The sooner you come to grips with the reality of our circumstances, the sooner you will be able to adapt and survive.

I am linking to a CNN/Money report on the latest statistics reported by RealtyTrac.  The last quarter were the worst three months of foreclosures in history.  Also, there were 514,000 more jobless claims last month.  "Experts" see this as good news because it is below the 525,000 claims they anticipated.  There have been 7.2 millions jobs losts since the recession offically began in December 2007.  I also linked to this story.  These news stories just support my contention in this blog last week about prospects for an improving real estate market.

I am working on foreclosure stats for Harford County.  I'll keep you posted.

http://money.cnn.com/2009/10/15/real_estate/foreclosure_crisis_deepens/?postversion=2009101507

http://news.yahoo.com/s/ap/20091015/ap_on_bi_go_ec_fi/us_economy

Perhaps the most common question I get is, "Where is the real estate market headed?"  Or, "Have we hit the bottom yet?"  Since I don't have a crystal ball, the simple answer is I don't know.  However, I have been the real estate business for over 25 years and analyze the market on a daily basis as well as follow national and world events.  This country has been through many recessions, depressions and panics only to quickly bounce back to be even better.  Under normal circumstances I, being the natural optimist, would say the future is bright, things will turn around. However, there is something different about this economic challenge. 

We have a political leadership that is doing the exact opposite of what should be done.  It is a command and control regime at virtually every level of government.  Taxes are being raised and new taxes are being proposed including a VAT (value added tax), cap and trade, national health care.  Government spending is off the charts artificially propping up automakers, banks, and financial institutions.  The Fed is printing money at an unprecidented pace.  We are having a difficult time selling our debt.  Oil producing countries along with China and Japan have been secretly looking for ways to drop the US dollar as a reserve currency.

So what does all of that have to do with our local real estate market?  We will soon hit a wall where the world will stop buying our treasuries.  In order to coax them into buying our debt, interest rates will have to be raised.  Not only will it destroy banks, it will have a direct impact on effective purchasing power for everything including housing. 

Unemployment nationally and statewide has been trending upward for more than a year according to the Department of Labor statistics.  Also, the average hours worked per week is declining.  People are either out of work, under employed, or afraid they may lose their job.  People don't buy houses unless they feel secure in their job.  This will impact housing.

Foreclosures and bankruptcies are still growing.  I have performed more appraisals for bankruptcy cases this year than I have in all of my previous 23 years combined as appraiser.  The inventory of housing is relatively high, but the percentage of distress sales, especially in certain market areas is placing a downward pressure on values.

What about BRAC? Oh yes, the great savior of the local market.  I'll believe it when I see it.  To be sure, there have been many moving into the area.  Some are buying and some are renting.  This has certainly mitigated against what could have been an even worse market.  The problem is that the inventory is so high, even hundreds of new workers moving into the area are hardly making a dent.

What about the $8,000 first time homebuyer tax credit?  Any economist worth his salt would say it merely serves to artificially prop up prices.  It can't continue ad infinitum.  Eventually, the tax credit will cease to exist and the market price will fall to its natural equilibrium point.  The folks who bought with the tax credit could see their home values fall and create a new crop of people upside down on their mortgages.

So to answer the questions, "Where is the residential real estate market headed?"and "Have we hit bottom?", I'll just say this:   When our rulers decide to cut taxes, spending, borrowing, and printing money, things will get better.   When they set the American people free to produce, create, and, yes, make an honest profit, the real estate market will rebound.  In the meantime, you may want to think about buying some gold.