Last fall, I wrote about the lack of housing inventory in Schuylkill and Berks County, and said it was officially a seller’s market. Throughout 2018 we saw the same trend continue, and summer of 2018 was very difficult for buyers in some areas. Certain neighborhoods and school districts saw multiple offer situations pop up regularly, especially in the starter home price range and average move-up home levels.
For a dramatic picture of just how inventory levels have fallen, take a look at the chart representing Schuylkill County single family homes for sale comparing August of 2009 through 2018. From 2009 through 2015 inventory levels climbed from 663 houses for sale to 1084, then dropped 33 percent in 2016, another 12 percent in 2017 and another 24 percent this year. We had more than 50 percent less inventory in August of 2018 than in the peak years of 2013 through 2015. That’s a tight market.
Another way of looking at the data is called “absorption rate” – which is calculated in months of inventory. The absorption rate is the number of months it should take to sell every single property currently on the market, assuming no new ones are listed for sale. The smaller the number, the faster homes are selling. In 2012 through 2014 we had 14 months of inventory on the market. This summer that number was down to 5. Note that a “normal” market is defined as about 6 months of inventory on the market and a situation where home prices appreciate about 3.7 percent annually. This is why real estate salespeople across the nation the past year were advising sellers to sell right now, as it truly was a strong seller’s market.
As the summer came to a close, we saw a cooling of the market a bit. Number of pending sales dropped, and the number of appointments logged in our showing center declined. This is normal, to a degree. We are a seasonal business, and strongest buyer activity typically occurs in April, May and June. It slows a bit in July and August, as buyers wich children normally want to be in their new house prior to the start of the school year. Then it picks up a bit in September and October, only to slow again from November through February. That’s the normal real estate sales cycle.
However, the drop off this year started earlier and we are seeing reports nationwide that buyer demand many not be increasing at the same pace it did earlier this year. If you read the headlines in major news outlets, you may see reports of falling home prices, but that’s not what we’re seeing here. We are seeing a softening of home prices, but not necessarily a decline in values. There is a difference between the two terms. A softening means that we are not seeing appreciating values at the same pace as we saw in the past few years.
The housing market has been anything but normal for the last 11 years. In a normal real estate market, home prices appreciate 3.7% annually.
For example, nationwide values increased more than 6 percent the past few years. So if you had a southern Schuylkill County home and paid $100,000 for it in 2015, it would have been worth $106,000 in 2016 and more than $112,000 in 2017, and perhaps up to $119,000 this summer. A softening of the market does not mean declining values, but a slowdown in the appreciation. If the market only increases by half, or 3 percent, in 2019, your home will still be worth over $122,000 in 2019.
Several of the most reliable measures of buyer activity are reporting that demand is softening. We had a strong buyers’ market directly after the housing crash which was immediately followed by a sellers’ market over the last six years. If demand continues to soften and supply begins to grow (as is projected to happen), we will return to a more neutral market which will favor neither buyers nor sellers. This “more normal” market will be better for real estate in the long term.
Prices won’t appreciate at the levels we’ve seen in the past few years. It will be a balanced market where prices remain pretty much steady. This is a good thing, as buyers will be better able to afford a home and not be priced out in bidding wars. Sellers will more easily be able to move up or down to a home that better suits their current lifestyles.
However, eventually the market will shift into a buyer’s market again. We are in a cyclical business. It’s inevitable. At some point there will be more houses on the market than there are buyers to absorb the inventory quickly. Some real estate professionals worry that the rising interest rates we’ve seen this year will be the catalyst that turns the market. Interest rates are still at historical lows, but every time the Fed raises rates we do see jittery buyers. For some, it spurs them to make an offer and lock in their low rates. For others, every rate increase means they can afford less house and they may choose to stop house hunting.
Erica Ramus is the Broker/Owner of Ramus Realty Group in Pottsville, PA and holds a Master’s Degree in Real Estate.