February Sales: Sales Up, Prices Down

We can see some very basic economics at work in the February sales figures for Pinellas County real estate. In fact, we can call it Econ 101 and really mean it.

In general, sales are up and prices are down. Or, perhaps it should be that prices are down, so sales are up. You decide.

First, let's look at the Absorption Rate (AR) for the month. The AR, as you know, is determined by dividing the number of units sold in the month by the total number of listings in the MLS system.

For single family homes, the AR for February was 6.0%. Not bad. It shows that the number of single family homes increased nicely over January which had an AR of only 4.9%.

The AR for condos also increased in February over January. The February AR for condos was 3.9%, and it was 2.8% in January. Even though that's an increase, it's still not very good as condo sales continue to lag in Pinellas County.

Single Family Homes

I'm starting to see a trend in single family homes. For the last three months (four months actually), there has been a decrease in the total number of homes listed for sale in the MLS. In February, the number stood at 7,799; in January it was 7,835; in December it was 7,930; and in November it was 8,539. So, what we are seeing is a steady decline in total single family inventory -- fewer houses on the market.

Sales increased in February as compared to January. There were 467 houses sold in February as compared to 381 in January.

Why?

I think it is because prices have continued to fall in Pinellas County and more and more sellers are realizing that they need to take less if they want their property to sell. The median sales price in February was $139,900 as compared to $179,000 in February of 2008. That, my friends, is a 21.8% decline in median prices in one year for single family homes.

Now, go back to Econ 101. When prices fall, sales increase.

Condo Sales

If we turn our attention to condos in Pinellas County, we see a somewhat different story.

The number of listed condos in the MLS went from 6,701 in January to 6,775 in February -- virtually no change.

The number of condo sales did improve somewhat. During February, 265 condos were sold as compared to only 189 in January. That's a nice improvement.

Why the increase?

Econ 101 again.

The median price for condos fell and the number of sales increased.

During February, the median was $117,500 as compared to $155,000 in February of 2008. That's a drop in median price of 24.2% in twelve months.

I think it is clear to everybody that we are seeing an increase in the volume of sales tied directly to a decrease in prices. I hope that sellers are getting the word on this if they really want to sell their property.

The Bottom

Some buyers are waiting to make offers because they think real estate prices will go even lower. Some sellers are waiting to sell their property because they think prices will start going up pretty soon and they want to wait for a market recovery. Both these sets of people are playing with fire, and don't even know it.

As a general rule, few of us are any good at predicting the direction of a market and timing it perfectly. By the time the newspapers start running stories saying the market has turned, it will be too late for many buyers because their property -- the one they have been waiting for all this time -- will be sold to somebody else who acted a bit sooner. And for sellers who are waiting for a huge and swift upswing in the market to drive their prices back up to 2005-2006 levels, well, don't hold your breath. We may never see prices like that again, and I'm not sure any of us want to.

So, have we hit bottom yet?

I don't know. Maybe we're pretty close. We've been in this darn decline for over two years.

The thing that is hard to judge is the effect of foreclosures and short-sales on the price of real estate. Certainly, reduced prices asked by mortgagees to clear away toxic loans are driving overall real estate prices down farther and faster than most people thought possible a year ago. In fact, it could be argued that mortgage companies caught with bad loans are having a greater impact on real estate prices than normal market activity would have allowed. After all, one in three sales in Pinellas County is a distress sale in which the mortgage company must agree to the price and terms of the sale ... and they are oftentimes agreeing to some pretty low prices. So, their impact on pricing can not be overlooked or underestimated.

So, are we close to the bottom? Don't ask me. Ask your banker.

For more information on real estate in Pinellas County, visit my website at www.TheStPeteRealEstateSite.com.

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