Every day, we are inundated with news reports about the housing market. (It’s up. It’s down. It’s down again.) While there is all sorts of information out there, it can be difficult to navigate through the seemingly never-ending supply of statistics, forecasts and studies, let alone find a practical way to apply the data to our local Treasure Valley market.
As a title company, we closely monitor many information sources to understand the health of our housing market. We use this data to fully understand market dynamics and make well-informed forecasts about the near- and long-term future of the industry.
Last year we set a goal of offering this information to our customer base, as well as the public as a whole. We developed a monthly measurement of the vibrancy of the Treasure Valley real estate market. Based on a custom weighted algorithm, it combines nine critical measurements of the real estate market into a single, useful number: the PTC Index.
These measurements include building permits, new home sales, existing home sales, refinance activity, average sales price, 10-year treasury index, days on market, distressed (short sales and bank-owned) properties and notices of default.
When we developed the PTC Index, we concluded that our nine measurements would paint a clear picture of overall activity. We knew that rigorously tracking this data would, in time, provide a tangible, easy-to-understand look at our local market. We retroactively built the index from January 2009 and continue to update it monthly.
As we approach the one-year anniversary of the launch of the PTC Index, the trend seems to show the health of our housing market improving in small, consistent intervals. Taken as a single, monthly number, the index has shown improvements over the last 27 months. To give some perspective, a healthy, optimal market would theoretically lay within the 130 to 140 range on the PTC Index. First quarter of 2011 is averaging just over 82 at this point.
When the federal government introduced its first-time homebuyer program a few years ago, it incentivized buyers with a tax credit and, in turn, spurred home sales. Many people took advantage of this inducement; the first-time homebuyer tax credit, however, was a temporary fix and may have prolonged a full recovery.
Our index shows that new home sales at a monthly average of 117, 91 and 94 in 2009, 2010 and 2011, respectively. It is evident that even as 2009 brought above-average numbers in the historical sense, post-incentive years show growth, albeit in small increments.
The most interesting part of the index is how existing home sales, new homes sales and building permits act fluidly with distressed property numbers. When one drops, the other rises.
What these numbers don’t directly indicate, however, is shadow inventory. This term refers to properties where payments on outstanding mortgages are delinquent by 90 days or more, are in the foreclosure process and are being held by the note-holder. These are typically released to overall housing inventory in no certain time frames – eventually being marketed as a short sale where a bank negotiates with a new buyer at a reduced cost to minimize the loss between the new and original amount financed.
Financial institutions are seemingly holding these shadow properties for extended periods of time, but when they are finally released as inventory, this can have an effect on new and existing home sales by putting downward pressure on prices and attracting homebuyers who would have otherwise purchased a new or existing home. In essence, the overall health of the market cannot fully recover until these shadow inventories are exhausted.
Nationally, home sales have continued to decline while we’ve seen positive growth year-over-year. Despite the positive indicators locally, however, the market remains in “recovery mode.” We’ll continue to see an increase in notices of default, thereby creating additional shadow inventory. This will continue to increase overall for-sale inventory.
This may bring down average sales prices by a small percentage, which isn’t necessarily a negative as the re-stabilization of pricing is part of the story; lower pricing is not a negative, but leads to the path of recovery.
This column was written by Tim Bundgard, president and chief operating officer of Pioneer Title Co. He can be reached at (208) 377-2700 or by e-mail at firstname.lastname@example.org.