Anecdotally, it’s been seeming for the last couple of months that the housing market in our area is strengthening. I did a quick analysis which at least partially confirms this. The number of contracts signed in Montgomery County from March 1 – April 15 of this year is over 14% higher than the same period a year ago. That’s a significant increase in volume.
I also looked at whether homes are selling faster in Montgomery County this year versus last. Interestingly, they’re not. In fact, the percentage which are under contract within 14 days has dropped from this time last year, from 50% to 44%. And, homes being sold now are fetching roughly the same percentage of original list price, approximately 97% to 98% on average, as homes sold a year ago.
What’s difficult to know is whether home prices are rising generally. What’s typically reported is the change in median or average home prices from one time period to the next. Unfortunately, at best, this is a poor proxy for measuring changes in the housing market. At worst, it’s misleading. These measures would only be reliable if the mix of houses sold from one period to the next never varied. For example, if relatively more houses in the higher price ranges began selling, overall median and average home prices would go up simply as a result of a change in the mix of houses sold.
That said, I have recently been seeing some homes selling, and selling quickly, for prices higher than I would have anticipated based on a careful analysis of the sale of comparable homes over the last six to nine months. Typically, these houses are turn-key and require no updating or remodeling.
So, what’s going on? My hypothesis: There likely are prospective buyers and sellers who have stayed out of the housing market for the last few years due to the ailing economy and the housing market’s continuing weakness. With the recent strengthening of the economy, more latent buyers and sellers are entering the market. And, the recent drop in interest rates, back again to near record low levels (see: larrygiammo.com/2015/04/20/mortgage-rates-near-historic-lows), is providing prospective buyers an additional bump in buying power to purchase homes – and to pay a premium for those which are the most desirable. This is driving increased demand which, in turn, is stimulating even more latent sellers to put their houses on the market.
What’s not clear is how many latent buyers and sellers remain, whether the economy will continue to strengthen, and how long interest rates might remain low. For now, though, it appears to be a good time to enter the market, for both prospective buyers and sellers.