Marblehead Third Quarter housing market review

It’s a dreary Friday afternoon (except for the Red Sox who have just scored 5 runs in the bottom of the 4th) and I am doodling with ways to show the market.
First, here’s the state of the market at the beginning of October (L12M= Last 12 Months) :

Source: MLS, Oliver Reports

The story here is that there is very little supply under $500,000. That is significant because this segment of the market experienced the greatest pressure during the years from 2008 right up until late 2012. It really does seem that all that inventory has been cleared and now there is a great shortage.

An indication of this is that of  the 83 Single Family Homes (SFHs) that sold in MHD in the first 9 months of the year (the numbers in the table above are for the last 12 months) 24, or nearly a third, sold ABOVE list price.

The flip side is that sales at the higher end remain in the doldrums. I have put N/M (Not Meaningful) for months of supply at the higher end, not to try to mask the situation, but because the number of sales is too small for the calculation to be useful. Let’s just say that if you are looking for a house in MHD over $2 million, you are unlikely to run out of options in the near future.

In 2011 and 2012 the median price in MHD was depressed because of the large numbers of houses selling under $500,000. With the clearing of that inventory, and with so many selling above list price, the median price of the market overall should be increasing, right?

Well, yes and no.

Here’s the table:

Source: MLS, Oliver Reports

Note that whenever I quote median prices I exclude any distressed sales – foreclosures and short sales. Fortunately, after a short-lived spike, these are back to very low levels in Marblehead, just 3 out of 184 sales through September this year.

And here it is in chart form:

Source: MLS, Oliver Reports

I think this clearly shows the drop in 2011/12 as a result of the increased volume of sales at the lower end.

It is also worth noting that historically the median price varies from quarter to quarter. Like the stock market, it does not go straight up – or down. In fact, in the 12 years of statistics I maintain, the highest quarterly median price has been achieved once in Q1, 3 times in Q2, 5 times in Q3 and 3 times in Q4. And in only two of those years – 2007 and 2012 – did the median price increase in each quarter of the year.

But, I hear you say, if there is a dearth of houses available at the lower end, shouldn’t the median price have increased in this last quarter?

The next chart looks at sales in the quarter and compare those with sales for the first 9 months and with what is currently available:

Source: MLS, Oliver Reports

Whereas supply is severely limited at the lower end currently, actual sales YTD have been strong in this price range. The area that has been weak is the upper end. Recall that the median price is that at which an equal number of sales take place above it and also below it. If there are a lot of sales at the lower level (2011-12) the median price will go down. If there are a lot of sales at the higher end, the median will go up.

What we are seeing now is the inverse of the 2011-12 market. Then it was the high level of sales at the lower end that drove down the median price; now it is the lack of sales at the upper end which is driving down the median.

This chart shows sales above $1 million since 2004:

Source: MLS, Oliver Reports

With 2 houses Under Agreement in the $1-2 million range, the total in that category for 2013 will likely be close to the 2011/12 numbers, but is not showing the increase one would expect in a normally improving market.

Above $2 million, there are currently two UAG – one in the $2-3 million range, one in the $3 million plus range. That is still some way off the 7-10 sales above $2 million in 2004-2007 and again in 2010.

The effect on the median price by sales activity in different price ranges was demonstrated in late September this year. As of September 27 the median price for Q3 was $574,250, which would have shown a nice increase over both the prior quarter and prior year. But in the last few days 5 sales closed, all between $315,000 and $501,000, and those sales knocked the median price back to $537,500.

If you are still reading ( even, perhaps, like me with a glass of wine to celebrate a great Red Sox victory), you now know that when you read elsewhere that the median price in MHD dropped in Q3, you will, as the late Paul Harvey used to say  “know the rest of the story”.

What about sales? Well, of course, this is the number closest to the heart (and wallet) of real estate agents. 2012 saw 229 sales of SFHs, the highest number since 2004. Through 9 months sales are 184, up from 174 last year. With 4 sales closed already in October and 28 pending, there is a good chance that last year’s total will be beaten. Bearing in mind the shortage of sellers at lower levels and buyers at higher levels, that indicates a strong market.

And the outlook? Well, it seems that just about every one of my reviews since I started writing them for the Marblehead Reporter in 2008 has included comments about economic and geopolitical headwinds and problems. Yet you will have noticed that the stock market in these years has gone up substantially, in the vernacular used on Wall Street “climbing the wall of worry”.

I am sure there are people smart enough to time the stock market, and I am sure there are people smart enough to time the housing market. But most of us don’t try to do that with our investments, and certainly not with our primary residence. I’m not sure there would be many happy relationships where one of the partners said to the other: “my analysis is that the housing market will go down 7.9% in the next two years, so I propose that we sell our home, move the kids to another school, put our furniture in storage and rent, and then buy again when my crystal ball tells me prices have bottomed”.

Which comes back to a constant theme of my reports: housing is first and foremost shelter, a home for one’s family. And yes, over time, house prices in a stable, well-run town like Marblehead, tend to go up. That’s a bonus.

And as for the debt ceiling, ObamaCare, whatever part of the world is in crisis today, etc. – yes they are concerns, but somehow or other we seem to stumble along. We don’t fix the problems and until we do we may not see the strong economic growth that would provide the funding for every politicians’ wish list, but we always seem to manage to get by.

And the Red Sox won, the Bruins won last night, the Patriots are 4-0 and we have just enjoyed three weeks of glorious weather. What a great time to be in New England and specifically in Marblehead!

If you are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 781.631.1223 or [email protected].

Andrew Oliver is a Realtor with Harborside Realty in Marblehead.