2009 First Quarter Update

What a difference a year makes! As I started to look at the data on our market for the first quarter of the year and comparing it to the first quarter of 2008, I began to realize how long ago that really was. It's only a year on the calendar, but in this market these days, a year might as well be a century.

One thing does look to be the same as last year - the number of sold units is nearly identical. We sold 81 units in our MLS in the first quarter of 2008, and at this point we have 82 sold units for the same quarter this year. We'll probably have one or two more stragglers coming in with late entries in the next few weeks (as I shake my fist at my fellow agents who are late in updating their listings).

Despite having roughly the same number of sold units, I can tell you that our buyer activity level is considerably higher than it was in the same period last year. We have more properties in escrow and more multiple offers on properties. It looks like buyers have gotten the memo. Prices are low, interest rates are lower, and affordability is at historic levels. Sure, we're in a recession, and a lot of folks are hurting. But the other side of a down economy is that there are enormous opportunities. I've heard it said, and I believe this: More millionaires are made in economic downturns than are made in economic booms.

Let's take a look at some numbers - all these numbers are from the first quarter of the year shown:

2009 Sold Units - 82
2008 Sold Units - 81

2009 REO Sales - 55 (67.1%)
2008 REO Sales - 45 (55.6%)

2009 Closed Short Sales - 11 (14.6%)
2008 Closed Short Sales - 3 (3.7%)

2009 Sold Unit Median Days On Market - 29
2008 Sold Unit Median Days On Market - 56

2009 Median Escrow Period - 43.5 days
2008 Median Escrow Period - 36 days

2009 Average Price Per Square Foot: $151
2008 Average Price Per Square Foot: $197

Click here for the new and improved, up to date price per square foot chart.

OK - look at that chart. This is the first month in quite a while that we haven't dropped a significant amount in values from the previous quarter. This doesn't surprise me much - I think that prices have been driven down past the point where things became affordable. I wrote about this a few weeks ago - I think that prices dropped way below where they needed to in order to bring buyers back to the market. We had multiple offers on properties pretty regularly 25% ago. Now we have a feeding frenzy. I've said here before that I'll tell you where the bottom of the market was six months after it happened. I'm sticking by that. Even though the immediate data looks like things might be flattening out, I'm not calling it the bottom just yet. I will, however, tell you this much - Diane & I are actively looking for a good real estate investment opportunity right now for ourselves. We'd hate to look back 5-10 years from now and realize that we missed a prime opportunity.

A couple of other things of note in these numbers: Check out the difference in days on market and escrow periods. Market times have been cut almost in half and escrow periods have increased by about a week. The DOM is mostly due to aggressively priced REO properties. It's a rarity anymore to see an REO property sit on the market for more than a week without offers.

The escrow times have increased somewhat for three reasons. First, more government backed loans, which take a little longer. 46.3% of our closed transactions were done on FHA or VA loans this year, vs. 19.8% last year. Second, almost all of the REO escrows wind up with out of town escrow offices, usually in the L.A./Orange/San Bernardino County region, and these escrow "warehouses" don't tend to be the most efficient operations. I think every agent in our area who has worked an REO transaction has a war story to tell about it. I could go on and on about it, but I'd probably be hearing from someone's attorney...

The third reason is the increasing number of closed short sales. Short sales are starting to make up a significantly bigger chunk of our sold units. I think that part of that is because some banks are starting to cooperate a bit more (although some aren't). Part of it is also due to the fact that our inventory has thinned to the point where buyers have started looking more seriously at these as an option. If you've been reading the Monday Morning Numbers posts, you know that I've been pointing out how many contingent sales we have every week, and short sales are one of the primary reasons for this. And back to the point about increased escrow times - well, short sales move at a glacial pace. As they get more of a market share, we'll see longer escrow times.

Going forward, I don't see any reason right now to modify my earlier predictions for the year that I posted a few months ago. I still think that we're going to see somewhat of an increase in inventory this summer, but not a big spike. I think that buyer activity should remain very robust for the rest of the year. And I think that my cracked crystal ball might look pretty good now, but I'm still not ready to take it to Vegas.