Another month in the books; Santa Fe residential real estate continues to improve. You might notice the Absorption Rate rose slightly, but that is a normal & seasonal fluctuation as sellers hope to cash in on the more active summer and fall selling seasons.
An enlightening way to see the trend we are experiencing is to compare, using any of the charts available on the home page of this site, the same date for each of the last 3 or 5 or 7 years. For example, if you were to compare the “as of” June 30 Absorption Rate for each year:
- 2009 23.47 months
- 2010 19.91
- 2011 17.10
- 2012 14.34
- 2013 12.75
- 2014 11.59
Clearly we are improving, yet some nagging doubts remain.
Recently some industry analysts have expressed concern about the size of the shadow inventory that remains. While it is impossible to pin down those figures, there are indications that we are still working through a sizeable volume of foreclosures and short sales. In addition, many homes have been for sale over the last few years and not sold, and they are not currently listed for sale. They have merged with the shadow inventory and taken their place among sellers that are waiting for the market to improve before they try to sell again. The entire collection of information that should go into such a decision is dependent on what that seller plans to do after their current property sells. If the plan is to buy another home, about 98% of the logic and data would say: sell now anyway possible at almost any price and then buy right away. Waiting is like staying after school writing on the blackboard all weekend instead of being outside playing with your friends and enjoying home cooking and sleeping in your own bed. All that writing gets erased Monday morning anyway so what do you have to show for your hard work and deprivation?
But shadow inventory is not a small humorous anecdote or analogy. It is a huge weight on our shoulders, on our market health. Why do you think the last 6 or 7 years have been so depressed in sales compared to the years prior? Because we had too many homes for sale and many of those were short sales or foreclosures at prices well below the rest of the inventory. That drag on the market has kept prices down and forced stubborn sellers not willing to slash their price into waiting for market improvement. I would be happy to talk with any seller one on one about why waiting is the wrong choice today. Go ahead and cut the price and sell it this year. It will not be worth any more next year than now and that same shadow inventory will just keep cutting in line in front of you.
Meanwhile, all signs continue to point in the right direction. Its just not feeling wonderful to some because they still cannot realize the price they paid years ago is still more than the property will sell for today. The expectation of appreciation is contributing to many seller’s confusion about real estate and probably just makes them distrust it even more. And then they don’t trust the professionals that work in the industry. Once someone invests emotionally in a home, its quite difficult to pull back and treat it as an asset to be disposed of. Oh if we all could just treat selling a home as a business decision. We get rid of a poorly performing stock quite quickly. Yet we hang on to a home (even some investors do this) in faint hopes that it will turn out to be a profitable investment. Not today, my friends. Maybe someday appreciation will return, but for now its best to try to forgive and forget.