Monday, October 3, 2011

Market Muscle in the $300,000 to $400,000 Core Through September

Like a well trained athlete, the Madison real estate market has strength in its core. From data available this morning on the Realtor Association of South Central Wisconsin, MLS, we see 11.5% of the sales through September 30th are in the $300,000 to $400,000 price range. Another 13% of the sales occurred in the $250,000 to $300,000 range. That 24.5% muscle is important  because in this price range, people who sell are likely to be buying, and the buyers more often than not could be expected to have sold something. The exponential impact to the real estate market might look like this: 1 Buyer was 1 Seller and 1 other Seller becomes 1 more Buyer.  We could say the $250,000 to $400,000 sale has a real estate market impact of 4. (1+1+1+1=4). Of course, I could be wrong if the sellers are moving to an apartment or a homeless shelter.


In 2006 the $250,000 to $400,000 price point represented 27.5% percent of the sales. To be certain, a significant number of those sales were builder spec home properties. While the economic impact was surely powerful for a builder owned home sale, (jobs, retail sales, tax revenue...) the real estate impact in that price range might not have been as significant as a sale today since there was no home occupant of the spec home who moved out and bought another property.

Today's version of the spec home as far as real estate impact is concerned are the REO sales, and in Madison we have a bunch under $150,000. In fact, of the 274 homes sold under $150,000, there were 71 homes under $100,000 so far this year! The MLS comments have distressed sale written all over these entries. The real estate impact is negligible, and the economic impact is only slightly better than zero as the banks takes their money and store it in the mattress of the Federal Reserve. For proof that the world has changed compare 2011 sales to the same time in 2006 when only 8 homes sold under $100,000.  On a side note, a quick scan of the roster of sales under $100,000 shows the sales prices average 55% of their assessed values. (There's a story in itself.)

We expect the under $250,000 seller to be the buyer of the $250,000 to $400,000 homes. So far, they've made their presence known and as a reward for participating, they've acquired properties from 10% to even 20% below their highest market values while cashing in on low interest rate mortgage loans. There are 1368 single family, non-condo, homes on the market in the areas that make up the east and west Madison market, including Middleton, Shorewood Hills, Maple Bluff, Fitchburg. 24.5% of the homes for sale are in the core group price points--$250,000 to $400,000.

Notice that the 24.5% homes for sale number is exactly the same as the 24.5% number of homes sold in that $250,000 to $400,000 price range. There's some balance, although the seller's are losing money at closing, at least they have buyers to sell to. I suppose too much of the market activity is in the lowest prices and that's been trending there for a long time. Maybe when we see the a trend of the upper lower price points dominating the market we will be on our way to a more robust economy.











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