Tallahassee's real estate market continued to improve and is looking pretty healthy in the 4th quarter of 2014. The level of inventory available for sale in the 4th quarter of 2014 remained relatively unchanged compared to the same time a year earlier while the number of properties for sale saw a big increase and average prices saw a modest, but by historical standards, a very healthy and sustainable increase. The average time it took a property to sell in the 4th quarter of 2014 also remained relatively unchanged from a year earlier which indicates that the balance between demand from buyers and supply from sellers has remained pretty steady. The average sale price to listing price ratio, which is what the average property sells for compared to what it's listed for sale at, also remained relatively unchanged. This is another supporting indicator that the balance of homebuyers and home sellers has stabilized and has found a steady equilibrium.
The only statistic that seems a little surprising is the fact that distressed sales (short sales and foreclosure sales) increased in the 4th quarter of 2014 from the same time period a year earlier. Distressed sales typically sell at a discount compared to non distressed sales, and they typically bring down home values of surrounding properties. If it were not for the increase in distressed sales, it's safe to say that average home prices would have increased more than they did in the 4th quarter of 2014. This is good news for investors though, because it means there were more good deals on distressed properties to be had than there were a year ago.
It should be noted though that the increase in distressed sales is not an indication that our real estate market is getting worse. The increase in distressed sales is simply due to the fact that banks are ramping up the sale of the existing inventory of properties that they have on their books. The amount of properties entering into the beginning stages of foreclosure is way down, and the increase in distressed sales is not an indication that more people are getting foreclosed on, it's just an indication that the banks are more willing and ready to unload their existing housing inventory at a faster pace. This is actually a good thing, because the quicker we get rid of distressed sale, the quicker we will get to a full recovery from the real estate bust that began in 2007.
As mentioned above, the inventory level of homes available for sale remained relatively unchanged in the 4th quarter of 2014 from the same time a year earlier. The number of properties for sale only increased slightly by 0.6% year over year going from 1053 homes listed for sale in 4th quarter of 2013 to 1060 homes listed for sale in the 4th quarter of 2014.
While the amount of housing inventory for sale stayed about the same in the 4th quarter of 2014, the number of homes sold saw a big increase. In the 4th quarter of 2014 we saw a 14.8% increase in the number of properties sold compared to the same time period a year earlier. Sales of residential properties increased in Tallahassee from 709 sales in the 4th quarter of 2013 to 814 sales in the 4th quarter of 2014. The increase in home sales can most likely be attributed to two main causes.
First off interest rates saw a pretty big year over year decrease in the 4th quarter of 2014. In the 4th quarter of 2014 the average rate on a 30 year fixed rate mortgage was hovering around 4% compared to 4.5% in the 4th quarter of 2013. Lower interest rates make buying a home less expensive for people purchasing a home with a mortgage. This of course can lead to an increased demand for buying homes.
The second main reason that home sales most likely saw a year over year increase in the 4th quarter of 2014 was because we saw an increase in jobs. The more people that are employed leads to a bigger pool of potential home buyers which in turn leads to more home sales.
The average number of days it took for a property to sell remained relatively unchanged. In the 4th quarter of 2014 it took a property 102 days to sell on average. In the 4th quarter of 2013 it took a property 101 days to sell on average.
The average sale price/listing price ratio shows what percentage on average a home sells for compared to what it was listed for sale at. This ratio increased by 0.44% in the 4th quarter of 2014 from the same time period a year prior. In the 4th quarter of 2014 the average home sold for 96.72% of what the home was listed at compared to 96.28% in the 4th quarter of 2013. 96.72% is a pretty high sale price/listing price ratio , and it shows that buyer demand for homes is very strong right now compared to the level of homes available for sale. This also indicates that sellers are pricing their homes where they need to be priced at in order to get them sold
The 4th quarter of 2014 also brought about an increase in the number of distressed residential property sales in Tallahassee compared to the same time period a year earlier. In the 4th quarter of 2014, distressed sales made up 17.94% of total sales compared to only 16.08% in the 4th quarter of 2013. Due to the fact that distressed sales suppress home values, we probably would have seen a slightly larger increase in average home prices had it not been for the increase in distressed sales. On the flip side though, if you are a buyer who is searching for good deals on investment properties then this is good news to you because it means that the number of opportunities out there to pick up a good deal on an investment property has gone up.
Overall, Tallahassee's real estate market is doing good. Prices are continuing to increase at a healthy rate that is in line with the historical average rate of 3%-5% per year, sales are up, the inventory of homes for sale seems to be at a level that provides buyers with a good number of choices of homes to look at, but at the same time our market is certainly not flooded with too many homes for sale. Homes are selling pretty quick with it only taking a little bit over 3 months on average for a home to sell. Also, sellers are getting pretty close to their asking prices with the average home selling for 96.72% of what sellers are listing their homes for sale at. Finally, with an increase in the number of distressed properties being sold, investors who are looking to get good deals on investment properties have more opportunities to find good deals than they did last year.
In the near future look out for a slight increase in interest rates in 2015 as the Federal Reserve is supposed to be increasing the Federal Funds Rate sometime this year which will in turn cause an increase in mortgage rates. Depending on how abrupt the increase in the mortgage rates are, the increase in mortgage rates could have a dampening effect on home sales and home prices. Most likely though, the increase in interest rates will be modest, and the overall improvement in the economy will continue to spur home buying and price increases despite the increase in mortgage rates. Another important subject to take note of is the recent decrease in gas prices (which is suppose to be long lasting) will cause more people start buying homes in suburbs and on the outskirts of town due to the cost of commuting going down.
A snapshot of the year over year real estate metrics for 4th quarter 2014 in Leon County are listed below.
- The number of properties listed for sale increased by 0.6% (1060 properties listed for sale.
- The number of properties that sold increased by 14.8% ( total properties sold was 814)
- Average sale price increased by 2.6% (average sale price was $186,077)
- Average number of days it took to sell a property increased from 101 days in 4th quarter of 2013 to 102 days in 4th quarter of 2014.
- Average sale price/listing price ratio increased by 0.44% (average home sold for 96.72% of what it was listed for sale at.
- The number of distressed sales expressed as a percentage of total sales increased by 1.86 %. (17.94% of all home sales were distressed sales)