Bobby's Real Estate ColumnTallahassee's residential real estate market is certainly heating up hear in Tallahassee. Double digit percentage increases in both home sales and home prices coupled with a slight decrease in the number of properties listed for sale pretty much was the main theme of Tallahassee's real estate market in the 2nd quarter of this year. We also saw a sharp decrease in distressed sales (short sales and foreclosures) in Tallahassee which is contributed to improving our real estate market in the 2nd quarter. As the economy continues to improve, more jobs are being created, and that means there are more people with steady incomes who are jumping into the market to buy a home. Also, we are now about 7 years out from the collapse of the real estate market and the start of the great recession, and the first wave of homeowners who lost their home to foreclosure or short sale from the recession are finally jumping back into the market to buy homes as lenders are finally willing to loan money to those people to buy homes again. Also, first time home buyers, especially those in millennial generation, are getting out of their parents basements and are now buying homes.
The effect of everything I mentioned above is that demand for homes is surging this year. While the demand for homes is surging, the supply of homes for sale is actually going down. Also, while home values are going up, there are still a lot of homeowners out there who are underwater on their mortgage which is keeping those home owners from selling their homes. There are also a lot of homeowners who took advantage of the historically low interest rates over the last 3 years who don't want to sell their homes and lose the 3%-4% fixed interest rate that they have on their mortgages. These factors are keeping people from selling their homes which is constraining housing inventory.
In analyzing Tallahassee's residential real estate market in the 2nd quarter, let's first look at home sales As mentioned above, we saw a surge in home sales in the 2nd quarter of 2015 compared to the same time a year prior. In the 2nd quarter we saw an increase in home sales in Tallahassee of 13.3% compared to the the 2nd quarter of 2014. In certain areas of Tallahassee the increase is even higher. For instance, in Northeast Tallahassee home sales increased by a whopping 23.8%!
Now that we talked about home sales (a.k.a. the demand for homes) let's now look at the figures for property listings (a.k.a. the supply of homes). Overall, Tallahassee saw a 1.9% decrease in the number of properties listed for sale in the 2nd quarter of 2015 compared to the same time a year earlier. Normally such a slight decrease in the number of homes listed for sale would not have a major impact on our market, but when you have a 13.3% increase in home sales, any decrease in the number of homes listed for sale is going to be felt strongly in the marketplace by way of price increases which brings me to my next point...home prices.
As I mentioned above, we saw big surge in average home prices in Tallahassee in the 2nd quarter of 2015 compared to the 2nd quarter of 2014. Specifically, we saw a 16.5% increase in average home values in the 2nd quarter of Tallahassee compared to the same time a year before. To put this in perspective, a historically normal annual increase in home values is between 3%-5%. The annual increase in home values we saw in Tallahassee in the 2nd quarter of 2015 was 3 to 4 times more than the historical average. That is a pretty serious increase. In northeast Tallahassee home prices skyrocketed a whopping 20.5% in the 2nd quarter compared to the same time a year ago.
As we almost reach the end of the 7th year since the full collapse of the real estate market and of the broader economy, the number of distressed sales (foreclosures and short sales) continued to decrease. In the 2nd quarter of 2015 in Tallahassee distressed sales only made up 14.36% of total sales compared to 20.8% in the 2nd quarter of 2014. Distressed sales typically sell at a discount compared to non distressed sales, and they bring down the value of surrounding properties. The sharp decrease in distressed sales that we saw in the 2nd quarter was an instrumental part of the corresponding increase in home values that we saw in Tallahassee in the 2nd quarter of this year. New homes entering the foreclosure process are way down now since mortgage underwriting standards are so strict and have been the last few years. This means that we have far fewer mortgages entering foreclosure process while many of the foreclosure properties on the market are being sold off. This means that the trend of decreasing distressed sales is expected to continue.
On average homes took a little bit longer to sell in the 2nd quarter of 2015 compared to the same time a year earlier. More specifically, homes sat on the market 4.6% longer in the 2nd quarter of 2015 before selling compared to the same time a year earlier. With home prices going up so much this year I think that the slight increase the number of days it took to sell a home on average is normal. Normally you have to market a home for a longer period of time when you list a home at a higher price, so this is not much of a surprise. To put it in perspective, it only took 4 days longer on average to sell a home in the 2nd quarter of 2015 compared to the 2nd quarter of 2014. This is a pretty small increase and is nothing to worry about.
The final metric that I looked at when analyzing our real estate market was the average sales price/listing price ratio. In simple terms this is just looking at what the average home sells for compared to what it was listed for sale at. Typically the higher the average sale price/list price ratio is, the stronger the market is. In the 2nd quarter of 2015 the average sale price to list price ratio was 96.83% which means that the average home sold for 96.83% of what it was listed for sale at. This was up very slightly from the 2nd quarter of 2014 when the average home sold for 96.79% of what it was listed at. In essence the average sale price to listing price ratio was about the same as it was last year. A sale price/listing price ratio of nearly 97% is indicative that we have a very strong demand for homes in our market, and this positive market metric is consistent with the surge in demand for homes that we have seen over the last year.
Overall the residential real estate market here in Tallahassee in the 2nd quarter of this year showed that it is very vibrant and healthy. The strong demand that we have seen from buyers seems like its the product of a broader economic recovery, and is most likely a trend that will continue. The challenge that we face here in our local real estate market is getting the increase in housing supply that we need in order to match the growing demand for homes that we are seeing. Throughout town we are seeing more new construction going up, so hopefully the construction of new homes will help add to supply. Also with prices going up so much it's likely that more sellers will begin to put their homes on the market when they realize how much prices have been going up. I expect this will be the case, but I think it will take some time for homeowners to recognize the strong upward shift in home prices that is needed to spur them into taking action and putting their homes on the market. Unlike the stock market which reacts very quickly to information, the real estate market is very slow to change course. I would say in the next year or so we should expect to see housing inventory go up though.
The other thing to watch for in the near future is increasing interest rates. After much talk about rising interest rates we have finally begun to see interest rates go up with the average 30 year fixed rate mortgage going above 4% again. Interest rates are expected to go up even more when the Federal Reserve raises the federal funds rate sometime later this year. The rate increase is suppose to be gradual, so it should not have any large detrimental effects on our real estate market. In fact the increase could initially spur more home buyers into action who are hoping to lock in rates before they rise more which could help the market in the short term. I would expect our real estate market to continue on the path we saw in the 2nd quarter, but in the next few months I would expect that the market will cool off some from the double digit increases we saw this Spring.
A summary of the 2nd quarter year over year residential real estate market statistics for Leon County is below.
Tallahassee as a whole
- Listings down 1.9% (1,729 properties listed for sale)
- Number of properties sold up 13.3% (1,149 properties sold)
- Average Sales Price up 16.5% (Average sales price $199,729)
- Average days on the market up 4.6% (91 days)
- Average sale price/listing price ratio up 0.04% ( 96.83%)
- Distressed sales (foreclosures and short sales) were down and only comprised 14.36% of total sales compared to 20.8% of total sales in the 2nd quarter of 2014.
- Listings down 2.6% (897 properties listed for sale)
- Number of properties sold up 23.8% (604 properties sold)
- Average sales price up 20.2% (Average sale price $263,981)
- Average days on the market up 6.8% (78 days)
- Average sale price/listing price ratio increased by 0.06% (97.23%)
- Distressed sales only made up 10.4% of total sales compared to 19.5% the same time a year prior.
- Listings increased by 2.8% (475 properties listed for sale)
- Number of properties sold increased by 7.5% (316 properties sold)
- Average sale price up by 9.8% (Average sales price $127,879)
- Average days on the market increased by 12.6% (107 days)
- Average sales price to listing price ratio decreased by 0.02% (95.7%)
- Distressed sales only made up 16.5% of total sales compared to 22.8% of total sales the same time a year earlier.
- Listings down by 7.3% (254 properties listed for sale)
- Sales up by 3.7% (167 properties sold)
- 11.96% DECREASE in average purchase price (Average sales price $147,637)
- 2.2% decrease in average days on the market (91 days)
- Average sale price to listing price ratio decreased 0.44% (96.49%)
- Distressed sales went up slightly making up 19.2% of total sales compared to 18.6% of total sales the same time a year earlier
- Listings decreased by 2.8% (103 properties listed for sale)
- Number of properties sold DECREASED by 12.7% (62 properties sold)
- Average sale price increased by 3.4% (Average sales price $80,302)
- 11.8% decrease in the average number of days on the market (127 days)
- Average sale price/listing price ratio increased by 2.19% (95.35%)
- Distressed sales made up a higher proportion of total sales comprising 29% of total sales in 2nd quarter of 2015 compared to 26.8% a year earlier.