1st Quarter 2016 Tallahassee Residential Real Estate Market Snapshot And Year Over Year Market Statistics.
The residential real estate market here in Tallahassee started off the year in the 1st quarter of 2016 with robust activity. We saw gains in both the number of properties listed for sale and in the number of properties sold. The year over year increase in the number of properties sold was substantially higher than the number of new properties listed for sale though. This shows that the demand for homes is outpacing the new supply of homes becoming available for sale. With demand exceeding supply you would think that prices would be going up, but strangely enough the year over year prices decreased in Leon County in the 1st quarter of 2016. This is actually the second quarter in a row that we have seen decreasing year over year home prices in Leon County which seems to suggest that our market is experiencing a price correction resulting in the huge price increases we saw in early 2015 when year over year prices increased by nearly 20%.
In the first quarter of this year we also saw a year over year decrease in the average time it took to sell a home. Homes also sold for a little bit closer to their listing prices in the 1st quarter of 2016 compared to the 1st quarter of 2015. Finally, distressed sales made of a much smaller percentage of total sales in the 1st quarter of 2016 compared to the same time period a year earlier.
Lets start off by talking about the year over year increase in properties listed for sale and increase in properties sold. We saw a good sized year over year increase in the number of properties listed for sale in the 1st quarter of this year. To be exact, the number of properties listed for sale in the 1st quarter of this year increased by 5.7% compared to the same time a year prior. This is a good indication that homeowners are feeling more confident that now is a good time to sell their properties.
While the number of properties listed for sale increased, the number of properties that actually sold in the first quarter of 2016 saw even bigger increases compared to the 1st quarter of 2015. Year over year sales in the 1st quarter of 2016 increased by a whopping 14%. What this means is that the increase in demand for homes is outpacing the new supply of homes available for sale. This increase in the sales of properties over the number of new properties being listed for sale has created a very competitive marketplace for home buyers this Spring. Home buyers don't have a large inventory of homes to choose from, and often times homes that come up for sale that are priced right end up flying off the market before most interested home buyers even have a chance to place an offer on the property. With the increase in the demand for homes outpacing the new supply of homes, you would think that home prices would be rising, but that is not the case.
Year over year home prices in the 1st quarter of 2016 actually decreased by 4% compared to the 1st quarter of 2015. On the surface it might seem a little bit strange for home prices to go down when demand for homes is far out pacing the supply of homes. However, when we look at the situation more closely I think the reason why home prices have gone down is fairly simple.
In the 1st half of 2015 we saw double digit year over year price increases that reached nearly 20%. That is a huge increase in home prices in a very short period of time. That level of price appreciation is not sustainable, and I think our local real estate market is going through a price correction right now in response to the sharp price increases from a year ago.
When we look at the situation even more closely, I think there is another reason that we are seeing prices decrease. Over the past several years now, home prices have been on the rise. While home prices have been rising, people's incomes have not been rising. People's incomes over the past few years have been stagnant for the most part with only extremely small increases in some years. Overall though, home prices have been exceeding incomes by leaps and bounds. I think we are at the point now where people's incomes are limiting how much people can pay for homes, and until people's incomes start to go up then home prices will overall stay flat and not increase. So to sum it up, I think that year over year prices went down in the 1st quarter because of a market price correction and because people's incomes are not going up.
The average number of days that it took to sell a home in the 1st quarter of 2016 decreased by 6.7% going from 104 in the 1st quarter of 2015 to 97 days in the 1st quarter of this year. The average sale price/listing price ratio, which measures how closely a home ends up selling for compared to what it's listing price is, slightly increased going up to 97.19% from 97.09% in the 1st quarter of 2015. So this means that the average home in Leon County in the 1st quarter of 2016 sold for 97.19% of what it was listed for sale at. This indicates that we are in a strong sellers market here in Leon County.
Finally, we continued to see distressed sales (foreclosures and short sales) making up a smaller percentage of total sales in the 1st quarter of 2016. In the 1st quarter of 2016 distressed sales made up only 10.9% of all residential property sales. This is a big drop down from 17.9% in the first quarter of 2015. Distressed sales typically sell at a discount bringing down the values of surrounding properties. Everything else being equal, the fewer distressed sales we have, the higher home values should be.
Overall I think that the residential real estate market is Leon County is doing very good. The market is hot, and both listing and selling activity picked up a good bit in the first quarter of 2016 compared to the 1st quarter of 2015. Prices saw a small decrease in the 1st quarter of this year compared to the same time a year earlier, but I don't think this is a bad thing. Prices have been increasing so much over the last few years while incomes have not. If the home prices keep going up at a pace that exceeds income levels then we will eventually have a housing affordability crisis on our hands. I think the small price decreases are a good thing, and will serve to help keep housing affordable for home buyers.
Distressed sales have continued to go down and have reached a level of about 10% of total sales. This is still above the historical level of about 5% though, so hopefully we'll see distressed sales continue to decrease down towards that 5% mark as the banks continue to sell off their inventory of distressed properties. Of course the lower level of distressed sales will be good for property values, but it also means fewer opportunities for investors to pick up investment properties at steep discounts.
Looking ahead, what are some things we need to pay attention to that could drive the direction of our real estate market? Locally, I would say to look out at how new developments across Tallahassee could have an impact on property values and rents in certain areas. The new VA hospital on the corner of Blairstone and Orange Avenue is close to being finished, and will most likely bring new demand for both rental properties as well as new home buyer demand to that area. There will be people coming into town for new jobs there, and also there will most likely be veterans that move to Tallahassee to live close to the new VA hospital. Purchasing real estate in this area right now might be a smart move.
Another development is the opening of the new Centre of Tallahassee on the corner of John Knox Road and North Monroe Street. This place will bring new jobs to the area and people will want to live close to this development. It will include a big concert venue, shopping, dining and movie theaters. Purchasing real estate close by to this development might not be a bad idea either as demand for housing nearby is likely to go up.
Broadly speaking I think I would keep my eye on interest rates and people's wages. If interest rates go up then it could have a negative affect on home sales. The Federal Reserve is likely to increase the Federal Funds Rate again which could cause interest rates to rise. It could also cause stock prices to drop which could in turn make people more hesitant to purchase homes. With wages, I would pay attention to see if wages start to creep up substantially. If they don't then I would expect home prices to remain flat for the foreseeable future.
A summary of the 1st quarter year over year residential real estate market statistics for Leon County is below.
Tallahassee as a whole
- Listings increased by 5.7% (1,532 properties listed)
- Sales increased by 14% (871 properties sold)
- Average sale price decreased by 4%(Average sale price was $179,431)
- Average Sale price/list price ratio increased by 0.1% (average sale price to list price ratio was 97.19%)
- Average days on the market to sell decreased by 6.7%. (Average days on the market was 97 days)
- Proportion of distressed sales to total sales decreased by 7% (distressed sales made up 10.9% of total sales)
- Listings decreased by 1% (759 properties listed for sale)
- Sales increased by 3% ( 390 properties sold)
- Average price decreased by 2.2% (Average sale price was $248,484)
- Sale price/list price ratio increased by 0.24% (sale price to listing price ratio was 97.62%)
- Average days on the market decreased by 9% ( average days on the market was 90 days)
- The proportion of distressed sales to total sales decreased by 4.1%. (distressed sales made up 6.2% of all sales)
- Listings increased by 9.6%. (446 properties listed for sale)
- Sales increased by 16.2% (266 properties sold)
- Average sale price decreased by 2.1% (Average sale price was $112,699)
- Average sale price/list price ratio decreased by 0.35% (average sale price/listing price ratio was 95.59%)
- Average days on the market before a home sold increased by 10.5% ( the average home sold in 105 days)
- The proportion of distressed sales compared to total sales decreased by 7.2% (distressed sales made up 17.3% of all sales)
- Listings increased by 6.5% (212 total properties listed for sale
- Sales increased by 51.5% (147 properties sold)
- Average prices decreased by 2.9% (average sales price was $165,560)
- Average sale price/list price ratio increased by 0.39% ( average sale price/listing price ratio was 98.08%)
- Average days on the market before a home sold decreased by 16.1% (home sold on average after 94 days on the market)
- The proportion of distressed sales compared to total sales decreased by 10.4% (distressed sales made up 10.2% of all sales)
- Listings increased by 49.4% (115 properties listed for sale)
- Sales increased by 13.3% (68 properties sold)
- Average sales price increased by 14.3% ($74,417)
- Average sale price/listing price ratio increased by 0.78% (Average sale price/listing price ratio was 94.54%)
- Average days on the market before a property sold decreased by 26.5% (It took 111 days on average for a home to sell)
- The proportion of distressed sales compared to total sales decreased by 20.3% (distressed sales made up 14.7% of total sales)