Return to Reality

Implications: The housing market returns to heathly levels as percieved demand is replaced by real demand, and reverts to affordable levels to meet the real homebuyers needs.

Analysis:  The year over year decline in the Real Estate sales and price numbers should come as no surprise to those of us in the real estate industry statewide. From 2004-2006 the prices and absorption of units was so high that it should come as no shock that the year over year numbers are declining. On a local level, in the Florida single family home market we are seeing the pricing decrease back to levels that are affordable in the market. During the "boom" years homebuilders were trading homes at prices that were far and away above the affordability range of the homebuyer and thus the "real" buyers were a smaller portion of the market and replaced by an investor buyer that continued to buy and sell homes driving prices up dramatically therefore pricing real home owners out of the market. At the same time, due to the percieved demand given by the investor the homebuilders and developers began bringing to market unusual amounts of product to a market that had strong demand. This all changed once the investors left the market. During late 2005 the investors virtually left the market leaving in its wake a glut of inventory in an oversupplied, over priced home market. As the investors left the real buyers were scared away from these high prices that homes were trading at and also stopped buying new homes.

All this being said, The market is beginning to show signs of adjustment that could never happen overnight. The dramatic rise in pricing and absorbtion created a false sense of reality as the perception of what pricing and absorbtion should be is now returning to what pricing and absorbtion really is.

I view these numbers as a sign of the slow recovery and precursor to the renewed demand for homes by real buyers. Another key factor to keep in mind is the homebuilders, in the Florida market at least, have virtually shut down their acquisition departments as they build through their existing inventory. This is a good sign that the recovery will happen quicker than some may think as builders run out of inventory they will be aggressively seeking new product to build on.