Realities of Real Estate: Seeking the ‘new normal’ in residential real estate

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We’ve been writing a real estate column for over three years now. Our first piece hit the papers on Sept. 18, 2008. Just three days earlier, the subprime mortgage crisis forced Lehman Brothers to file for Chapter 11.

A few days later, on Sept. 29, 2008, the Dow Jones Industrial Average experienced its largest drop ever, falling 777.78 points. As a result, our weekly coverage of the real estate industry began at the point of what would become a world-changing sequence of events.

We all know that weather forecasters don’t want anyone to get hit by a hurricane, but in the same vein, it’s more interesting for them to cover severe weather than it is to tell everyone that it’s going to be sunny and 72.

Similarly, it would have been better for everyone if the economic train wreck that followed Lehman’s collapse had never happened, but if you’re writing about real estate, it was one heck of a story to follow.

Since these were such turbulent times, we often look back through past columns to see if our analysis of past events was consistent with what actually came to fruition. As a matter of practice, we don’t usually make predictions, but over the past 150 columns, we have made an attempt to give perspective on how our local market fits into the bigger real estate, economic and political picture.

In doing so, we’ve written some things where we’ve been on target, and there are other times where the inability to coordinate all the possible variables left us somewhat stymied.

For example, in January 2009, we wrote a column called “2008 clearly not a Normal year for real estate.”

When the wheels began to come off on the economy, it became obvious that we needed to reassess what was “normal” and search for a new set of parameters to define success or failure in the housing market. When places like Las Vegas were falling off the cliff with respect to home sales and prices, it was suddenly considered an achievement for our local real estate market to hold its own by just going flat.

From 2001 to 2005 the median price of a house in Anne Arundel County increased by an astounding 89 percent. But for the next three years, prices essentially went nowhere. Nevertheless, going nowhere felt OK, especially when in other parts of the nation, prices were going down, down, down.

At the end of that January 2009 column, we wrote, “Will we ever return to “normal?

“Who knows? Maybe there really isn’t any such thing as normal; maybe we just live in a world of peaks and valleys.

“We think not. The free marketplace is a self-balancing mechanism. Supply and demand always come into alignment. But artificial forces can interfere with and/or delay how quickly we right the boat.

We hope the trillions our government is looking to move into the economy will fix the hole in the boat of our economy and not just bail water from one end to the other. Time will tell.”

Well, here we are, almost three years later. The trillion dollars got spent, and we don’t know about you, but our boat’s still got a lot of water in it, and we’ve been bailing like crazy.

Apparently, there were some boats in front of us that got bailed out first, like the banks, insurance companies, Wall Street, unions and the government itself. All their boats are riding pretty high these days. In fact, some of them actually got new boats.

Anyway, we digress. The fact remains that the real estate market and economy in general is little improved from the dark days three years back.

Consequently, we thought this might be a good time to take a snapshot of the local housing market in 2011 and show how it has performed, not only since 2009 but also going back to the pre-bubble days a decade earlier.

As a point of illustration, we’ll use Anne Arundel County. The performance measures we’ll use are Median Sales Prices, Number of Homes Sold, Days on the Market and Number of Homes Available for Sale.

Median Sales Price: As we mentioned, there was an incredible run-up in prices from 2001 to 2005. But when the bubble burst, prices in Anne Arundel County came down some, along with those everywhere else in the nation.

Since September 2009, the trend for median prices has been fairly flat, at around $285,000. That’s down from a 2006-2007 peak of $335,000. However, the post-bubble decline of 15 percent is quite mild compared to most other parts of the country.

Number of Homes Sold: At the top of the market in 2005, houses in Anne Arundel County were selling at the rate of approximately 800 per year. Today, we’re about half that, and as with sales prices, the annual number of homes sold has been relatively stable for the past two years.

Days on the Market: Currently, it takes an average of 120 days to get a house sold, and that’s been unchanged for around a year. The peak for this measure was 2007 to 2009, when it took anywhere from 140 to 160 days on average.

Predictably, the time it takes to make a sale has been slow to recover, as sellers resist reducing the prices of their homes to reflect overall declines in real estate values.

Homes Available for Sale: From 2001 through most of 2005, the number of homes on the market in Anne Arundel County, at any given time, was extremely uniform — about 1,500. From 2005 to 2006, the number of homes available for sale shot up to over 4,000.

It stayed that way through 2009 and has now declined to about 3,500. The increase in the length of time it takes to sell a house is primarily accountable for this change.

In general, the data suggest that we’re in a bit of a holding pattern and have been for at least a year. Things aren’t getting dramatically better, but neither are they getting any worse.

For the most part, the housing market is a reflection of the overall economy. Once we see improvement in job creation and deficit reduction, we should experience acceleration in the growth for housing sales and prices.

In the meantime, low mortgage rates are keeping our boat afloat, and slow improvement going forward is what we’d expect to be the new normal.