In Real Estate the numbers never lie

The explosive and unpredictable highs and lows of the real estate market in the past five years have left some confused while others excited in Central Alberta.

Some made massive amounts of money akin to winning the lottery, while others have literally lost their life savings.

As a realtor I’m frequently asked the question “How is the market?”. Since I’m a glass half-full kind of guy, I always instinctively reply, “It’s great!”

We all know how hard it is to find out the truth in the real estate market. We get bombarded with conflicting information from friends and the media. One day the market’s “booming”, and the next day it’s “crashing”! But what is really going on and how do you know who and what to believe?

Real estate goes through major cycles about every 18 years, but it can also go through several mini cycles within a single year and sometimes even within a month.

With that said, let’s take a look at the market statistics, so you can understand for yourself what’s been happening. The following sales stats are from Jan. 1 to Nov. 1 for single family dwellings. This is to give readers an accurate comparison for the most recent boom/bust cycle of 2005 to 2009:

Red Deer Single Family Dwellings January 1st to November 1st

In only two years, from 2005 to 2007, the average sale price of single family homes increased by a whopping $145,555 or 66.5%.

From 2007 to 2009, the average sale prices have decreased by $18,000 or 5%, which shows that although prices are slightly down, our market is still unbelievably strong.

When looking at the expired listing stats, you must first understand the theory of supply and demand.

Supply is the number of houses available at a given time. Demand is how many buyers desire the houses that are in supply at that given time. When supply is low, and demand increases, the prices are driven up. When supply is high and demand decreases, the prices are driven down.

A listing expires when a house doesn’t sell within the contracted time period and the seller decides not to move forward and takes it off the market.

In 2006 there were only 47 expired listings, which meant that in 2006 the supply was too low for the demand, and almost every house listed for sale was sold. This drove up the prices in 2007 and many people saw this as an opportunity to jump on the metaphorical “money train” and listed their houses for sale, thus increasing the supply.

The demand increased a little in 2007, probably for the fear that if you didn’t buy right away, the home would be $10,000 more next month. More homes were sold in 2007, again due to people wanting to cash in on the high prices, but as the expired homes almost quadrupled, this showed a sign that not all the supply was going to sell at these over valued prices! At this point the money train was leaving the station.

Amazingly from 2007 to 2008 the number of expired listings almost quadrupled again to 717!  This meant that a massive number of people were still hoping to catch the money train and houses were flooding the market. Prices were driven downwards and only those that were serious and motivated to sell were successful.

Clearly the train is long gone, but still there are those that linger. In 2009 the expired listings decreased by only 77.

Interestingly you will notice that throughout all this the number of houses sold per year has remained essentially the same. This means that the demand has remained consistent through all five years, and the supply has been the only changing factor.

In the middle of November 2009, the total number of listings in Red Deer was 510, whereas in 2008 there were more than 650 listings. This is a good sign that we are slowly adjusting back to normal. There are three main reasons for this:

 Sellers are getting educated on the market, and they are selling because they need to, not just to make unrealistic profits like in 2007.

Some people that bought in the peak of 2007 are seeking out other alternatives rather than selling at a loss. Some simply can’t sell because the mortgage amount is greater than what the selling price would be.

Most sellers are back to pricing based on what the home is worth in today’s market, and in turn the homes are selling. Bottom line is, no matter what the asking price is, buyers are only willing to pay the fair market value of a home.

In 2006/2007 the market boomed and it really didn’t matter what you did, your home sold! At the end of 2008 the recession hit and money was lost.

Now, only two years after the boom, we’re already settling back into a market that’s both strong and reliable. If it’s priced for today’s market, it will undoubtedly sell.

Realtors understand the market as we eat and breathe real estate. It is time to start trusting the numbers and if the realtor can show you at least three comparable homes to yours that have sold, trust it!

In today’s world both sellers and buyers have access to the same information, so both sides truly know what the home is worth.

For a more extensive look, breaking down these statistics for all property types, condominiums, and single family homes, visit us at www.RedDeerRealEstateExperts.com