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Realty Views By Terry Ross

Is Housing Recovery Turning A Corner?Terry Ross, Realty Views

December 17th, 2013 – While many sellers are finding out that the quick-sale window of earlier this year has closed as investors back off the housing market, a new equilibrium of homes for sale has in many instances caught up with the number of real buyers in the marketplace.

On the one hand, prices have appreciated noticeably in most markets, given the rush of investors purchasing low-priced (and many times distressed) inventory. The upper hand that sellers enjoyed with low inventory has dissipated. With more properties coming on the market and having to compete with fewer buyers, investors have reached the upper limits of what they will pay as prices have gone up. Most buyers these days will not, and do not, have to pay $50,000 more than the last sale in the neighborhood, but a home that is strategically priced can still sell in a reasonable time.

The number home transactions has dipped in many markets from a year ago. Many sellers think they can get what they thought their house was worth years ago, because the word has been out for a while about multiple offers and prices being bid up. Those homes with multiple offers and bidding wars were priced very low to start with and coming from a steep bottom floor that has started to rise – and as it rises the buying frenzy has cooled.

This is not to say that the market is not getting healthier – it has and will continue as the New Year unfolds, but strategic pricing is going to be a key ingredient in selling. This holds for both re-sale and new homes, and some statistics seem to bear out that housing is picking up – however gradually.

According to the National Association of Home Builders/First American Leading Markets Index (LMI), 54 out of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in their latest report. The index’s nationwide score of .86 indicates that, based on current permits, prices and employment data, the nationwide market is running at 86 percent of normal economic and housing activity. Fifty-five housing markets were operating at or above their last normal levels and the nationwide market was operating at 85 percent of normal growth.

“This index shows that most housing markets across the nation are continuing a slow, gradual climb back to normal levels,” said NAHB Chairman Rick Judson. “Policymakers must guard against actions that could impede or even reverse the modest gains of the past year.”

Noting that smaller metros accounted for most of the 54 markets on the current LMI that are at or above normal levels, NAHB Chief Economist David Crowe said that “smaller markets are leading the way, particularly where energy is the primary economic driver. Nearly half of the markets in the top 54 are in the energy states of Texas, Louisiana, North Dakota, Wyoming and Montana.”

“The fact that more than 125 markets on this month's LMI are showing activity levels of at least 90 percent of previous norms bodes well for a continuing housing recovery in 2014,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report.

The Baton Rouge area tops the list of major metros on the LMI, with a score of 1.42 – or 42 percent better than its last normal market level. Other major metros at the top of the list include Honolulu, Oklahoma City, Austin, Houston and Pittsburgh – all with LMI scores indicating their market activity now exceeds previous norms.

The LMI shifts the focus from identifying markets that have recently begun to recover, which was the aim of a previous gauge known as the Improving Markets Index, to identifying those areas that are now approaching and exceeding their previous normal levels of economic and housing activity. More than 350 metro areas are scored by taking their average permit, price and employment levels for the past 12 months and dividing each by their annual average over the last period of normal growth. For single-family permits and home prices, 2000-2003 is used as the last normal period, and for employment, 2007 is the base comparison. The three components are then averaged to provide an overall score for each market; a national score is calculated based on national measures of the three metrics. An index value above one indicates that a market has advanced beyond its previous normal level of economic activity.

One of the keys for these trends continuing will be how well sellers manage their expectations in the current market. Those who look at the current neighborhood pricing levels and price their homes accordingly will most likely be able to secure a buyer. Those who base their sales goal on what their home was worth back in the day, or what they need to “break even,” more often than not will have their home on the market for a long time, or take the sign down without a sale and wait until the market catches up to their unrealistic expectations.

(Terry Ross, the broker-owner of TR Properties, will answer any questions about today’s real estate market. E-mail questions to Realty Views at terryross1@cs.com or call  562/498-1049.)