Peter Murphy

The number of home-sales in Tampa Bay increased for the second straight month - so did the average sales price of Bay Area homes. But a continual decrease in asking prices is holding back housing market recovery. That's according to Home Encounter's Residential Real Estate Report for May, released today.

"There was improvement - or at least stability - in almost every indicator of housing-market-health," commented Peter Murphy, Home Encounter CEO. "The number of sales went up across the region; sale prices rose; total listings fell; and average days until sale dropped." All these positive indicators would ordinarily be accompanied by talk of recovery in the housing market, but Murphy isn't so optimistic. "Asking prices have continued to drop, dampening prospects of an immediate recovery in the housing market," commented Murphy.

According to Home Encounter, asking prices are a key bellwether of market strength, since they're based on factors such as comparable sales, customer demand, loan availability and what a buyer can afford. Falling asking prices are typically in response declining home values, increased competition, extended time on the market and increased negotiation from Buyers. So even though average sales prices may have creped up since last month, the large inventory of unsold homes and heavy Buyer negotiation is having a dampening effect on market recovery.

A Slowing Decline in the Housing Market

The news of May home-sales activity is a mixed bag. Home Encounter forecasts still indicate that the Tampa Bay market will reach its bottom around February 2009 - unchanged from last month. But prices will have to fall a little more before they reach rock bottom - almost 7% more, according to Home Encounter's Report.

Everyone equates "Bottom" with "Recovery", but the two concepts are quite different, commented Chase Clark, Home Encounter Partner and director of Investment Services. "Bottom" is the point at which the decline should end. "Recovery" depends on many factors, including inventory levels, consumer confidence, availability of loans and the job market. When it comes to the "Bottom" of the housing decline, we can safely say that the end is in sight. But when "Recovery" will occur - and how long it will take to erase the losses of the last 3 years - is anyone's guess.

Looking for Relief

Still, May stacks-up well when compared against past months. "Asking Price is a measure of health that almost has to get worse before it gets better," commented Murphy. "Foreclosures, Short Sales and other real estate bargains will inevitably force the competition to lower their price if they want to sell homes. But once bargain-inventory dries up - and assuming generally positive trends continue - it won't be long before the Seller can gain some level of control again. That's the relief that everyone is looking for."

December was a surprisingly strong month for Residential Real Estate sales in Tampa Bay. Sales were up, inventory levels were down and the rate of new listings decreased. These are some of the findings of Home Encounter's Residential Real Estate Report for December 2007 that can be found at www.HomeEncounter.com/learn.php.

Although we were somewhat surprised with these findings (seeing as December is historically the weakest month of the year for Real Estate sales), every indicator that we monitor conclusively showed improvement from November to December, with the exception of the time a house sits on the market before it sells. According to the Report, December sales were up 14.5%, sold-prices were up 3.2%, total listings dropped 6.5% and new listings dropped 21.5% over November.

We refuse to call one month of data a "trend", but we are none-the-less heartened by these findings, which are - as always - based on a thorough analysis of Hillsborough, Pasco and Pinellas sales from MLS for the month of December. The fact that these improvements occurred in December, that they were significant (double digits in some cases) and that they were so widespread (affecting 11 out of 14 indicators) gives us cause for cautious optimism.

Still, "positive indicators" are a far cry from recovery. The good news for December does little to change the overall condition of the Bay Area real estate market. Sales, inventory levels, and home prices are still considerably off peak-levels. The monthly estimate of market recovery published in our Tampa Bay Residential Real Estate Report (MarketTrack) is still forecasting that the slumping Bay Area housing market will last until late 2009 and will result in a 10% drop in prices from December 2007 levels.

While our analysis suggests that the bottom of the market is still a long way off, December data could quite possibly indicate a slowing decline - which is welcome news for all of us.

On December 29th, The Tampa Tribune reported some "good" news: more homes are selling in Tampa Bay than in any other region in Florida. Throughout the article, Realtors and Economists are quoted as saying what a positive indicator this is for the region - how the Tampa real estate market is "stabilizing" and "equalizing" and other such platitudes. As an Economist and an MBA myself, let me weigh in on this debate, because the article and the information contained therein is highly misleading.

By no means is an up-tick in sales definitive proof of market stabilization. At lower prices, sales will naturally increase - there comes a point where value received is so far in excess of price paid that even the most novice investor will see the advantages of investing.

But a lower price is also an indicator of oversupply which we've got in spades in Tampa Bay. In fact Home Encounter data shows that December 2007 listings outpaced December 2007 sales locally at a rate of 2.75:1. Combine growing supply with falling prices and we've got a market that's actually worsening - that's not improving at all! As supply continues to balloon - which it will, as it's showing no signs of stopping - prices must continue to fall in order to attract buyer attention.

The Tribune article quotes Nick Davis - a local Realtor - as saying that he's seeing "an up-tick in sales as long as sellers are willing to drop their asking prices." Dear readers, this is the antithesis of a strong market. A strong market is one where sellers do not have to drop their asking price in order to sell. A strong market is one where prices hold their own; where appreciation is reasonable; where supply is under control and where value received is roughly equal to price paid.

"Always Low Prices, Always!" may work for Wal-Mart in driving volume (and thereby profits), but the same strategy spells death for a real estate market. We need to see a little less Wal-Mart and a little more Nordstroms in Tampa Bay in order for us to be willing to say that we've reached the bottom of this market cycle.