Updated chart - Real Estate Slump
This is an updated chart to the posts I had made earlier. At that time I was hoping that the curve pointing up is pointing to a recovering real estate market, but actually it looks like there are minor cycles repeating and we’re still going down. Worse, those minor cycles seem to repeat every two years - and now we are in a minor cycle trough.
Just to recap, this chart compares the current market absorption to a year earlier. The chart actually plots the ratio. The market absorption is simply how much units are sold divided by the number of active listings. If everything sells, the absorption is 1, if part of the listings sell it is less than one. The absorption can be more than one if we sell more listings than what is active on the market - since some listings are entered in the MLS for stats only, which are sold outside the MLS.
So by comparing the absorption at any time versus a year earlier I can tell how aggressive the listings are selling. The comparisons are made by using data published on GCAAR’s website for Montgomery County Single Family homes.
Some quick observations:
- During the bullish region (the start of the chart), the cycle was short. You can identify the cycle using either two peaks or two troughs.
- Also, during the bullish market the curve was mostly over 1 indicating that at those points of time we were selling more homes of what is listed compared to a year earlier.
- As the bearish market hit, the curve slid more below one.
- Worse, the cycle is getting wider keeping the curve under 1 for longer periods of time.
- At the start of 2007 the curve touched one, and I was hoping in an earlier post that this is a sign of going out of slow real estate market.
What really happened now is the curve went down a. deeper than the trough of Feb 2006, and faster with a steeper down slope. Furthermore, it does not look to me like a trough is leveling at the current point in time. What I also notice is that at the start of every year there is either a peak or a trough. Jan04-Jul04: trough, Jan05-May05: Peak, Oct05-May05:trough, Jan07-Jul07: Peak. Using the same sequence I expect the trough to happen between Jan08 and July08. If the tax rebates, federal reserve rate cuts and other expected rate cuts on Jan 25 2008 will affect the market, hopefully this will be the last trough we see before we go out. But that also means if anything will change, the real estate market won’t really switch except in the second half of 2008.
However, slow market are not really bad. Some people like investors might find good opportunities in this market and may want to move faster before it is all gone and wheels turn back.
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