Mohamed Ibrahim’s Blog

That’s the update relative market absorption chart, for Montgomery county MD. In a nut shell, this chart compares the fraction of sold inventory to a year ago. So, if a bigger fraction of the homes on the market is getting sold compared to a year ago, this chart will be higher than 1. If not, then it will be less than one. Obviously, it’s been less than 1 since approximately March 2005 with only a slight peak on Feb 2007.

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That’s an updated chart compared to last month’s. Bad news is, the slump is going deeper. This chart measures the relative absorption to a year earlier, which is basically the demand in the market versus the offered units for sale. The updated chart shows that the ratio of closed settlements is even less than last month, when compared to a year earlier. It looks like there’s a lot of indicators showing contradicting markets. Some show that the market is about to bounce back, or at least their analysts hopes. Others show that the market is not bouncing at all, worse, it is going in a deeper hole. We’ll keep watching!

Standard and Poors released a report showing that the housing prices fell sharply, way sharper than every one expects. What S&P terms “S&P/Case-Shiller home-price index” dropped 10.7% since January 2007, after 9% drop in December compared to a year earlier.

Although this week news came out that existing home sales is one the rise, it seems that there are different type of buyers this time. Buyers are either trying to take significant advantage of the market, or strong investors are buying investments when there’s lots of blood. And I still believe that the market will bounce back, yet it looks this time that there’s a different type of bouncing back. There will be a lot of sales at low price first, then the price will start following as demand increases.

There is light at the end of the tunnel. Things are bouncing back, and I can tell! More showing requests than the last quarter. Still less than last year, but much better than last quarter. I previously argued the possibility of the market bouncing back, and it seemed possible through the market cycles. However, we also argued the strength of the market bounce and whether the fix the feds did is a temporary or permanent one. Lowering the interest rate is of course a temporary solution that increases the money with the people through the people borrowing more credit, and in the same time cause inflation due to the increase of the money supply.

So we should be happy that the market is bouncing back, yet be careful because at the end of that short peak there might be another trough - unless serious measures are taken by the government to seek permanent economic fix through bringing manufacturing jobs back in the US.

Toll brothers reported that they expect further revenue decline in 2008 first quarter. I heard yesterday on WTOP news, that they even expect the market to go into worse conditions. I’m on the contrary seeing signs of things getting better than at least the previous quarter. I’m not saying that we’re getting out of the pit yet, but at least during the previous week I’ve been getting calls, email requests and contacts through the website from people looking to buy, in a rate higher than the last quarter.

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Too many people mistakenly make themselves liable to pay capital gains taxes when they exchange an investment property with another. They simply haven’t been told about the 1031 tax exchange, the law which enables you to reorganize your investments without actually paying capital gains. Lots of people also mistake the 1031 tax exchange as a way by which they will not pay taxes well they say taxes and death you can’t run away from them. Simply and in summary, the 1031 tax exchange tells the IRS that you really did not stop investing, it is just that you found a better investment and re-organizing your money. That said, it means that you’re not going to take any money out of the property.

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