Each month I post a graphical representation of
Harrisonburg and Rockingham County home sales within the context of the prior five years. (2003-2008)
My monthly
home sales report includes the data behind this graph, which (in the most recent month) showed a 23% decline in home sales this year as compared to the prior year (Jan-May 2008 versus Jan-May 2007). But, as a friend of mine pointed out, this doesn't show how far the rate of home sales has fallen compared to when our market was at its fastest pace.
The graph above illustrates the 38% decline that we have seen in Harrisonburg and Rockingham County between the peak of buyer activity (2005) and the current year (2008). Please do remember, this is a decline in market activity (properties being sold/purchased), not a decline in home values.
So where did all of those home buyers go? Why did 364 buyers close on properties during January - May 2008 as opposed to 591 buyers during January - May 2005? I have some ideas...
- There aren't as many investors buying anymore. There were significantly more investor buyers in our market in 2005 as compared to this year. Low sales prices, low interest rates, high appreciation, and high loan-to-value opportunities, and high return on investments all contributed to many, many investor buyers closing on properties during our most active years (2004-2006).
- Increases in home values have priced many buyers out of the market. Back in 2005, when home values were significantly lower than they are today, many more buyers were qualified to purchase (as opposed to renting). Income levels have risen at a slower pace than housing costs over the past three years.
- Buyers have to plan to keep their home longer now. Admittedly, this is just a return to the conventional wisdom of the past --- don't buy unless you plan to stay in your home for 3+ (or 5+) years. However, during 2004, 2005, and 2006 it worked out fine for many buyers who bought, and needed to sell only a year later --- they walked away with impressive gains! That phenomenon, created by high appreciation rates, brought many people into the market to buy when otherwise they would have rented. Today, if someone isn't sure whether they'll be in the Harrisonburg area for more than a year or two, they often choose to rent, as they won't necessarily be able to buy, sell, and make money in a 1-2 year time frame.
- Loans aren't as easy to obtain any more. For several years, if you had a pulse, you could obtain a mortgage. Lenders didn't care whether you could verify your income or your assets --- a buyers word was good enough, and loans were being written for just about anyone who wanted to buy a home. Loan requirements have now become much more strict, which reduces the number of buyers in the market.
Given these four factors, I don't think we should be too surprised that fewer buyers are buying in 2008, as compared to 2005. I suspect that we will see more people buying in 2009 and 2010, but it may be a few years before it returns to the pace we saw during 2004, 2005 and 2006.
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