Current Growth in Clearwater Real Estate Market – Bubble or Recovery?

This month’s newsletter will be a little shorter than the last few (which may be a relief to some of you) but I’m only going to cover one topic this month after reviewing the local market statistics and that is whether the current condition is a real estate recovery or a real estate bubble.  One reason for the shorter newsletter this month is that I am still in the midst of moving and have my brother’s wedding and reception coming up so my time is a little shorter than usual.

Last month’s statistics not only show the continuation of strong sales and restricted inventory but is now the month with the highest sales since 2006 and the lowest inventory.  March, April and May now are the 3 highest months of sales since 2006 and we have had a continuous 17 months of sales where each month was higher than the same month in all of the past 5 years (and from January forward this year – all of the past 6 years).

We are also at the lowest point in month’s of inventory since just after the market started to turn in 2005 (in July 2005 we hit the low of 2.5 months inventory).  As a result, prices have been rising and are actually up nearly 10% from where they were at this time last year.

Information for charts above was taken from PRO/Suncoast MLS from Jan 2007 thru May 2011 & from the MFRMLS for May 2011 thru May 2013. This information may or may not include all listed expired, withdrawn, pending or sold properties of one or more members of the My Florida Regional Multiple Listing Service.

So what does this mean?  Which is it:

Real Estate Recovery or Real Estate Bust

You’ll probably hear both of these being talked about on the radio and television but which is it?

Looking at the charts above you’ll see that this trend did not just happen in the last month or two but actually began in December 2009.  It was at that point where we were starting to consistently see sales in a month higher than the sales in the same month of the previous year (from that point there were 19 consecutive months like that).  This was followed by a 5 month period that broke the trend but then it started again and has been consistent every month since then.

Beginning in January 2012 we began to see each month’s sale higher than the same month in all of the previous years back through 2007 and that has been consistent for every month since then.

Price generally start to increase about 6-12 months after sales increase and the stable increases we saw that began last January have resulted in increased prices that started showing up last fall and winter.

What is contributing to this and accelerating it is the low levels of inventory.  When you get below 5-6 months of inventory you are in a seller’s market and we have been in that range consistently since March of last year with January 2013 being the only month above 5 and we are now very close to going below 3 months.

There is much speculation about why this is happening and whether it will last.  I attended a webinar recently that was presented by the group I trained with to get my Certified Distressed Property Expert designation and the information they presented was very interesting and explains what is going on.

From 1968 to 2008  there were at least 1 million new homes built every year with an average of about 1.5 million homes per year.  Since 2008 there was an average of  less than 650,000 homes built each year and even though new construction is picking up, it will take a while to get back up into the previous range which will result in a shortfall of hundreds of thousands of homes.  It is understandable why there was such a reduction in new homes being built but this did result in a backlog of new construction that is needed.

In addition to this, many homeowners have been waiting to sell and there are a lot who don’t realize that they now have equity in their home that wasn’t there 1, 2 or 3 years ago.

Finally, the number of foreclosed homes and the number of homes starting into foreclosure have dropped quite dramatically from the peak in 2010 and is still declining.

Based on all of this, the current conditions we are seeing will very likely continue for at least the next couple of years with strong buyer demand and reduced inventory, resulting in price increases.  There are concerns over there being a ‘bubble’ and it is possible in some markets that are overheated, like south Florida (Miami area) that we could see this somewhat – but unlike the period in 2004-2006, we are seeing a much higher percentage of cash buyers as opposed to financed deal, buyers are not willing to pay above market value in most cases, and the price increases we are seeing are not nearly as high as during the previous period.

Also, during that past period there was a lot of newly built homes and many that had already begun when the market turned.  Today, we do not have that same level of new construction being completed or even starting as of yet.

That doesn’t mean that we couldn’t get to a point where there is another bubble at some time in the next few years – but what we are seeing right now is not a bubble but an actual recovery in our local area.