Home Sales Slump, But Prices Haven’t

Brent Finnegan -- November 9th, 2010

Local realtor Scott Rogers’ most recent report on home sales in Harrisonburg and Rockingham County indicates that local housing sales have been slow — down 21 percent in October, compared to October 2009. However, the home prices haven’t significantly dropped along with the pace of sales.

Willow Ridge

Photo of Willow Ridge via the hburgnews Flickr pool

After several years of declining home sales (pace, not values) it seemed that our local market had finally turned around. Now looking back, that increase in sales pace may have been largely related to the home buyer tax credit, as the pace of sales is now on the decline yet again . . . Fewer and fewer buyers have been present in the market over the past six years (demand fell) but prices have not fallen in the way that that shift in demand would suggest. Calling all economists….how can we explain this? (read more)

I asked Barkley Rosser, a Professor of Economics at JMU, and occasional hburgnews commenter, if this sort of supply-demand disparity is out of the ordinary. Rosser says that it’s not:

Prices have fallen somewhat, if you look at the underlying report, but then we did not have that much of a bubble here, which is why they do not need to drop all that much. Charlottesville had a much bigger one than we did, as did Northern VA. It is true that people selling are often overly reluctant to lower their prices sufficiently to sell, which partly explains the lowered volume, but things are not all that out of whack here. The pattern is similar in other parts of the country, and much worse in the areas that were bubblier than here.

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7 Responses to “Home Sales Slump, But Prices Haven’t”

  1. Scott Rogers says:

    Brent — thank you for touching base with Dr. Rosser.

    Dr. Rosser — thank you for your thoughts! I tend to agree with you.

    I’m interested to hear any other thoughts or opinions that are out there….

  2. Good report Scott, very professional. Here is my analysis: Just as real estate must be evaluated by locality, housing must be evaluated by price range – buyers have income constraints and lending restrictions – housing can no longer be considered a low risk investment with ease of entry. The local market can no longer support the high cost, large square footage homes.

    Looking at the market as a whole is not useful. It is like estimating damage from a coming hurricane by grouping all of Florida. The vulnerable beachfront will sustain the worst and most total damage. As noted on the trustee sales page of Scott’e report, 27% of 2010 sales were foreclosures! Then see the time on market for +$400K homes – they are NOT SELLING. If you can’t sell your home and you can’t pay two mortgages, at some point you walk. We are at that point. A Cat.4 housing storm is headed for the local high end home market. How bad the collateral damage will be on less expensive homes is dependent on the bankers and mortgage lenders. They will soon shape the market for large homes, and possibly price-damage small homes. Either way, home prices are about to drop. Big. But unevenly.

  3. Scott Rogers says:


    I think you’re right that different price ranges will perform differently over time, but our thoughts diverge on a few of your specific points….

    >> “The local market can no longer support the high cost, large square footage homes.”

    This is interesting….here’s what I’m finding….

    From Jan 1 – Nov 10, 2006 there were 103 sales of homes with 3,000+ SF, at a median price of $445k.

    From Jan 1 – Nov 10, 2010 there were 60 sales of homes with 3,000+ SF, at a median price of $395k.

    That’s only an 11% drop in median prices over four years, or about a 2.8% decline per year in median sales price. What am I missing here? It seems that the high cost, large square footage home market may still be OK.

    >> Either way, home prices are about to drop. Big. But unevenly.

    When? And by how much? Many/most areas across the country have already seen huge drops in prices, and many of those areas are now seeing prices start to increase again. We have yet to see prices make a big dip in this area — tell me more about why you think it will really happen here. And when it will happen.

    Thanks again for your comments!


    • Cory says:

      A major factor in all of this that many people overlook is the interest rate. Home prices are currently artificially inflated due to our current low interest rates. The interest rate has only one place to go, and when it does go up people will be able to afford less loan and thus less house. Again driving Housing prices down.

      I am originally from Indianapolis and was originally shocked at the prices of housing when I moved here. I believe they are still high. Housing prices in an area should always be compared to rent prices. Rent is more in line with the true value of housing because it is based on what people can afford to or are willing to pay and not based on how much loan a bank will give you, tax breaks, or incentives. If you could rent the house out for 1% of the total home price a month then the home price is probably in line with the market. If you couldn’t than it is probably too high.

  4. Hi Scott;
    Not sure you are making the sales price point you want to make by citing number of sales. Think it would be helpful to look at units on the market compared to sales – the early 2006 market had much less inventory, higher sales, increasing prices; the 2010 market has lots of homes sitting unsold and declining prices.

    Regarding the coming price crash: The number of buyers who can qualify for a +$400K home in the local market is a fraction of what it was in 2005 – when jumbo loans and 105% loans (no down) were easily available to barely qualified buyers. We are now in year 4 of the downturn, how long do you thing sellers can hold out for their price in a market populated by fewer and fewer qualified buyers, and tons of inventory? That 27% of 2010 sales that were foreclosure sales, how do they distribute across the price ranges?

    We aren’t a national market, we are the Harrisonburg metro market. In the absence of easy money and lax terms there simply isn’t the market to support the +$400k home market in the near term. That is why they aren’t selling. The inventory of pre-boom inflated price homes that could be marked down and sold is dwindling and we are now looking at sellers who bought at premium prices 5 years ago – most Americans move that often. If your job takes you to Bethesda, you buy while your credit is good, hang on in a bad Rockingham market, hope for the best, but prepare to walk away from the old place. It is a business decision that few have had to face, but the numbers are stark and clear – inflexible lenders now have the ability to tip the decision point and leave borrowers to move in their best interest.

  5. I tend to agree with Scott that there is no obvious particular disadvantage of $400,000 plus homes in the Harrisonburg area, either relative to other areas or relative to other segments of the market. However, let me comment on the broader national issue, noting that whatever happens in Harrisonburg is likely to be less severe than what happens nationally, simply because again we were not an area that experienced as much of a housing bubble and did not get that far out of line from fundamentals as others, as well as the fact that the local economy is basically stable and not doing all that badly. Not expecting any collapse of it, which would be the basis for a more extreme collapse here than elsewhere.

    Now, nationally there is reason to expect further declines. There are several different tracking services out there, but several are forecasting further national average housing price declines of 5-10%, possibly more. The overhang of foreclosed homes and ones likely to be foreclosed is an important factor here, with the mess about how to deal with foreclosures and bank messups in this area possibly worsening this element of the situation.

    The other factor would be a possible double dip of the economy into a renewed recession. While most say we are still in the Great Recession, technically we are not as that involves declining GDP, and the GDP is growing, if too slowly to make any noticeable improvement in employment. However, even employment is slowly growing, so unless there is a change in direction of the economy, its situation should not contribute to further declines of housing prices, even if it does not support much of an upswing, even if some areas that declined are and do see some turnaround, as Scott mentioned.

    The major source of a possible double dip would come from abroad, most dangerously from China, and ironically enough, most likely from a possible collapse of a serious real estate bubble that is going on there now. The very smart Ken Rogoff, former chief economist of the IMF and a McCain adviser in 08, has forecast precisely this outcome: that there will be a bursting of the Chinese property market bubble that will plunge China into a recession, which then drags the rest of the world economy down with it (and it was sharp turnaround in China that was largely responsible for the global turnaround to get out of this recession in the first place back in 2009).

    The other outside factor might be a financial collapse in Europe. Greece was contained, but maybe Ireland or some other place might not be, although both the EU and even the US Fed will work to contain any damage coming from that front (yes, the Fed is a silent player in all this, with its largely unreported agreement to reopen the swap line with the ECB crucial to the deal that bailed out Greece and stabilized the euro this past spring).

    The only internal source of a double dip for the US economy would be if we get some idiotic gridlock showdown that causes the US to default on its debt, not out of the question, although hopefully such a disaster will be avoided, and it would be a serious disaster. It would lead to interest rates going through the roof, which would bring down the roof on the US housing market, along with a lot of other stuff.

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