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MARKET TRENDS…………..Overview:
What are these things called Market Trends and why are they so important? Well, in developing an appraisal and reporting the results of that appraisal, I am required to, “….identify and analyze……market area trends.” This requirement comes directly from the Uniform Standards of Professional Appraisal Practice (USPAP), Standard Rule: 1-3.
So where do we get this information? There are many data sources available to the appraiser that track real estate activity and real estate sales. While consideration is always given to the types of trends identified by the Case-Shiller Index, OFHEO and NAR reports, these indexes and reports portray trends at the PMSA (Primary Metropolitan Statistical Area) level where as the trends identified by the appraiser for the "One-Unit Housing Trends" of the URAR appraisal report reflect trends at the neighborhood level, which may differ from area wide housing trends.
The source of my data and data research comes from the Midwest Real Estate Data, LLC via the “connectMLS” system. For the purpose of this overview and throughout all of the charts provided below, I have identified the entire Mount Prospect area for my market trend analysis. Using the entire area will provide a benchmark, a macro view for the particular suburb and not the “segment of the market” that would necessarily apply to a specific property. In an individual appraisal report, the neighborhood is not generally defined as an entire suburb, it is any specific geographic area such as a sub-division, school district or other group of complimentary land uses so identified by the appraiser in which alternative, similar properties effectively compete with the subject property. This is the area where we search for and identify comparable properties to be used in the “sales comparison approach” in the development of the appraisal which ultimately assist us in determining the opinion of value.
In each of the individual “Suburban Areas” tabs, where I have included additional charts for your review, they too will include the entire suburban area for my market trend analysis. The reason I explain this, is that through the use of charts and graphs, trend analysis (when used correctly) can be used to identify and measure adjustments to the sale prices of comparable properties. (Should you have any questions about my charts or need assistance in developing your own, please fill out the contact form below.)
So, let’s take a look at some current “market trends” for Single Family Detached residences in Mount Prospect:
The report above is the same “Market Analysis” report that I include in my residential appraisal reports. This analysis is based on the most recent data available by Midwest Real Estate Data, LLC via the “connectMLS” system. Using the sales data from the MLS (multiple listing service) is NOT all inclusive of the sales activity in an area, as all sales are not typically recorded in the MLS. The appraiser uses a combination of reasonably available information from various data sources based on its reliability such as; city/county records, real estate agents, FSBO information (For Sale By Owner), assessor’s records, recorder of deeds records and web site listing services. Also, in the analysis above, the use of the “median” sales price is used with smaller sample sizes because use of an “average” sales price can sometimes distort the sales comparisons in the year over year analysis based on one or two very high or very low sales.
So, what we’re seeing for Single Family Detached homes in Mount Prospect is:
1) There is a 14.38% decline in the median sales price for the six month period ending 10/31/2008 vs. the same six month period in 2007
2) Current six month period had 134 closed sales vs. 171 in the same six month period in 2007
3) With an absorption rate of 22.33 sales per month we are currently looking at a 13.16 month supply of homes for sale
4) Over the past 3, 6 and 12 month periods, the average “days on market” for a listing was 152 days to 166 days, while the current actives and pending listings are exceeding six months
5) The sales to list ratio is currently 92.94%
Now, let’s take a look at two charts that reflect sales data for the past three+ years (01/01/2005 to 10/31/2008), again, these results are for Single Family Detached residences in Mount Prospect:
In the chart above, we can see two areas of concern:
1) The trend would indicate that while there was a moderate increase in the average sales price from 2005 to 2006 and even a flat or stabling in the average sales price from 2006 to 2007, the market has started to decline at the end of 2007 and continued through present
2) The trend for “number of sales” per quarter has shown a steady decrease year over year, even with moderate increases during the 2nd and 3rd quarters of 2008 which are traditionally the strongest months
Let’s look at another chart, again representing sales of Single Family Detached Residences in Mount Prospect:
This chart gives us a view of the “Average Days on Market” for a listing before it sells and secondly, over the same three+ year period a view of how the “Sales to List Ratio” has changed.
What we’re experiencing is a “declining value” market trend. With these declining values, properties are not selling as quickly and staying on the market for a longer period of time. And, consequently, the eventual sales price (as indicated in the “Sales to List Ratio”) is considerably less than the list or asking price.
Now, I’ve included the same or similar type charts for the “Attached Single Family” residence types in Mount Prospect, what we’re talking about here are the Condos and townhomes:
OK, what we’re seeing for Attached Single Family homes in Mount Prospect is:
1) There is a 20.92% decline in the median sales price for the six month period ending 10/31/2008 vs. the same six month period in 2007
2) Current six month period had 62 closed sales vs. 103 in the same six month period in 2007
3) With an absorption rate of 8.67 sales per month we are currently looking at a 22.65 month supply of homes for sale
4) Over the past 3, 6 and 12 month periods, the average “days on market” for a listing was 122 days to 178 days, while the current actives and pending listings are exceeding six months
5) The sales to list ratio is currently 93.97%
Now, let’s take a look at two charts that reflect sales data for the past three+ years (01/01/2005 to 10/31/2008), again, these results are for Attached Single Family Residences in Mount Prospect:
Again, in the chart above, we can see two areas of concern:
1) The trend would indicate a small spike in average sales price early in 2005, tapering off for the remainder of the year, and not again until early 2007 do we see an increase in average sales price which then appears to stabilize at the beginning of 2008. Now, that while there was a moderate increase in the average sales price from 2005 to 2006 and even a flat or stabling in the average sales price from 2006 to 2007, the market has started to decline at the end of 2007 and continued through present
2) The trend for “number of sales” per quarter has shown a steady decrease year over year, even with moderate increases during the 2nd and 3rd quarters of 2008 which are traditionally the strongest months.
And one more charta, again representing sales of Single Family Attached Residences in Mount Prospect:
Again, what we’re experiencing is a “declining value” market trend. With these declining values, properties are not selling as quickly and staying on the market for a longer period of time. And, consequently, the eventual sales price (as indicated in the “Sales to List Ratio”) is considerably less than the list or asking price.
Conclusion:
This gives you an idea of how we look at historical data to identify and analyze market trends. For each of the individual Suburban areas, I will include a separate market analysis report for that suburb and include one or two charts to show what the trends look like for that particular Village or City in our community.
Again, if you have any questions or need assistance, please fill out the contact form below.
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