JAN PATRICK

Mid-Year 2010 Review - Southern Chester County, PA Housing Market

Buyers seeking to take advantage of the soon to expire tax incentive fueled new contract activity in the month of April 2010 with a 96% jump compared to this time last year. Just as quickly, after the expiration date, the market momentum dropped off with a decline of 15% in May and June 2010 as compared to the same months last year. Overall, new contract activity for the 2nd quarter of 2010 increased 14% compared to the 2nd quarter of 2009 (chart 1).

Year to date as of June 30, 2010, there is an increase of 28% in the number of sold properties compared to this time last year. In addition, 15% more properties went under contract in the first half of 2010 than in the same time period last year. Median home prices have increased by 3% while average home prices increased 5%. The number of homes for sale has declined by 9% (chart 2). 

MARKET OVERVIEW

Looking at the local markets within Southern Chester County provides us with further insight. The change in average home prices within each township and borough when viewed at the transaction level is due to the variety or mix of housing that is available as well as the market correction and/or effect of short sales on prices. For example; W. Marlborough Township shows a price increase of 3624% - one property sold in the 1st quarter of each year; in 2009 it was a 2 acre parcel with a tear down, in 2010 it was an estate on 50 plus acres.  London Britain Township shows a 51% increase in average sales price – in 2010 there are three high end properties that sold with an average sales price of $1.2 million; in 2009 there is one high end property in the same community that ended up selling as a short sale at 72% of list price. With so few transactions in some of the markets it’s important to take a closer look at the details! (chart 3).

SUPPLY vs. DEMAND

Market conditions vary within the geographic area and also within price points. A good barometer of market conditions, months of inventory indicates how long it will take to sell the existing supply of homes at the current sales rate. Generally speaking, in a balanced market there is approximately five to six months’ supply of inventory.  A supply of less than five to six months generally favors sellers; there are more buyers in the market than homes for sale. Above that level, market conditions may be more favorable for buyers; there are more homes for sale than there are willing and able purchasers.

Demand as indicated by the number of homes that went under contract at each price point gives us another view of the impact of the tax incentive. There is a dramatic increase in new contract activity in April for homes priced below $400,000 –generally the price point for the tax rebate for  first time home buyers and repeat buyers in this market area. This artificial demand spurred by the tax incentive slowed considerably after April. By the end of June, supply as measured by months’ of inventory, grew to 12.5 months from just over 8 at the end of April. As the market seeks to rebalance over the next few months we will be better able to gauge the real level of demand (chart 4).

MARKET BAROMETERS

In addition to supply and demand, economists follow three other housing market indicators to assess the direction and overall health of the market: the number of new listings coming on the market; the average number of days it takes a home to sell; and the sales price as a percentage of the original list or “asking price.”  

For the first six months of 2010, the number of newly listed properties (chart 5) is unchanged compared to this time last year. Roughly 7% or 65 of the properties listed are considered distressed properties, that is, they are either in foreclosure, bank owned or short sale listings. For comparison purposes, this data is not available for the same time period last year.

The average days on market prior to sale (chart 6) has declined slightly from this time last year and stands at 106 days vs.109 days at June last year.

Finally, home price reductions from the original list price, often referred to as “listing discount” averaged 93% for the first half of 2010 vs. 92% this time last year (chart 7).  Buyers faced with the deadline of April 30 for tax credit eligibility may have had less price negotiation power thus artificially increasing this indicator in the 2nd quarter. As the market recovery continues, sellers are listening more to the market when setting their list price as well. Again, the results of the next few months will likely provide a more realistic picture of the market.

Overall the first half of 2010 shows modest improvement over 2009. The slow road to recovery continues – the artificially created demand, both high and low, experienced over the 2nd quarter leaves us waiting for signs of rebalance. Other factors, such as the concern for the many home owners upside down on their mortgage, the 7.3% unemployment rate in Chester County and the number of distressed properties in the market all impact the recovery of this area housing market.
 
At Patterson-Schwartz, we have helped people buy and sell in every kind of market. We continue to lead the way with superior guidance and strategy that is necessary to successfully navigate a real estate transaction in today’s environment.  Please allow us the opportunity to put our knowledge and experience to work for you.

(All reports presented are based on data supplied by TReND MLS. TReND MLS does not guarantee nor is it responsible for its accuracy. Data maintained by the MLS may not reflect all real estate activities in the market. Information is deemed reliable but not guaranteed. Data is as of 7/20/2010. For analysis purposes, Southern Chester County includes Avondale Borough, Birmingham Twp, E. Marlborough Twp, E. Nottingham Twp, Elk Twp, Franklin Twp, Kennett Square Borough, Kennett Twp, L. Oxford Twp, London Britain Twp, London Grove Twp, New Garden Twp, New London Twp, Newlin Twp, Penn Twp, Pennsbury Twp, Pocopson Twp, U. Oxford Twp, W. Marlborough Twp, W. Nottingham Twp)