The results are in for January and the Parkland area real estate market is continuing to show greater strength and signs of recovery. I think I may have to eliminate my references to a recovery in future posts because at this point it's pretty much a given that we are quickly heading toward a balanced real estate market. How do we know what a balanced market is? We use an indicator called absorption rate. The absorption rate is defined by dividing the number of homes for sale by the average number of homes sold per month. In 2012 there were 607 homes sold in the Parkland School District, an average of 50 per month in round numbers. At the end of January there were 284 homes for sale, or a little over 5 and half months supply. An industry guideline is that 5-7 months supply of inventory is a balanced market, meaning neither buyers nor sellers have a big advantage in the market. Anything over 7 months is considered to be a buyers market, with inventory overwhelming demand. Conversely, inventory of less than 5 months indicates a sellers market, with strong demand depleting supplies of available homes.
Several factors are contributing to this transition to a balanced market, among them the historically low interest rates and increasing consumer confidence. As the economy has improved people are feeling more secure in their employment and are not as worried about making big decisions and purchases. While economic conditions are generally getting more favorable, interest rates are still as low as at anytime in recent history. I remember buying my first home and being thrilled that the interest rate had dropped to 7%. Now typical rates are half of that! Lower interest rates lead to increased home affordability. For every 1% decrease in the interest rate a homebuyer's payment decreases about 10%. (Remember that as interest rates go up the reverse will be true!) When I bought that house with the 7% mortgage in 2001 it cost $120,000. Today for that same payment amount I could buy a house worth $170,000. The Lehigh Valley Association of Realtors reported this week that the Home Affordability Index in our area was up to 217. This number indicates that the median household income in the Lehigh Valley is 217% of what is needed to qualify for the median priced Lehigh Valley home.
The final contributor to this story is the decreasing inventory. As mentioned earlier there are currently 284 homes for sale in the Parkland School District. Last year at this time there were 375 homes for sale, a decrease of 24.3%! Let's go back to supply and demand and what happens when supply goes down while demand remains the same or increases. Prices go up, and this will be the next part of the story as we get into the spring home selling season.
I know I threw a lot of new numbers at you here but I think an educated consumer is always our best customer and we've got a good story to tell in the Parkland School District. If I can answer any questions about any of these numbers or assist you with your real estate needs please don't hesitate to call me at 484-893-1234 or email firstname.lastname@example.org.