What's selling best?

Are higher priced homes selling better than starter homes?

Last week my wife came home and told me she had met a real estate agent who said higher end homes were selling well, but lower priced ones were just sitting on the market. I wasn’t sure about the accuracy of this so I set out to check the facts.

To do this I compared the closed sales in July to the inventory of available homes in three price bands – under $500,000, $500,000 – $1 million and over $1 million. What I found is that the lower priced homes were actually selling a little bit better than those homes in higher price bands when compared to the inventory. Real estate people speak of this as the “absorption rate”, or the number of months it is expected to take to sell all the homes presently on the market. The absorption rate is calculated by dividing the number of homes on the market by the number that have sold in the past month.

At the current rate of sales, homes under $500,000 would be absorbed in about 8.8 months, homes between $500,000 and $1 million within 9.2 months and homes in the $1 million and over category in about 13 months. The average marketing time to sell any particular home will be less.

Mortgage Meltdown – Volume 2

Stories about the turmoil in the mortgage markets continues to dominate the news, so I will be sharing my perspective along the way. As reported in the August 3, 2007 edition of The Wall Street Journal, delinquencies on a variety of consumer loans have not gone up, except for sub-prime, variable rate mortgages. Even sub-prime fixed rate mortgages were performing normally, without a noticeable increase in delinquencies. There is little doubt that investor markets are becoming more cautious about all mortgages as investments, but for the moment, homeowners are paying their mortgages on time, with the exception of those with sub-prime variable rates loans.

The impact of investors showing greater caution, plus the possibility of tighter regulation of lending practices, will contribute to a slower recovery of the housing market, since the tighter credit standards that will result will act to reduce the demand for homes from its already reduced level.

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