December and 2008 housing in review. Back to reality?

December and 2008 numbers are in, and, as you’d expect, the Cincinnati housing market shows a considerable slowing of transactions for the year. On the plus side, the “absorption rate” – or how much inventory is available at the current sales rate – fell to 10.4 months in December. This is better than December 2007’s rate of 10.8 months and a good drop after November spiked to 12.6 months. Some drop was expected as sellers took homes off the market during the holidays and banks held off foreclosures. Nevertheless, you sometimes take the good where you can find it.

Some other highlights for December and 2008 is that sales averaged 56 per day. After 2005 peaked at 79 per day, this would appear as a pretty significant decline. However, if you strike out the “bubble years” between 2001 and 2007, the “sales per day” figure is relatively in line with the mid 1990’s to 2000 reflecting a more sustainable level of home sales.

View December’s monthly absorption rate and the sales vs. inventory charts

While I and other agents I talk to have seen an increase in buyer activity after the first of the year, there are still a few aspects that will keep inventory rates slanted towards buyers for a while including:

• high number of foreclosures and distressed sales continuing to enter the market, keeping inventory high
• difference in value expectations between buyers and sellers (many sellers still expecting ’07 prices, many buyers expecting 25% or more off the asking price).

Positive trends likely to help the market in the near future include:

• mortgage rates at historical lows, increasing affordability
• first-time buyer tax credit of $7500 (especially if converted to a permanent credit that does not require repayment)
• more sellers willing to offer lease/purchase or land contracts on their homes

As the statistics return more in line to historical norms, the question will be whether 2009 is a transitional year or if the market “over-corrects” before stabilizing. Stay tuned….