Tag: bifurcated market

Another bifurcated market snapshot

Bifurcated Market Snapshot

4/1/14

In my venture to stay abreast with what is happening in Washtenaw County, I offer the latest study of differences in median sales price and number of sales for one market within the larger area.

In short, prices are up from the same time last year, but there are signs of weakness and even a possible decline in place in this market segment right now.

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The analysis relates to all sales exposed through the Ann Arbor Area Board of Realtors MLS between 1/1/11 and 4/1/14 in the one area. The data is in two graphs, one related to the number of sales and the other to median sales price. These two graphs compare arm’s length transactions to REO transactions in both categories.

This data includes everything in the MLS so there are duplicate listings.  This occurs when agents have listings in both Realcomp and the A2BR MLS. Since this data is run on the median price as opposed to average price, it should be very similar on that graph, even with duplicates.  Only the Great Lakes Repository was omitted from the search results since there are not very many of those and they tend to be triplicates as opposed to duplicates.

These sales are run on a yearly basis, but one month at a time, so that each segment includes one years’ worth of data. Doing so eliminates the seasonality that is common in Michigan and should correspond with the Board statistics (if they were to go by school district or area as opposed to the entire MLS).

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Total number of sales/arm’s length compared to REO

Here is a snapshot of the number of arm’s length sales compared to the number of REO sales. At first there were more REO sales and now there are far more arm’s length sales.  This means the distress sales have largely made their way through the market at this point, leaving far fewer available. This is a good thing and helps stabilize the market.

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Median price comparison

The graph above is the median sales price comparison between arm’s length and REO. In the past five months, there has been stability to a slight decline in arm’s length sale prices, and stability in the REO market for the past three months. With this data, you can see the ebb and flow as to prices rising, declining, rising and then stabilizing to dipping just slightly in the past couple months. This could be related to the very difficult weather our area has experienced this winter.

Comparing the most recent year-to-year results in the arm’s length category there is an increase in median price of 9.41%. Comparing the same with REO sales, the increase is 49.88% for median price. Clearly, the largest increase in this market has been with the foreclosed properties, increasing as these numbers dwindle.

I find that tracking the contract-to-listing ratio a great predictor of activity. This is simply the total number of contracted listings compared to the total number of listings, and it relates to general activity levels. In the arm’s length category as of 4/3/14, it was 33.33%, which is reasonably robust, but certainly not off the charts. At this level, it is what I would consider “in balance” to slightly favoring sellers, due mainly to lack of inventory.

Inventory is low with 46 offerings not under contract (4/3/14) compared to 237 sales the year before. That equates to less than two and a half months inventory based on the previous year’s sales. Perhaps the price increases have put a damper on interest in some of these sales, and the lessening of the REO inventory means there are fewer good deals to swoop up (less than 1.5 months inventory of REOs).

Based on the data, my opinion is this market as a whole is stable in price, undersupplied, and may be feeling the effects of the price increases last year starting to put a damper on current price trends. This is the entire area market, and every submarket is unique. That means you could be looking at a market that is in an upward trajectory, or even one that is starting a downward track, and as such should always try to whittle down to the market in which your property actually competes. The data above is purposely broad.

As always, I hope that you have found my musings useful. Just remember it is the educated opinion of one appraiser. I am always available to help Realtors, attorneys and property owners alike.

Rachel Massey www.annarborappraisal.com

What is a bifurcated market?

What is a bifurcated market?

I am sure you have all heard the term bifurcated before; the question is what does it mean?

Basically a bifurcation of the market relates to two different market segments that may have the appearance of being the same, but in essence are not; two different branches as it were. In order to show this in action, I have taken the Ann Arbor Board of Realtors MLS and examined one area that is fairly homogeneous (Lincoln School District) and separated the foreclosed (REO) properties from the arm’s length sales. I have then presented them as graphs, with a little bit of analysis underneath so you can see what appraisers deal with on a daily basis.

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This first graph includes the number of sales over time for both foreclosed properties and arm’s length sales. In all instances the data is run on annualized monthly data runs, which include one years’ worth of sales at a time, run by month (eliminates seasonality). Clearly, the number of foreclosed properties has been declining at the same time the number of arm’s length sales has been increasing. What do you expect to see when this happens?

Hint, price increases!

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Look at the data above; price increases all around after a period of stability. Price increases are happening in the REO sector at a quicker rate than with the arm’s length segment. The arm’s length segment shows price stability over the past five months whereas the REO market still shows an increase. This is bifurcation.

Observe the difference in median sales price between the arm’s length sales and the REO sales.  Generally, there is a $20,000 gap or more in price between the arm’s length and distress sales. If there were an adequate number of arm’s length sales available, would there be any reason to consider a foreclosed property in comparison to an owner occupied house in good condition? The only time this might come into play is when there is some feature that the appraiser is trying to analyze that requires using distress sales. You will often see that happen when the subject property is larger than everything else is (or smaller) and the appraiser attempts to “bracket” the size.

If you consider all the REO sales over time, the prices have increased in median price 25.48% over this two plus year period. If you analyze arm’s length sales, prices have increased 15.38% for the same period (10.78% of it in the previous year). While prices have obviously improved, the difference is not as great as the news media has indicated lately. By comparing an entire market there is a false sense of greater improvement, simply due to fewer distress sales showing on the market. Which way of looking at the market do you consider to be more realistic?

As always, if you have valuation needs in Washtenaw County, think of Rachel Massey first!

Rachel Massey, SRA, AI-RRS www.annarborappraisal.com