According to Money Magazine this is already one of the worst national housing downturns in half a century. But what’s really scary is that judging from the still-huge overhang of unsold homes nationally – one of the key indicators of the housing market’s prospects – things could get worse. In fact, much worse if the economy slips into recession.
But all real estate is local. And Syracuse has been virtually untouched by the housing downturn…even with record years in 2004 and 2005. Our region is in far better shape than the Country as a whole. Median prices for existing single family homes in Syracuse have remained strong.
Remember that during the boom, regions moved at different times and at different rates. Las Vegas and San Diego were among the first markets to take off with sale prices soaring 30-40%. Boston spiked early as well, but not at the same degree. And Albquerque and Portaland, Ore. soard later at 15-25%. Many Upstate New York Cities including Syracuse were some of the last to take off and grew at a moderate pace.
Just as cities moved independently on the way up, they’re not moving in lockstep on the way down. That’s why “it’s more important than ever to examine what’s happening in your local market,” says Greater Syracuse Association of REALTORS President David Manzano.
This isn’t to say that you’ll be able to precisely time the market. But keeping track of a few indicators will give you a general sense if a turnaround is near according to Money Magazine. One of the best indicators is any changes to the local job market. The more new jobs created, the greater the demand for housing. Conversely, an uptick in unemployment – or a persistently weak labor market – can warn you the market is weak. Syracuse’s job market is slow and steady with a .4% increase in April 2008 vs. April 2007.
Of course this is just one indicator. Here are the key questions to answer to determine how healthy your market is – and how Syracuse, NY stacks up.
Is the housing stock shrinking?
The problem in most marekts today is simple: too many homes for sale and too few buyers. Therefore, the best signposts to look for are a singnificant reduction in the supply of homes and a jump in sales, says Mike Larson, a real estate analyst with Weiss Research.
Your local REALTOR can provide you with basic supply and sales figures from the Greater Syracuse Association of REALTORS. So be sure to ask for as much as you can: monthly inventory of homes, average days on market and total number of homes for sale.
The typical inventory in a stable market is about six months’ worth of houses, and homes tend to stay on the market for about 90 days, says David Stiff, chief economist at Fiserv Lending Solutions. Ideally, you’d want your market to be close to these levels. Syracuse, for instance, average days on market were 50.9 in June of 2008.
For sales, because housing is seasonal, pay attention to year-over-year growth in home sales, not monthly changes, says Joel Naroff, chief economist for Commerce Bank. In other words, see how many homes sold this August vs. last August – not July.
Are home prices falling at a slower pace?
A tellgate sign of your local marekt starting to heal: The rate of home-price declines should start to slow. No need to worry if you live in Onondaga, Oswego, Madison, Cayuga or Jefferson Counties our market saw an increase. For comparison, that same month New York State experiened a -12.2% change and the United States fell by -8%.
For monthly figures ask a local REALTOR. Some agents will even provide stats for homes in particular price ranges and areas.
If you are a buyer who’s looking for the best deal and are in a healthy sales price market like Syracuse the best thing is not to wait too long. If the last three months have shown positive numbers. “You need at least three months…since housing numbers are really volatile and are affected a lot by the weather.” says Patrick Newport, an economist with Global Insight, an economic forceasting firm.
Is it cheaper to rent than to own?
Here’s a useful back-of-the envelope calculation: Take the price of the type of home you want in your market. Now call a REALTOR to see how much it would cost annually to rent a similar property in the same region. For example, if you can purchase a home for $200,000 but can rent a similar one for $13,300 a year, your so-called price-to-rent ratio would be 15.
In general, buying starts to look attractive when the P/R Ratio is around 15 or lower, says Newport. (The current Syracuse average is 12.7) As your market’s P/R ratio falls, more sellers are likely to come into the market. So demand could pick up and help stabalize home prices.
Are houses more affordable?
Unless a significant percentage of house holds in a market can afford to buy homes there, sales won’t rise. I’ts as simple as that. So check your region’s affordability level. The National Association of Home Builders calculates this figure – which it calls its housing opportunity index – for about 220 metro areas. The index considors a home “affordable” if no more then 28% of median family income in that area is required to pay for it.
The national average is 53.8, which means that slightly more than half of the homes purchased recently were deemed to be afforadable. But again, it’s not fair simply to compare local data with national averages. So if you really want to know if your market is healthy to buy, check to see if your regions affordablity index is climbing. In Syracuse, affordablity is very strong.
Average sales price in Onondaga County in June 2008 for a three bedroom home was $129,050 and $78,917 for a two bedroom. In 2007, according to Census Data the median house hold income for Onondaga County was $51,973.
Now here is one more indicator you might be aware of: foreclosures. The rate of foreclosures in your region is cerntainly one sign of the health of your market. But this is a lagging indicator. It can sometimes take six months or more from when a homeowner first defaults to foreclosure. Also, remember that a primary reason defaults are occuring today is that home prices are tumbling. With no equity, owners cannnot refinance out of unaffordable mortgages. To refinance, then, many homeowners would have to see prices not just stablize but rise.
Since prices have remained strong in Syracuse it is the sixth lowest foreclosure rate in the Country.
So “by the time foreclosures peak and start falling, the market will have already bottomed out and turned around,” says Larson. In other words, buyers will have missed the sweet spot.
Sources: August 2008 – Money Magzine, Greater Syracuse Association of REALTORS
Syracuse Real Estate Watch 