As we look back at 2011, we see trends that give rise to a more optimistic future. This is not to say that we expect the market to come raging back, but the composition of buyers, and why they were buying, have signaled a subtle, positive turn in the market.
Over the last four years, first-time home buyers have been the largest player in the housing market. This was a welcomed sign because recoveries always start at the lowest price ranges. However, while these buyers were active, other market segments became idle. First-time buyers grew from 36% of all buyers in 2006, to 50% in 2010 (See Chart 1).
The primary reason for the growth was the absence of the trade-up buyer. For a long time the average length of ownership has been 6 years. In 2011, that number swelled to 9 years. Understandably, decreasing home values caused potential trade-up buyers to stay put.
In 2011, the trends turned. First-time buyers, while still very active, now account for just 37% of all buyers. Trade-up and trade-down buyers are entering back into the market. Affordability conditions have brought many back, but the primary reasons for buying are cited as a desire for: (1) a larger home by 17% of buyers; (2) a home closer to friends and family by 15%; (3) a better neighborhood by 9%; and (4) a smaller home by 8%.
The other reason for the rise in first-time buyers was the recent homebuyer tax credits, which were offered through April 30, 2010. When last year began, the market was facing a big challenge. It was the first year in three that those sizeable federal tax credits were not available to homebuyers. Bolstered by those tax dollars, the first four months of 2010 saw sizeable gains in home sales.
We did not know the full impact of the tax credit until 2011, but we certainly expected sales to drop then compared to that hyped-up period. Sure enough, by April of last year homes sales in Thurston County were down 18% compared to the prior year.
We knew the real test of where our market stood would not come until we compared the post-tax credit periods beginning in May of last year.
During the last eight months of the year, housing sales in Thurston County started to rise. Although Thurston County was up just 1% during that period, it is a vast improvement when compared to the first four months of the year.
The improvement only got better as the year went on (Chart 2). The fourth quarter of 2011 was just shy of 4% better than the same period in 2010. December saw nearly the same number of sales as August – 221 and 232, respectively. That almost never happens. August sales are typically 40% higher.
The market, without the tax credit influence, was starting to heal itself. Affordability conditions brought buyers back. In many markets around the Sound, particularly King, Pierce and Snohomish counties, sales really jumped after the tax credits. Brokers there report that buyers are feeling more confident, both in terms of housing affordability and the all-important job market.
2012 will be a year where sellers will need to be focused on buyer trends and the competition. competitively priced homes are attracting buyers. For their part, buyers will continue to look for value. They are steering clear of the homes priced above the competition, but they are acting quickly when they see the right price.
If the recent interest we’ve seen sustains through the spring, at the end of the year we will look back and say 2012 was when the market came back into balance.
