I wanted to show you a snapshot of the state of Cambridge real estate this July and compare it with where we were last year. Comparing market performance during the same month in consecutive years gives us a good idea of big picture trends and helps to keep the effect of seasonal fluctuations out of the data. But it's important to choose the right months. To conclude that a market is doing poorly based on low activity in January, for instance, is to ignore the underlying push and pull of the seasons, specifically that most people prefer not to move in the winter months. But to study market activity in July, when you'd expect the market to be working at near capacity, running at full-throttle, will yield a better picture of the market's overall fitness from year to year.
Let's compare a snapshot of the Cambridge real estate market in July '08 to what was going on in July '07. The chart above shows a variety of statistical indicators. Click on the chart to see a bigger version. Remember, this is a picture of the whole residential market in Cambridge, all property types and all price points.
First off, the number of new properties listed for sale is down 20% from last year. That's our biggest problem in Cambridge: we just don't have enough property to sell. The number of transactions that closed, that is, where title to the property finally passed from the seller to the buyer, is down this July from last July by 25%. But what's more significant is that the number of properties pended, that's when the buyer and seller enter into a contract to buy and sell, respectively, at a future date, has gone down 25% from last July. The number of properties pended is a better indicator of what's happening right now than the number of properties sold, which tends to reflect market activity at some point in the past when the buyer and seller agreed to go through with the sale.
So if less new listings are coming to market and fewer homes are selling, why do I say that we don't have enough property to sell? Doesn't one just about cancel out the other? The answer lies in the fact that the properties that are pending, and after a shorter period of time, too (compare 70 days on the market in '07 versus 58 days in '08), are in the highly desirable price points between $250,000 and $500,000, which, in our market, is very popular with first-time home buyers. On the other hand, we're seeing that a lot of upper end property is not moving. What's left to sell after all is said and done are the properties, albeit very special properties, that appeal to a limited pool of buyers on account of their price.
Another useful indicator is the "Months of Inventory". Basically, its a rate of how quickly the market is being cleared of inventory, specifically, given current market activity and assuming nothing new comes to market, it's the number of months it will take before all the inventory is gone. You could say it's like an indicator of the market's metabolism. A low months-of-inventory is indicative of a seller's market, whereas a high MOI indicates a buyer's market. In the middle, somewhere around six months of inventory, is a normal or neutral market. This equilibrium never lasts very long.
In Cambridge, the MOI based on closed sales shifted from 3 in '07 to 3.2 in '08. It's still a seller's market but the shift, though slight, toward a higher MOI hints at the direction the market is taking. Looking at the absorption rate based on pended sales, we also see a slight increase from 3.6 months in '07 to 3.8 months in '08. This amounts to an increase of just about 6 days! Again, this overall trend is directly affected by the increasing amount of difficult-to-sell inventory lingering on the market. I'll examine the popular price points between $250K and $500K in a future post, and we'll see a slightly different trend there. My point here is that we're seeing a staedy seller's market and compared to the national average of 11.1 months of inventory, we're doing quit well here in Cambridge.
Another piece of good news comes by way of the average price indicators. The average asking price this July is up 16% from last July. That's interesting, but ambitious sellers are not necessarily indicative of steady property values. The average sold price of properties sold in July '08 is only 7% lower than it was at this time last year, but the average price per square foot is down only 2%, indicating that per-unit prices are holding their own. These two figures are significant for two reasons. First, they suggests that the average sold price has shifted down because sales of upper-end properties comprise a smaller part of the overall portfolio of properties that are moving. And second, they indicate that values per square foot are displaying remarkable stability across all price points. A 2% adjustment is rather favorable compared to some of the double digit drops you find in other markets. Prices haven't dropped radically Cambridge since last year despite an uncertain economic outlook. Instead, there's been a modest adjustment. For anyone thinking of buying real estate in Cambridge, let this serve as proof that the Cambridge housing market is resilient and healthy and that Cambridge properties consistently retain value even during times of flux. And, if you've bought property in Cambridge, congratulations on making a wise decision. It's as good time as any to consider selling. You may even see a bidding war right at your own doorstep.
On a final note, it's business as usual in Cambridge. The sold-to-list-price ratio was 98% last July and it's 98% now. Why? The properties that are moving are priced right; with asking prices just 2% away from what buyers are willing to pay. And despite the 16% jump in asking prices, the sold-to-list-price ratio remains unchanged, indicating that the properties that do sell are going for practically the asking price, rather than at a steep discount. If you're a buyer and you see a place you like and you don't want to loose it, put in a serious offer. If you're a seller and you're not getting offers on your property, seriously consider a price improvement because the buyers are out there.
There's one thing about the Cambridge housing market that I hope to see for years to come: motivated buyers and sellers who are sensible about the unique strengths of our very local market and aware of the steady and consistent appreciation in property values coming together to buy and sell property, even in times of flux.
