Market Update – Year End 2007
The 1% Problem.
The Durham Luxury Real Estate Report 2008 available through the link on the sidebar was put together in late November before the year end numbers were available. I recently pulled the final statistics for the year using MLS searches and did some additional comparisons with data from Wake County and Orange County. In all of my analyses I have defined “luxury” somewhat arbitrarily as anything over $700,000. On closed transactions I use the sold price not the list price. All data is derived from MLS searches that any REALTOR can do.
Here are the key findings:
- In 2007 there were 37 homes in MLS that sold for over $700K in Durham County. 11 were in Hope Valley, 7 were in Croasdaile, 5 were in the Oaks, 3 each in Southpoint Manor and Meadowmont, 2 in Treyburn, and 1 each in Duke Forest, Tyndrum, Forest Hills, and Surrey Green. There was also 1 not in a neighborhood and another in Downtown.
- During the same period 536 luxury homes were sold in Wake County and 173 in Orange County.
- In Durham the luxury homes sold represent less than 1% of the total homes sold. (.8% to be exact.) In Wake luxury homes represented 2.77% of all homes sold. In Orange luxury homes in this price range represented a whopping 9.65%.
- The ratio of total dollars is similar. In Durham luxury homes represent 3.81% of dollars spent. In Wake they represent 10.07% and in Orange 27.79%.
- The average size and cost per square foot of homes in this segment are roughly the same in Durham and Wake Counties, at 4830 square fee and $200 per square foot. In Orange County it’s 4385 square feet and $225 per square foot.
This might be interesting, but to somebody selling one of these homes the real telling statistic is the absorption rate. One way to assess that is the average days on the market. MLS calculates average days on market but this is a fairly useless statistic because many agents (including me) have pulled listings out of MLS and re-entered them with a new MLS number to make them look “fresh.” It also does not account for other homes that were part of the inventory but were withdrawn by the sellers or the listings expired. This means that the statistic understates what is really going on. In such as small sample what statisticians call “outliers” can also dramatically distort this calculation. I prefer to use a simple ratio of current homes on the market to recent sales history to measure absorption. Here’s the scoop on that:
- In Durham there are currently 76 homes listed at over $700K If you divide that by last years sales of 37 (Which is actually a little higher that 2006) the ratio is 2.05, or there are twice as many homes on the market as needed to meet historical yearly demand. Not good, obviously, and it could get worse if economic conditions don’t improve.
- In Wake there are 710 luxury homes on the market for a ratio of 1.32 which basically says that there is a reasonable expectation that a home placed on the market should sell in at least 16 months.
- Our neighbors to the west in Orange County have 160 on the market for a ratio of .92 or about 11 months inventory.
To beat the odds that this creates for a luxury home seller in Durham, the home and the community must be marketed more aggressively. The 76 homes in Durham are not in a que either. It’s not “first in, first out.” There are no guarantees that any of those 76 homes, many of which have already been on the market for a considerable period of time, will be one of the 30+ that the Durham market would normally absorb in a year. In fact, new listings could come on the market at any time that are marketed better and sell immediately. In the luxury market slashing prices is not necessarily a successful strategy either. The bottom line is that Listing Agent/Marketing Directors must do more than they were used to “pre-bust” and create marketing plans that use all the elements of the marketing mix. That’s the focus of the Luxury Home Market Report available through the link on the left sidebar and it will be an on-going topic of this blog.
