By Thomas Harding

Okay, so you want to know: are things getting better? As ever, I strive for the simple answer, and that answer is YES-ish.

Things are getting better, for real. Look at the table accompanying this article. As you can see, the number of residential sales in Jefferson County has remained steady compared to the same time last year. But what has changed significantly is the average sale price, which dropped a colossal 24 percent from $286,473 in July 2008 to $216,247 this year.

Figure 1: Homes sold in Jefferson County, West Virginia, July 2009 

[source MRIS]

So why am I so upbeat? Because we already knew prices had come down. The glut of foreclosures and short sales has driven average sale price to levels we haven’t seen in over five years. But the good news is that homes are selling far quicker than they have been selling for months.

The average number of days to complete a sale from time of contract has fallen dramatically form 151 days to 78.

This builds on the good news I’ve been spouting for months, that the number of homes for sale (“inventory”) continues to drop. We now have a hundred fewer homes for sale in Jefferson County than we did this time last year. This reduces downward pressure on prices, and should in the medium term balance the price reductions caused by foreclosures and short sales.

The third piece of good news is that the number of contracts ratified (“pending sales”) in July 2009 saw a significant increase compared to July 2008. This is a good predictor that September and October sales will pick up some.

Add to this the wider context of low interest rates, an $8000 federal tax incentive for first time homebuyers, and a build-up of pent-up demand in the general marketplace, and the picture starts to look a bit rosier.

So to sum up: sales are on the increase, listings are down, interest rates remain historically low, prices are dropping, and homes are selling quicker than before. Perhaps worthy of a small grin after all.

A short word about short sales

Much of the increase in pending sales in July 2009 was due to short sales, which are contingent on approval by the lender. In a short sale, the bank holding the mortgage agrees to accept less than the value of the outstanding loan balance—allowing the seller to avoid foreclosure. As local realtors will tell you, lenders are not providing these third party approvals. Instead the banks are just sitting on the contracts, leaving the prospective buyer in limbo, not knowing whether the deal will go through.

There has been much speculation about why banks are doing this, but here’s my two pence worth: Once contracts are ratified by buyer and seller, the lenders can move the delinquent properties from their list of troubled assets (also known as “toxic assets”) which are heavily discounted on their balance sheet (as much as 60–80 percent), and put them into a “pending sales” category, which is less discounted (perhaps 20-30 percent).

But the lenders then hedge their bets. By retaining the properties as “pending sales,” they can wait to see if the value of the property increases when the market improves. The sellers won’t complain too much as they typically can continue to live in the home rent and mortgage free. The real loser is the buyer, who is hoping to move into his new home and is waiting almost indefinitely for lender approval. The realtor, who may churn through three or four buyers before seeing a commission on the sale, loses, too.

Thomas Harding is a licensed real estate agent in West Virginia and Broker for Greg Didden Associates, Shepherdstown.