By Thomas Harding

So things are on the up.

According to local realtors we are seeing an extremely active market in the sub $300,000 range, with multiple offers commonplace. We are even witnessing  the return of escalation clauses from buyers, something we haven’t seen since the heady days of 2005 and 2006.

We are also seeing the return of investors, another indicator that we have moved beyond the bottom of the market and that people are wanting to invest their extra cash in real estate before prices go on the rise.

The other good news is that the average house price appears to also be on the increase. In May 2010 the average sold price was  $182,861 compared to $167,499  the year before. This is the first time we have seen an increase in the average May sale price since 2005. See figure 1. This means that a few, and I say again ‘a few’, slightly higher priced homes are selling.  Of course this is a far cry from the $300,000 plus average sale price of 2004 and 2005, but we are in the beginning stages of the recovery.

Better still, the sale price as a percentage of list price was 92% in May 2010. This continues the upward trend that saw buyers knocking off as much as 15 percent on average of list price over the last two years. This shows that buyers are no longer able to beat up on sellers as much as they were and that the balance between buyers and sellers is returning to the market. 

One negative sign in the overall market is that the ratio between homes on the market and homes actually sold, the “inventory ratio”, increased one percentage point from March to April and again from April to May. While this ratio is still relatively low at 10.8, compared to the crazy heights of 20 plus in 2008 and 2009, if the inventory ratio continues to grow it will mean the end to the short rebound in the market we have witnessed over the past few months.

However, the really bad news continues in the more expensive end of the market. Houses over $400,000 are simply not selling in Jefferson County. And the collapse in this market has out-stripped the overall market decline. Figure 2 clearly shows the dramatic increase in the more expensive homes in 2004 and 2005, and then the sharp decline through 2009. This year doesn’t look like it will be any better, with only three homes sold over $400,000 in Jefferson County between 1 January and 31 May 2010. 

The biggest problem for the higher end homes is the lack of buyers looking for such properties. Local home-owners cannot sell their higher end homes and therefore cannot move up the price chain. Equally, buyers from the Greater Washington DC area are not able to sell their homes and therefore not able to purchase their dream house in West Virginia.

To make things worse, even if realtors are able to find buyers and cobble together contracts for these higher priced homes, appraisers are refusing to give them the value they need and therefore contracts are failing to close. This is a self-fulfilling prophecy, as fewer and fewer high-end properties are selling, appraisers are finding fewer comparables they can use in their appraisals.

The solution to this appraisal problem is that either buyers will have to throw more cash down on the table when they go to settlement or appraisers are going to get more creative with their values, perhaps by going further back in time and then discounting according to the general drop in value in the market.

In all probability the bottleneck will only be broken when buyers in the middle part of the market can no longer get what they are looking for and will be forced to move up and purchase in the higher end. This will only happen once there are no longer bargains to be had due to short-sales, foreclosures and motivated sellers, in the lower and middle parts of the market. In the meantime, sellers of high end homes, don’t hold your breath.

Thomas Harding is a broker with Greg Didden Associates.