Everything Comes Full Circle: Lessons from my time with “The Band”

Issue: February 2013 by in Inside The Magazine, Real Estate

My senior year of high school, I played in the jazz band. I played piano, which is why I never opted for the marching band (lugging a piano around a football field is just impractical). I don’t mention this so you’ll know how cool I was back then. I bring it up because there’s one song in particular that I believe was written specifically for high school jazz (and marching) bands. If you’ve ever served time in either, you know the song I’m referencing: “Spinning Wheel” by Blood, Sweat & Tears.

It’s a slow, plodding melody, with a brass accompaniment just within reach of a 15-year-old saxophone player’s abilities. While most of the song is pretty nonsensical—“Ride a painted pony, let the spinning wheel turn”—it starts off with the lyric, “What goes up, must come down.”  And here’s where this all ties into the real estate market and the numbers I’m about to share.

As I looked over the past 10 years of real estate activity in Lynchburg, I focused on the number of homes listed during each of those years. You can see that, as the market heated up, the number of homes that were put on the market rose incredibly (almost 33 percent) in just five years.

Number of homes listed:

  • 2003: 3,851
  • 2004: 3,909
  • 2005: 4,110
  • 2006: 4,732
  • 2007: 5,155

As you can see, our inventory was increasing rapidly. One might even say unsustainably. Take a look at the following five years:

Number of homes listed:

  • 2008: 5,009
  • 2009: 4,581
  • 2010: 4,645
  • 2011: 4,107
  • 2012: 4,143

“Spinning Wheel” was right—the numbers started to come down—and this is a good thing. This is healthy. Now let’s look at another figure: the number of homes sold during each of the past 10 years and compare that to the number of homes listed.

2003: 3,851 Listed  -  2,554 Sold  =  1,297 ‘Net’ inventory

2004: 3,909 Listed  -  2,748 Sold  =  1,161 ‘Net’ inventory

2005: 4,110 Listed  -  3,064 Sold  =  1,046 ‘Net’ inventory

2006: 4,732 Listed  -  2,998 Sold  =  1,734 ‘Net’ inventory

2007: 5,115 Listed  -  2,758 Sold  =  2,357 ‘Net’ inventory

2008: 5,009 Listed  -  2,114 Sold  =  2,895 ‘Net’ inventory

2009: 4,581 Listed  -  1,911 Sold  =  2,670 ‘Net’ inventory

2010: 4,645 Listed  -  1,713 Sold  =  2,932 ‘Net’ inventory**

2011: 4,107 Listed  -  1,785 Sold  =  2,322 ‘Net’ inventory

2012: 4,143 Listed  -  1,958 Sold  =  2,185 ‘Net’ inventory

Did you catch what happened there? The number of homes sold capped out in 2005, but an increasing number of homes kept coming on the market for another two years! Hence, the widening disparity between new listings and sales, and the skyrocketing surplus (or ‘net’ inventory), which nearly tripled in five years. Note that the “Spinning Wheel” axiom is still in full effect.

**Note that I’ve added an asterisk for the figures in 2010 due to the fact that the first-time home buyer tax credit was in effect through September of that year. That tax credit’s impending deadline, last-minute extension and then ultimate expiration created an unusually strong wave of buyers, which crested … and then left a receding tide in its wake.

Allow me to pull one more set of numbers into the equation. Let’s see how the average sale price tracked with the number of homes listed and sold since 2003.

2003:   Listed: 3,851   Sold: 2,554      Average sales price: $137,992

2004:   Listed: 3,909   Sold: 2,748      Average sales price: $144,036

2005:   Listed: 4,110   Sold: 3,064      Average sales price: $163,004

2006:   Listed: 4,732   Sold: 2,998      Average sales price: $175,090

2007:   Listed: 5,155   Sold: 2,758      Average sales price: $179,452

2008:   Listed: 5,009   Sold: 2,114      Average sales price: $177,727

2009:   Listed: 4,581   Sold: 1,911      Average sales price: $169,890

2010:   Listed: 4,645   Sold: 1,713      Average sales price: $175,396

2011:   Listed: 4,107   Sold: 1,785      Average sales price: $161,394

2012:   Listed: 4,143   Sold: 1,958      Average sales price: $169,341

Scanning through the past 10 years, the peaks and valleys become clear. New listings continued to rise, peaking in 2007 and falling significantly since. The number of homes sold hit a peak—and net inventory hit a valley—all in 2005. Those two stats exactly reversed in 2010, with the valley in home sales and peak in net inventory. More importantly, both are trending back toward a more balanced position.

And the one figure most folks are concerned with—the average sales price—peaked in 2007, dropped off in the ensuing four years (again, with the exception of 2010), and appears to be moving back up once again. One year’s data may not seem like a cause for celebration, but taken into account with these other important figures, I believe this indicates a market heading in the right direction.

There are a number of signs that point to a good 2013. Not a record-breaking year by any means, but one which builds on the strength of 2012. I do have one bit of bad news, however:  “Spinning Wheel” is insidious. And monotonous. Once it’s in your head, it’s in there. And for that, I apologize.

*All figures are sourced from the Lynchburg Multiple Listing Service

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