July was a strong month for home sales in the city of Albuquerque. Based on the home sales stats it looks like our local real estate market is in recovery. I believe it is. The only caveat? Average and median home sales prices, but we'll get to that in a minute.

Here are some graphs that depict the market conditions that were present during July:

 

13 Month History of Home Sales

Homes for Sale, Homes Sold and Homes in Pending Status

 

Looking at the chart above, compare the number of homes for sale, depicted by the light green bars, in July 2012 to July 2011. The number of homes for sale has been reduced greatly from 3,603 a year ago to 2854 this July. That's a huge decrease in the number of homes available.

Next, look at the dark green bars that show the closed sales. Comparing July 2012 with July 2011 you'll see the closed sales were also up considerably.

 

Market Inventory

Months of Home Inventory July 2012

 

Again, look at July 2012 and compare the months of home inventory on the market with July 2011. Last year there were 7.4 months of inventory, this year only 5 months. That may not sound like a huge difference, but it is.

The months of home inventory is determined by taking the total number of homes for sale (2,854) and dividing them by the number of pending home sales (569). At this pace, it would take 5 months for all the homes to sell. In theory, anyway.

To me, this figure represents best what the real estate market "feels like" out there on the streets working with home sellers and home buyers. As the months of inventory decreases, buyers have less choice of homes and the pressure to find the right one, or even an acceptable one for people who really need to move. And indeed, lately it has been harder to find my buyer clients nice homes.

 

Average Sales Price

Average Sales Price

 

Next, look at the red line carefully, you'll see that the average sales price has not increased, even though the basic rule of supply and demand should apply. Fewer homes for sale means supply is down, and more sales means demand is up. Why then are prices not showing the kind of increases you might expect?

I'm not positive what the reason is, I can only speculate, but what I'm seeing here reminds me a lot of what I saw when the market downturn hit. Back then, there was a disconnect between supply/demand and home prices as well, and the average sales price remained high even while sales were on the decline and home inventory was rising. Back then, total home sales peaked in 2006, but the average sales price continued to rise and did not crest until 2007, nearly a year later.

At the time I watched, somewhat bemused, while it took about a year for the average sales price to "catch up" with the actual market conditions.

How long will prices take to catch up this time? What's holding the market back?

I can tell you two factors that are holding the market back. Overly restrictive demands placed on people trying to get mortgage loans and tighter appraisal standards. Getting a loan these days is tough. Even the most qualified borrowers are tortured by lender demands. And word on the street is that appraisals are coming in low in general. These two factors, restrictive demands and tighter appraisals are the backlash from the mortgage industry crisis.

However, if the market continues acting like it has been, with inventory way down and home sales way up, prices will catch up with conditions. My only guess is that it will take another 6 months or so and that we will see prices heading up steadily in 2013.  That is, if all other things remain unchanged such as lending standards. Did you know, though, there has been talk about a forthcoming easing of loan standards this October? If money gets considerably easier to borrow, all bets are off because there is pent up demand and prices will begin to increase faster. An adjustment in mortgage interest rates could dampen this, but only so much.

So why does pricing lag behind market increases during a real estate market that is in transition? Perhaps that is a rhetorical question. In fact do we really need to know? It is happening right now, and that's a fact. If you're yearning to sell, hold on just a little longer. If you're anxious to buy, do it now.