Savannah GA Homes Sales Cycles

As the saying goes, there is nothing constant but
change. Everything has a cyclical nature, whether you consider the seasons or business. Homes sales then, like other business metrics, follow a basic business or market cycle. While economists’ opinions vary regarding the theories of business cycles and what causes them, some believe that real estate follows a quite regular boom and bust cycle.
Market cycles in real estate are created by the imbalance that occurs between supply and demand, just like in any other type of market.

Within the market cycle are four components that could be in play: seasonality, secular trends, cyclical fluctuations, and irregular components. There doesn’t seem to be consensus on which of these components are the strongest drivers when it comes to the housing market. Therefore, it is often helpful to look at long-term trends to understand what has happened in the market and what may happen in the future. On the macro level, in “A Forecast for Real Estate,” Martin A. Armstrong, suggests that, after 52 years of escalating real estate trends from 1955 to 2007, there will be 26 years of contraction, with slight improvement from 2012 through 2015, and then downward trends through 2033. Citing a pending collapsing availability of 30-year money, Armstrong paints a dismal real estate future, with overleveraged debt keeping a ceiling on prices.

Fortunately, “real estate is local” is still a positive mantra for the Savannah GA market. Most Savannah area residents who have bought and sold property are familiar with local seasonal waves. Even with the housing slow-down of the most recent two years, the annual Savannah area market activity builds until it peaks in late spring, with sales tapering off during the last quarter. This seasonality holds true for most neighborhoods or properties, with the variable exceptions of Tybee Island and/or luxury homes. From the beginning of 2005 until the housing crisis of 2007, the local trends showed a very balanced market, with new inventory pacing with sales. The divergence of the trend lines began at the beginning of 2008. However, over the last twelve months, inventory has declined and the trend lines between sales and new listings are moving together. On a neighborhood level, some areas of the Savannah market are already balanced once more. Certainly, this positive trend, if sustained, bodes well for the upcoming 2012 market.

Of the remaining market cycle components, the “irregular” component may have been a historical factor. Generally, this component includes unpredictable elements such as a natural disaster or a terrorist attack. However, they also include “random shock” items. One example might be the government’s offer of first time buyer tax credits, which did push local sales higher than expected in 2009. Interestingly, a second random shock that was supposed to have a significant impact on increasing sales, i.e., an artificially sustained and historically low mortgage interest rate, may not have been as strong of a driver as intended.

Overall, regardless of economic theory held or consensus on driving factors, the Savannah real estate market is moving in the right direction in terms of improvement in supply and demand. With the coming year, and the projection of additional waves of foreclosures, the positive trend may be in jeopardy. Also, the national forecast of higher mortgage interest rates in 2012 could be a “shock” that could have an impact in terms of getting buyers off the fence and into action. Moreover, the national economic picture, and particularly the employment rates, will be a major factor. At this point in time, the Savannah market
reflects signs of strengthening, trends we hope to see continue well into next year.