South Florida: All-Time Record Home Sales Contracts

Michael Gerrity reports seemingly great news at Real Estate Channel.com. There are currently 22,000 signed contracts in Miami-Dade, Broward, and Palm Beach counties. This is an all-time record.

Time for a fact check.

The survey result being quoted is compiled by Condo Vultures using Florida Association of Realtors data. The survey started November, 2008. Thus the all-time record refers to an 17 month history.

Recognize the following about this data. Sales contracts in effect may be considerably larger in number than actual sales. Among the reasons:

All contracts do not lead to closings. Factors are failure to obtain financing, conditional contract failures, decision to make a different purchase and simple "buyer's remorse".

There may be more than a month after a contract is signed before closing. Sales are not counted until closing. If the average duration of a contract is 45 days, then, for every thousand contracts that actually go to closing only 667 closings are recorded as sales per month.

Note: The average duration of contracts could be much more than a month. A few contracts are signed to close in less than thirty days. Many are signed for closing in 30-45 days. However, some are much longer. The last home I sold was in contract for almost six months before closing. My current home was in contract for more than two months before closing.

With the above in mind, let's look at the national housing existing homes sales data, shown in the following graph:

This is the appropriate data to compare to the South Florida news. Gerrity reports that the 22,000 units currently under contract compares to 9,200 from November, 2008. It would be useful to compare the not seasonally adjusted data going further back in time from the summer of 2008, but I can not locate that data.

The NAR (National Association of Realtors) seasonally adjusted data can be recovered from the data base of press releases. That data is plotted in the following graph, going back to the peak of the housing bubble.

The increase in contracts over the past 16 months is 138%. A similar increase in the national sales data would amount to 766,000 units (not seasonally adjusted data) and 10,600,000 units (annual rate, seasonally adjusted). Both numbers are way off the charts for the two graphs above. Recall the previous discussion about the difference between the number of contracts in force and the number of sales, especially when average contract duration is much more than a month.

There is no reason why we should assume that contract to sales ratio in November of 2008 would necessarily be anything like the ratio in the spring of 2010. There are reasons why one might argue that the failure to close contracts might be greater now because the real estate market in South Florida is more active. We will come back to this question later in the article.

So South Florida is showing a dramatic improvement for existing homes sales contracts over the past 17 months. But we need to ask from what level the improvement has come. The following table compares the sales data for June, 2005 (the national peak in sales) with November, 2008.

The number of single family sales was higher in June, 2004; 657 more for all of Florida, with a majority (481) in the three South Florida counties. However, I can not locate the condo data for 2004 so we will work with the 2005 data.

There was a 69% decline in total sales for South Florida from June, 2005 to November, 2008. The dramatic improvement in the market since November, 2008 must be compared to that. The sales data comparison for November, 2008 and March, 2010 is shown in the following table.

Sales have increased in South Florida between the two dates by 114%, but still remain at 66% of the June, 2005 levels. For single family homes only, sales in March, 2010 are only 48% of June, 2004.

South Florida is still not recovering at the national rate, which is now at 75% of June, 2005 sales levels. South Florida sales fell further (69%) than they did nationally (39%) and, in spite of more than doubling, have simply not caught up.

Two final points are interesting in the data, as shown in the following table.

First, statewide single family homes are much more popular than condos, but in South Florida, in March, 2010, condos are more popular. In November, 2008, single family homes were somewhat more popular than condos.

Secondly, the number of open contracts is roughly 4 times the monthly sales rates for both times referenced. It is not clear whether the higher ratio in March, 2010 should be attributed to a longer average duration of contracts or to a higher rate of deals falling through.

We had a great headline for the Gerrity article but digging deeper we find that an "all-time record" is not good enough to get South Florida back up to the national average for existing homes sales recovery.

Disclosure: No stocks mentioned.