Market Volume - The Last 12 Years

There has been some discussion recently about the number of sales occurring in our marketplace. To shed some light on this topic, I thought I would share a chart showing what sales volume has actually been for Weber County for the last 12 years. This data comes from the WFRMLS.


There are several points I would like to make about this chart that I find interesting:

1. Notice that there was a consistent and steady trend upward in the 12-month moving average from 1995 to 2003. You might remember that Utah was in recession around 2000-2001 and despite this, sales volume continued to trek upwards. It's also interesting to notice that sales volume went virtually unchanged even though prices decreased during this same period.

2. In 2003 there is a dramatic upward shift in the volume trend. This growth is consistent all the way through July 2007. So what happened to cause this sudden shift? Answer: Interest Rates. The FED in 2003 dropped interest rates to all time lows in an effort to prop up the economy. This propping effort shot tons of credit into the housing market. Owning a home became affordable for almost anyone with a pulse....for a while. Another interesting factoid is that prices during 2003 did not increase. It wasnt until 2004 that Utah saw its first significant appreciation since the last spat of increased value. Even though volumes were markedly higher in 2003, it took a whole year of frenzied buying before values started to be pushed upwards.

3. In July 2007, the market took a sudden turn downward. The combined effects of the normal seasonal cycle and the tightening of lender guidelines pushed sales volume to lows not seen since 2002/2003. These are levels that were seen prior to the loose lending surge of the last four years.

Observations 1 and 2 go to the point that Price is governed by local economic health and access to jobs and wages while Sales Volume is governed by a seasonal cycle and availablility of credit. I think that is pretty well understood by everyone.

Observation 3 is of a significant shift which has huge implications for the Realtor sales force out there. Realtors work on commission, they get paid on a per-transaction basis. Normally, as the market expands and there are more transactions to service, the Realtor population increases to handle the demand. That Realtor population increase has been happening since 2003 in earnest.

The situation now is equivalent to a heard of elk on the range in a brutal cold winter. The weak and old elk always die off while the healthy ones atrophy and struggle on for survival. When spring arrives, the survivors flourish. With such a large population of Realtors and a now much smaller transaction base to feed them, the weak and inviable agents are leaving the workforce. The dramatic part of this is that in order for there to be equilibrium almost half the agent force will need to be wiped out. Its going on right now. Hopefully it will be swift. One thing is for sure: With the excess being wiped out, the professionals in our industry can get back to work in a prosperous way.