Multi-Unit Price Movements

For those of you tracking price movements in the market, I have put together a very interesting chart.  I wanted to know the value of multi-unit properties sold based on the type of financing that was involved in the transaction.  So, I have distilled several years of MLS information into this chart for Weber County:

This chart has some very interesting information in it.  For simplicity sake, I decided to track conventional sales, seller financing, and cash transactions.  The jaggedness of the cash and seller financing lines pre-2008 is indicative of the lack of sales using those types of financing.  There was less data to support a smooth moving average.

Notice that conventional financing has a fairly even trend that has been floating in a range from $60-$70 SQFT from the boom years to today.  However, recently there has been a slight trend downward.  If the trajectory holds we may see prices for conventional sales dip below $60/SQFT.  The reason for the lack of volatility has to do with peoples spending habits as it relates to debt.  When using other peoples money, consumers (and investors) are willing to spend more in order receive the desired benefit.  This is why we saw such a dramatic price run up in single-family home prices during the boom.  Debt was plentiful and people were willing to use it to acquire what they wanted.  Debt is not nearly so available today.

Which brings me to our cash transactions represented by the dark brown line.  During a boom, lenders are very flexible with financing.  Therefore, most investors use cash to purchase a property during a boom are purchasing homes that cannot be financed because of poor condition.  This condition warrants a low price and that is likely what we see demonstrated here.  What is interesting to note is the dovetailing of values from June 2008-June 2009 with the conventional value curve.  I can't account for that for some reason.  However, you can definitely see the value points falling dramatically after that for cash transactions to an average of $45/SQFT today. 

Finally, seller financing transactions occurred during the boom years for the same reasons that cash transactions did...the property was just to beat up to finance.  So,accordingly, we see here that the value points were low for seller financing during the boom years.  Note also that the volume of transactions was very low.  As the market became more stressed, better conditioned properties came available that justified paying a higher price.  Lack of conventional financing created more opportunity for seller finance transactions to occur.  Today, since investors are shunning major fixer-upper multi-units, the value points hug pretty close to the conventional financing value curve.  Notice that within the last 6 months we have started to see a slight decrease in the value points for seller financed transactions...almost mirroring the decline in the conventional category.

In a general sense, the gap between the cash value and conventional/seller finance value curves represents the difference between wholesale and retail pricing.  They give us a general idea of where the market is headed based on which financing tool is being used for multi-unit purchases.