Central Ohio housing market still looks good for buyers, not sellers

Sunday, February 6, 2011 02:58 AM

By Jim Weiker

THE COLUMBUS DISPATCH

Real estate, like baseball, thrives on numbers. Hardly a day passes without a new statistic measuring some part of the housing industry.

To navigate the statistical sea and provide perspective on the often-competing figures, The Dispatch examined four key measures of the central Ohio housing industry during a full decade: home sales, building permits, foreclosures and home prices.

Although details vary, the figures paint a clear overall picture: The housing industry in central Ohio, as elsewhere in the nation, peaked in the middle of the decade and has spiraled mostly downward since.

Some observers think the spiral is far from finished, but others think the worst might be over.

What the numbers mean to consumers depends on where they stand in the market.

Buyers - especially those who don't need to sell a home - are driving the train. With mortgage rates historically low, prices down and inventory up, the real-estate mantra "There's never been a better time to buy" rings pretty true.

"The guy who has nothing to sell, is working, has a down payment and is living somewhere month to month - that is your best-positioned person out there right now," said Stephen Hutchinson, president of State Wide Appraising and Broker One Realty in Columbus.

Sellers - especially those who paid top-dollar during the boom from 2003 to 2007 - are facing a tougher road.

Prices in some areas of central Ohio have held better than others, but most sellers should expect to get less for their home today than they would have three or four years ago. The notion is especially true for sellers of condominiums or homes in the price range of $400,000 to $800,000, where inventory is high and demand is weak.

The best-positioned sellers are those with a home priced from $150,000 to $300,000 in stable, high-demand areas such as the Clintonville neighborhood, Grandview Heights, northwest Columbus and Worthington - all of which saw an increase in the average sales price last year.

"If I were a buyer, I'd look to the more-established neighborhoods - the Clintonvilles, the Worthingtons, the Arlingtons, older neighborhoods that have stood the test of time," advised Cynthia MacKenzie, an agent with Keller Williams Capital Partners in Worthington.

On the other hand, sellers who are trading up still could come out ahead. They might take less for their home, but they'll offset the loss when they buy a more-expensive property.

"If you're a move-up buyer and you sell your $200,000 home and take a 5 percent discount and buy a $400,000 home at 5 percent discount, you're ahead," noted Rick Benjamin, president of the Columbus Board of Realtors.

For buyers and sellers alike, though, the big question remains: Will prices go lower?

The short answer: No one knows.

Illustrating the challenge, two national real-estate-information services - Clear Capital and Fiserv Case Shiller - studied similar data for Columbus (including home prices and demographic and employment trends) and arrived at opposite conclusions.

Clear Capital predicts that prices will rise 2.1 percent this year in the Columbus area, making it the fifth-healthiest market in the nation. Fiserv Case Shiller, however, foresees central Ohio prices dropping 2.8 percent in 2011 (but rising 1.3 percent next year).

Some indicators suggest that prices might be at or near the bottom. The average sale price of a central Ohio home ($158,893) was only slightly below that of the previous year ($159,840), the smallest decline in several years.

But the 2010 housing sales were fueled with federal money, which won't be around this year.

Such figures also can be tricky because they measure only the average price of homes that sold, not the average value of all homes.

More important, they vary radically from community to community and neighborhood to neighborhood. (To find out how your community fared last year, visit the Columbus Board of Realtors' website, www.columbusrealtors.com ; click on "housing statistics" under "news" and search "areas" statistics for December 2010.)

Perhaps the biggest drawback of such statistics: They tell you only where prices have been, not where they're headed.

When it comes to forecasts, it's impossible to overlook the elephants in real estate's living room: foreclosures and short sales (homes that sell for less than the balance on their mortgage).

Such homes typically sell for well below their normal market value. One example: A foreclosed house on San-bridge Circle, a few blocks west of downtown Worthington, sold last year for $170,000; similar area homes typically command $230,000 to $250,000.

As long as foreclosures and short-sale properties are a large part of the market, they will depress prices of conventional homes, meaning that prices must be dropped to compete - another plus for buyers but not for sellers.

How important are foreclosures in the central Ohio market? Consider: More than 13,000 properties were foreclosed upon in central Ohio last year, while about 20,000 homes were sold altogether.

Not all of the foreclosed properties ended up back on the market. Some were financially resolved, some were commercial properties and many were sold directly to investors.

Still, between 30 percent and 36 percent of all homes sold in 2010 in central Ohio were distressed properties, according to most estimates. Such properties remain heavily concentrated in Columbus' poor neighborhoods but can be found throughout central Ohio.

"Foreclosures have a 100 percent impact on prices," Hutchinson said. "Even if you have only one or two in Bexley, Worthington, Upper Arlington, they still compete against the other homes in that market. Those have got to be liquidated to get (price) increases."

Even though foreclosure filings dipped a bit last year in central Ohio after steadily rising for a decade, there's little reason to think that foreclosures are going away anytime soon. The number of Ohioans behind on their mortgage is as high as ever; and jobs, though returning, aren't arriving with any speed.

Finally, there are the homebuilders, who've largely stood on the sidelines during the housing downturn. Last year, they built about one fourth the number of homes constructed during the industry peak.

The lack of new construction has been brutal for those in the industry but good for buyers, who can find a better deal on a new home now than they could have a few years ago.

"You get a lot more home today than you did then, during the peak of the boom," said Mark Braunsdorf, owner of Compass Homes and president this year of the Central Ohio Building Industry Association.

"Plans are more efficient; and material prices, land prices and labor prices are at recent historic lows."

Braunsdorf and other homebuilders are convinced that a backlog exists in the demand for homes.

Their case: The number of homes sold and built in central Ohio has shrunk sharply during the past five years while population has continued to rise (even more than during the boom).

Those who in normal times would have bought a home are now renting or bunking with family or friends, waiting for the right time to purchase.

But landlords, who have invested millions in high-end apartment complexes in central Ohio during the past year, aren't convinced. They think some would-be homebuyers have been scared out of the market, possibly for years.

Braunsdorf noted that in normal times, before the crazy years of the boom, about 5,000 new homes a year were built and sold. For three years running, that number has shrunk to about half that.

"I do believe there's pent-up demand," Braunsdorf said. "There is some natural demand even in a potentially shrinking economy, and Columbus isn't dead. It's still growing."

jweiker@dispatch.com