A recent study by RE/MAX of home sales in the metropolitan Chicago real estate market since 2005 suggests that home sales activity in the 4th quarter of the year provides a handy gauge of the number of homes likely to sell during the first half of the following year.
RE/MAX looked at home sales activity in the 4th quarter of each year in the seven-county metro Chicago real estate market and compared it to the sales activity generated during the first six months of the following year. In each instance, the total number of 4th quarter sales was between 48.5 percent and 52 percent of the total number of homes sold during the following January-June period.
“The consistency of the relationship between 4th quarter home sales and sales during the first half of the following year means that sales in the final quarter of 2010 should give us a good sense of what we can expect from the spring market,” says Jim Merrion, regional director of the RE/MAX Northern Illinois real estate network.
Merrion notes even though the 4th quarter of the year is dominated by the holiday season, home sales continue to close, even during the week between Christmas and New Year’s Day.
“The amount of time spent home shopping does tend to decline as the holidays approach, but a significant number of motivated buyers are still active during the 4th quarter,” Merrion says. “One thing more real estate agents agree upon is that buyers who are in the market in November and December are serious home shoppers. They want to find something and the sooner the better.”
According to Merrion, a major reason 4th quarter buyers are so serious is that they often are involved in a job-related relocation.
“Many companies want to get their employees in place by the beginning of the year. In some cases, these will be new hires, but in many instances those moving are existing employees,” Merrion says. “For that reason, 4th quarter home sales are an indicator of business confidence because companies tend to move more employees when their business outlook is positive. If they feel that way in the 4th quarter, it can be a harbinger of more hiring in the New Year, which means a stronger economy and more home sales.”
Merrion points to another reason that 4th quarter home sales tend to be so predictive of what is to come in the following six months — the lending environment tends to hold fairly steady during the October-March period. In part, that is because demand for mortgage loans is usually considerably lower during that period than from April to September, the time when a sizable majority of the year’s home sales are closed.
If interest rates are attractive and lenders are accommodating during the 4th quarter, that is likely to remain the case through all or most of the first half of the following year, according to Merrion.
“Right now, with mortgage interest rates at about 4 percent and home prices well below their peaks of 2005 and 2006, buyers have an exceptional opportunity. The question is, do they have the confidence in the economy, their job security and personal financial situation to commit to purchasing a home? We’re seeing signs that buyers are getting off the fence,” Merrion says. “The 4th quarter sales numbers should give us a good sense of whether or not that is true and whether the spring market will move beyond the post-tax-credit slowdown that was evident during the third quarter of this year.”