IS THE PARTY OVER?

Black Hills real estate has been on a (relative) roll while the national market tanked. Our summer was shaping up solidly. Then the July numbers started coming out.

Since the national real estate bubble burst in 2006/20o7, we've been told by counterparts and press around the country that the Black Hills real estate market is a La-La Land. Last spring, as the winter doldrums were ending, we were described as "the 3rd best real estate market in the country." Well deserved, according to our MarketWatch data.

But I wonder if the preliminary July numbers signal that Black Hills real estate may be re-grouping just a bit. If so, I hope it is a temporary rest-stop, taking a breather, and not a major trend reversal. Indeed, some national observers have been claiming that the other shoe has not dropped on this "recovery." (Ever heard of a "dead cat bounce" in stock market terms?)

They say that when the reality of jobs, GDP, economic deficit, generation-shifted taxation overtake the novelty of all the Recovery Act news buzz, then the euphoria-driven bounce may yield to a return to downward trending. One such observer claimed that a second wave of foreclosures would come. The first wave being unqualified people who found a fast and loose bank to lend them mortgage money, and the second wave resulting from very qualified home owners who simply lost their jobs. Whatever your perspective and whatever your politics, the Black Hills real estate market data is the same. Here are some preliminary signals that lead me to wonder if not just the summer-rush could be winding down, but perhaps the recovery itself. You decide.

Using June, 2007 as an arbitrary end-point of the national bubble as our basis of comparison, we know this:

• The average price of homes sold is virtually unchanged (down 1/10 of 1 %) from $169,265 to $169,350.
  
• The average price of homes not yet sold is up about 9%, from $224,432 to $244,656.
• The number of homes active for sale is down only %1.3 from 983 to 970.
• The number of homes sold year to date is down almost %43 (this is not a typo) from 881 to 503.

Did you catch that? Yes "the market" remains kinda strong. What there is of it. But there is 43 percent less market!

People are waiting on the sidelines. Interesting that last year, 2008, the number of homes sold year to date this time was down only %15.6. There are so many people waiting on the sidelines, it's difficult to claim that the homes that are selling represent what it would be if the sideliners were to enter the fray.

What does all this mean? Let's dig a little deeper.

First, I can't ignore the growing disparity since 2007 between the average price of homes that have sold versus those that have not. It's as if people are buying less expensive homes, and the homes priced over the median price are not selling nearly as well (more than usual). We can check this by noting the "Days on Market per $1,000 Sale Price." Black Hills Market Watch has been tracking this only since last January. But we can say that the DoM/$1000 has improved 67% from 0.64 in January, to 0.21 last month (July). However, that could largely reflect seasonal variations (winter vs. summer).

Digging even deeper, we see that the average number of bedrooms purchased went up from 3.01 in January to 3.15 in June, then retreated to 2.97 in July. And while the median Finished Square Feet went up from 1440 in January to 1610 in June, it retreated to 1502 in July. Piling on to this scenario, the "Functional Capacity" (a complex MarketWatch statistic measuring the "absence of crowding" among a family) grew larger from 7.0 in January to 7.4 in June, then retreated all the way back to 6.7 in July.

That's a lot of retreating.

But the most worrisome numbers I see are the median asking prices, which increased from $151,000 in January to $159,900 in June, then fell back to $137,900 in July. That certainly is a major retreating. (These prices for Actives differ from above because MarketWatch uses the median measure which is, we believe, a more reliable measure than the average as used above. Also, the reporting populations and search criteria may differ somewhat. Still, the conclusions remain fairly reliable.)

So there you have it. I believe we may be seeing some early indicators that the summer rally may be over. Or, hopefully it's just taking a breather before ramping up off the charts as all these wallflower sellers and buyers join the fray.

But what none of us want to believe is that this isn't La-La Land any more.

What's your opinion?