Kent County, DE - Half Year Report

The real estate market in Kent County, DE has seen a significant increase in the number of homes available for sale (see chart 1) since this time last year. Overall, there is a 57% increase in homes on the market, or roughly 560 more. New construction represents 60% of the overall increase. Looking at availability by price range provides more insight into where the Kent County market currently stands - at the entry level of the housing market, homes priced below $150,000, the availability has actually declined by 23%. The number of homes available for sale priced from $300,000 to $499,999 has increased 137%, with the number of new construction units available in this price range up 145%.

So, what's selling? Interestingly, the price range of $300,000 to $499,999 shows an increase in new contracts of 71% for the first six months of 2006, compared to the same time period in 2005 (see chart 2). Overall there is a 9.5% decrease in new contracts with homes priced below $150,000 off by 47%, and homes priced $150,000 to $299,999 declining by 7%. All other price ranges above $300,000 are either the same as last year or show an increase. With the low supply of homes for sale priced below $150,000, we would expect this price range to continue to experience a decline in new contracts. If we remove this segment of the market, which is limited by such supply constraints, then new contract activity is actually up 5% overall.

Yes, properties are taking longer to sell (see chart 3) - four more days on average than this time last year. That's 49 days on average compared to 45 days on average last year. This increase in time varies by price range. We are seeing increases across the board (with exceptions at some of the upper end price points) but mid-priced homes are showing less of an increase. Homes priced below $150,000 are taking 16 days longer to sell on average versus last year. Here is where we see the consumer more affected by the increase in interest rates and the tightening of lending practices.

The overall supply of homes on the market (see chart 4) is up- 7.6 months of supply at the end of June 2006 vs. 4 months last June. As mentioned above, new construction has had a significant impact on the number of homes currently available for sale- months' supply decreases to roughly 6 months versus 3.3 months last year, if we take into account the impact of new construction. Supply at various price points varies, as one would expect. Months' supply is a statistic that is used as a barometer of the market-supply vs. demand. That is, at the present rate of sale, if no additional homes were listed for sale, it would take about 7.6 months to sell all the homes currently on the market. To put this in perspective, historically (see chart 5), over the last six years, months' supply has averaged 5.2 months, so we are seeing an upward movement.

With homes taking longer to sell and supply increasing, some may conclude that falling home prices will follow. We don't see this happening. In fact, the average sales price (see chart 6)of homes sold in June 2006 increased 8.7% to $223,000. The median sales price (see chart 6) of homes sold increased 10% to $230,000.

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