PERFECT STORM BREWING FOR RAPID CITY REAL ESTATE?

We believe more strongly today that, on top of what's already happened, a perfect storm may be brewing in our local housing market. This is due to evidence of colliding structural forces.

Prices are way down nationally, steady locally. But the number of newly listed homes continues to plummet, both nationally and locally. Economists like to say that "price" is the variable that balances supply and demand. So far, home prices in the Rapid City/Black Hills area have remained steady. As the number of local sellers have declined due to market queeziness, the number of viable buyers ready to buy has also declined too due to the plugged and leaking pipeline of lenders. As a result, although our sales turnover volume is plummeting, prices are holding rather steady.

But, our premise is that if either the number of sellers or the number of buyers (but not both) changes significantly, or if the numbers of buyers and sellers trends in different directions simultaneously, then our current frail balance of market forces could yield an amplified price-reaction in the market to re-reconcile supply and demand.

According to the Wall Street Journal, the U.S. "months of inventory on hand" is climbing as the pace of sales is outstripped by new listings. But here in the Black Hills/Rapid City area, new listings are coming on line at a declining pace. We believe that if something occurs to elevate the number of buyers, even a small amount, it could reverse the local sense of a buyers' market. As the number of active listings declines, and the rate of incoming new listings declines, we could find ourselves in an oversold misalignment of supply/demand market forces.

This could take as little as, perhaps, an extension of the IRS' first time homebuyer credit, or sustained lower interest rates, or rising employment.

There is much talk of a second wave of foreclosure properties flooding the market due to unemployed middle class homeowners. But things just don't seem to allow for such a phenomenon here.

A growing number of 'expert' industry analysts are predicting that the U.S. housing market bottom will occur sometime between now and next spring. A contrarian would say that implies an excess of optimism, and therefore the real bottom may not come until latter 2010, or even later.

We believe the best time to buy may become even more disjoint from the best time to sell. In any case, our stance remains the same...the three traditionally most important factors in real estate (location, location, location) may be in line to be displaced by when, when, when.

What's your opinion?