Experts Divided on Whether Market Will Improve
Experts Divided on Whether Market Will Improve
Median home prices hit the high-water mark in 2006 in many parts of the Valley, but they began to slide midyear, a clear sign the market was retreating.
In 59percent of 112 Valley ZIP codes, combined new and resale median prices were lower at the end of 2006 than they were four months earlier, according to The Arizona Republic’s Valley Home Values report. But the big price gains continued between 2005 and 2006, with only two communities showing a year-over-year decline.
How far prices will fall and when the market will hit bottom remain questions of debate.
Some observers think the market is at or near bottom. Others say several months of uncertain times lie ahead. Still others have split opinions about the health of the new and resale markets.
“The prices have to pull back,” said Debbie Nichols, a Realty Executives agent in the northeast Valley. “There’s so much supply and not near the demand.”
Single-family resale inventory stood at more than 43,000 in January, according to the Arizona Regional Multiple Listing Service. The total includes cities outside the Phoenix area but the listings are dominated by Valley homes. Analysts say the traditional level for listings is 25,000 to 30,000. Before the market can recover, excess inventory must be sold off, experts say.
The outlying areas of Phoenix, traditional housing growth markets, could have problems into next year as resale sellers compete with builders trying to unload spec-home inventory, Nichols said.
Todd Herzog and his wife, Karen, hope that’s not the case.
They’ve been trying for months to sell their house in Pinal County near Queen Creek. The house has been on market for more than 200 days, and they’ve had to cut the price to $209,000. They paid $236,000 for it in June.
Pinal County is new-home territory, so there are plenty of spec houses and builder deals competing with resale listings, in addition to empty investor homes. The Herzogs think their house, with its mountain views, should have sold three months ago.
“It’s disappointing for us,” Todd said. “It was very much a surprise to us that no one has looked at it.”
Frontier areas hardest hit
The most obvious price softness has hit in the boomtown ZIPs on the frontiers of the urban area. For example, Queen Creek’s median fell 4.1percent between August and the end of 2006 and a small Buckeye area ZIP, 85396, dropped 12.8percent.
Some closer-in spots, parts of Mesa and Glendale, also showed softening between midyear and the close of 2006.
“You’ll never again see the week-to-week price increases we saw in 2005,” said Ben Sage of Metrostudy, a housing-market analysis and consulting company.
Sage thinks the resale market is approaching the bottom and will improve slowly through the rest of the year. As evidence, he said the rate of the decline in sales is slowing.
The outlook is tougher for new homes, though. Builders are trying to get rid of the homes that buyers walked away from when they couldn’t sell their existing houses. Sage said the inventory stands at 2.9 months of supply. He said it was one month of supply at the peak of the boom in the second quarter of 2005. Healthy supply falls midway between the two figures, he said.
Once supply falls into balance, he said builders will be able to make modest price increases, because the Valley’s economy still is producing jobs and the housing demand that goes with them.
Some real estate experts argue that metropolitan Phoenix prices are still attractive compared with California. The median price for a single-family resale home in California was $567,690 in December, according to the California Association of Realtors. The Valley’s median resale price was $260,600 for all of 2006. It stood at $155,000 at the end of 2003, around the time the housing boom began.
Still, Valley resale homes sell for higher than the national median price, which is expected to rise 1.9percent to $226,200 this year, according to the National Association of Realtors.
The manic buying during the housing frenzy may have pushed Valley home prices too far, too fast.
Jay Butler, head of realty studies at Arizona State University, said the boom-time euphoria carried away everyone from buyers and sellers to building professionals and clouded judgment. Builders put up too many homes. Homeowners drained equity from their houses and spent it, thinking bigger price and equity gains were inevitable. Amateur investors jumped in and wished they hadn’t when the market changed.
People forgot, or didn’t know, that real estate is an up and down business.
“Nobody believes in cycles when you’re at the top of a cycle,” Butler said.
Butler is among the optimistic analysts. He thinks the market is in pretty good shape.
“I think we’re where we should be,” he said. “I don’t think there’s a big turn where we go back to the hyper market or we fall off the edge.”
The market faces many challenges, including too many unsold spec homes, too many resale homes and rising prices that are undermining the area’s longtime claim of affordability. Also, investigators are just beginning to determine the extent of mortgage-fraud schemes that can damage a neighborhood’s prices.
New-home analyst RL Brown says 2007 should be the low point and expects gradual recovery to start next year as builders jettison inventory.
“They’re finally getting the message, and there’s some serious repositioning and price changing going on,” said Brown of Home Builders Marketing.
Some agents who have been skeptical of the market are seeing encouraging signs. They say buyers are coming back, the kind who want a house to live in, not a fast-money investment vehicle.
Maryella and Roger Scharnhorst have their fingers crossed. They’re counting on buyers returning since a new job in Sedona for Roger made it necessary for them to list their house in Scottsdale’s McCormick Ranch.
They spent about $60,000 upgrading everything – kitchen, bedrooms, carpet, tile and lighting – to get the house in shape for showings.
They hope that helps it hold its own in comparisons with other new and resale homes. And they hope to sell it in a month and say they priced the house aggressively at $619,000. They bought it in 2001 for $250,000.
It can be nerve-racking wondering whether the soft market will produce the right buyer.
“It’s kind of scary,” Maryella said. “Subconsciously, it’s been kind of stressful with the market cold and kind of dead. It’s a little risky and worrisome.”
Creno, Glen and Ryan Konig, The Arizona Republic, March 2, 2007