Has Phoenix real estate hit bottom?
As always, opinions are a dime a dozen. Even the most knowledgeable ‘experts’ on our housing market are divided on the status of our market. Most believe that we’ve either hit, or are very close to hitting, the bottom. Some have speculated that there’s a huge number of foreclosures that are still working through the system that will act to reduce prices further.
Here’s my opinion: We have bottomed out at the entry level price point, but will see some additional correct in the mid-level and high-end segments.
What factors influence my opinion?
First of all, for the first time in a long time it is possible to be cash-flow-positive with an investment property. Values have corrected so heavily and there are so many good deals out there, that *seasoned* investors are back in the game. I have not read a comment anywhere that’s bearish on the long-term health of our economy or our housing market, so many investors believe their position in today’s market has nowhere to go but up.
Also driving the market is the abundance of mortgage incentives and historically-low interest rates. First-time buyers can take advantage of a healthy $8,000 tax rebate if they purchase by December 1, 2009. Not an ‘interest-free loan’ like the credit that was offered last year. This is a true rebate. It equates to up to $8,000 off the price of your home. That’s serious savings!
In the long-run, supply and demand drive any market for goods or services. In terms of demand, the entry-level market segment has become extremely competitive. Bidding wars are common and I’ve recently competed against 34 offers on one property and 16 offers on another.
With regards to supply, I have spoken with several foreclosure listing specialists over the past months who have unanimously indicated that banks are holding properties back and releasing them slowly to market to artificially affect supply. As long as banks are able to carry their foreclosure inventories and ‘trickle’ properties to market, supply will remain low.
But what do the official numbers from the Regional Multiple Listing Service tell us?
So far in 2009, we have seen unit sales increase every month!
2009 Unit Sales of Residential Properties Across Greater Phoenix
You have to go clear back to August 2005 to find a month with as many unit sales as June of this year. In fact, in 2007 fewer than 55,000 homes were sold. For 2009, we’re on pace to eclipse that number in July! The real estate market is ROCKIN’!
So we see that sales units are comparable to 2005 levels, but what about inventory absorption? Isn’t the market being flooded with properties?
Well, if you listen to the media, you’d think so. Actually, in 2005 we averaged almost precisely 12,000 new listings per month. Through June 2009, we’re averaging 12,535 new listings per month! When you consider the fact that an average of 6,527 properties per month have been cancelled, expired, or taken off the market, coupled with an average of 7,505 sales per month, our inventory is actually shrinking by an average of 1500 properties per month.
What’s going on with prices?
In May 2007, the median sales price of residential homes was $350,000. From June 2007 – March 2009 it declined steadily to a ‘bottom’ of $159,080. However, April, May, and June 2009 have all posted increases to $170,580. Indeed, the huge price correction has been the core of our overall market correction. I believe that 3 months don’t necessarily indicate a long-term trend, but we should have a better idea by the end of the year as to whether or not we’re in full-fledged ‘recovery,’ or if we’re just seeing a positive ‘blip’ on the radar.
What about mid-and-high-end homes?
This is where I think we’ll continue to see a price correction. Anywhere above about $300k. It’s not that the deals aren’t there, because they definitely are, but it’s harder to obtain financing than it has been in recent years. When you couple a high inventory of homes whose owners are under water with a low number of buyers who are qualified to purchase, you’re going to see prices continue to retreat and inventory turnover remain low. Eventually we’ll arrive at a level where cash buyers move in along with people who can qualify for financing, but for whatever reason have been sitting on the sidelines. ANYTHING will sell at the right price.
Obviously, nobody knows with any real degree of certainty what the real estate market holds in store for us. A number of issues complicate the very simple concepts of supply and demand, such as the future of interest rates and lending standards and, more importantly, the state of the economy and consumer confidence. Still, the Phoenix real estate market appears to be solidly on track for recovery this year.