Real Estate Update: Shift Continues in Valley’s Housing Market
By Justin A. Lombard, MBA, e-PRO
Phoenician Properties Realty
Simply turn on the TV or browse through the newspaper and it’s difficult to miss the negative press about the Greater Phoenix residential real estate market. Diverse opinions characterize the Valley’s housing market as anywhere from “undergoing a moderate correction” to “one of the weakest housing markets in the U.S.” Which statement is more accurate? A brief look at a few key numbers in historical context can give us a truer sense of the state of our market today.
Furthermore, while no one can predict with certainty where our housing market is headed, we can make some inferences about where our market might be headed based on a consistent track record of more than five decades of positive growth data.
Then versus Now – the Past 5 Years
The Arizona Regional Multiple Listing Service (ARMLS) aggregates and publishes sales data from the 5 REALTOR® Associations that serve Maricopa and western Pinal Counties. ARMLS data does not include properties that are not entered into the MLS, such as For Sale by Owners or Exclusive Listings. At the time of this writing, the most current report available is May 2007. The accompanying chart offers a comparative snapshot of a few key metrics for the month of May from 2002-2007.
Historical Sales Data Comparison (2002-2007)
Avg Days on Market (ADOM)
Median Sales Price
Source: Arizona Regional Multiple Listing Service – Home Sales Reports
From this data, we can clearly observe the ‘boom cycle’ of 2004-2005, when inventory levels and days on market fell to historical lows and were mirrored by increases in the number of units sold and median sales prices. This is an elegant example of the law of supply and demand at work.
Just as quickly as the market heated up, we see evidence of the cool down that has been in progress since 2005. The supply of homes for sale jumped very rapidly as investors exited the Valley en masse in pursuit of the next great opportunity. The increase in supply, coupled with a drop in the actual number of buyers, has dampened the total number of units sold and is beginning to affect sales prices.
Inventory levels and average days on market (ADOM) in May 2007 remain well above recent historical norms for the month. In May, there were over 51,000 single family homes for sale, which equates to a ten- month supply of inventory based on unit sales. A balanced market supports around a 6-month supply with inventory between 25,000-30,000 units, so we should be prepared for a prolonged correction. Surprisingly, sales prices have remained fairly steady over the past 12 months and have actually risen since the peak demand of 2005. I expect we’ll see continued downward pressure on pricing until the excess inventory is absorbed.
The Future is Bright – Five Decades of Growth and Counting
While no one knows for certain what the future has in store for Arizona, more than five decades of consistent growth and economic prosperity point to a bright future.
Federal data reveals that Arizona has been among the top states in the nation for more than 5 decades in key indicators – population, employment, and personal income growth. Collectively, these growth indicators support a healthy housing market.
Arizona’s Ranking in Key Growth Indicators
Personal Income Growth
Source: U.S. Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis
Economic and personal income growth fuel population growth by making our state more attractive to non- residents. High population growth, on the other hand, is critical for a sustainable, healthy real estate market.
According to Arizona State University and the AZ Department of Economic Security, since 1995, Greater Phoenix has been growing at a pace of more than 100,000 new residents per year. Furthermore, the U.S. Census Bureau predicts that Arizona’s population will more than double between 2000-2030, from about 5.1 million residents to almost 11 million, and will move from its current position as 20th to the 10th most populous state. Even if we fall short of the government’s prediction by a few million residents, the overall effect on our housing market will remain positive.
Five Building Blocks to a Successful Sale in Any Market
While most industry experts agree that the long term outlook for the Greater Phoenix real estate market is favorable and balanced, what about today’s home seller? What can she do to cope with the challenges of our market? I’ve put together a list of five qualities, or building blocks, that any home seller can follow to consistently yield above-average sales results regardless of market conditions. They’re equally-important and just as relevant in a seller’s market as they are a buyer’s market. They are:
1. Right-on pricing: The most accurate way to develop a pricing strategy is to put yourself “in the shoes” of a prospective buyer and visit several homes for sale in your community that are similar to yours. Only after you know how your home stacks up against the competition in terms of features, upgrades, and condition can you price it appropriately. Buyers today visit many homes and can very quickly identify when a home is not priced consistently with other similar homes.
2. Stand-out staging: You should never open your home up to a prospective buyer until it’s ready to show! Buyers in today’s market are rare and valuable commodities and you will only get one chance to impress them. Whether you lean on the experience of your REALTOR®, hire a professional home stager, or do it yourself, make sure you’ve tidied up, de-cluttered, and made necessary repairs or alterations to prepare your home for sale before you put the sign in the yard.
3. Aggressive marketing: The goal of any home seller should be massive exposure of their home to as large a pool of prospective buyers as possible. Your marketing plan should include a print component to attract local home buyers, as well as an extensive Internet strategy to attract global buyers. The fewer buyers there are in the market, the more important it is to extend the breadth and depth of your reach.
4. Diligent follow-up: Every single buyer who visits your home should receive a follow up phone call for feedback the day after the showing. Over time, you may receive consistent criticisms that give you the opportunity to adjust ‘on the fly’ and position yourself more favorably for the next visitor.
5. Smart negotiating: Many buyers and sellers focus so intently on “getting their price” that they overlook other factors that could mean the difference between a successful deal and a parting of ways. Before you rush to the negotiating table and risk losing a valuable buyer or the house of your dreams, take time to learn what’s important to the other party and compare them to your goals. Once you understand how your interests align, you’ll be in a better position to put together a win- win deal.
Justin A. Lombard, MBA, e-PRO is the Team Leader of award-winning Trust in Justin & the Casa Crew at Phoenician Properties Realty, and promotes integrity, market knowledge, and professionalism in real estate. You can visit Justin and his team at www.trust-in-justin.com.
©2007 – Justin A. Lombard, PLC