Edited 5/21/2008: Please note this post. It appears Mr. Butler’s numbers may be flawed.
I suspect two things are about to happen:
1) You’ll see a post about this on virtually every Phoenix real estate blog and an article in every local newspaper. (Probably already happening, I haven’t read anything today)
2) The mainstream media (MSM) will minimize if not ignore the good and highlight the bad. (I know, what a shocking prediction.)
The What: ASU’s Realty Studies has released its report for April’s real estate activity in the Phoenix area.
The good news: For the first time since July 2005, resale homes have posted a year-over-year (YOY) improvement.
Dr. Jay Butler, Director of Realty Studies reports there were 5,585 recorded sales in April. April 2007 recorded 4,855 sales. (4,335 in March 2008)
I’m not personally as enamored with YOY stats as many. I prefer to look at month-to month trends. I don’t quite get what is so special about looking at this month compared to 12 months ago — without looking at everything else in between. The media however, seems to love YOY numbers (particularly when they are declining).
What the MSM will likely focus on: The median Phoenix home price declined from $220,000 in March to $210,000 in April. Last April’s median value was $265,000.
“One of the driving forces in increased activity has been rapidly declining prices that have fueled renewed investor interest and potential owner-occupants, especially in the lower income ranges,” said Butler. “Investment interest is being driven by the anticipation that home prices will rise again in the next few years. The lower median price is being impacted by several factors, including the large number of vacant homes, especially in certain neighborhoods,” he said.
Telling numbers in the foreclosure market:
Last year, 41 percent of the resale homes sold for more than $300,000, while it was 24 percent for April 2008. Influenced by foreclosed properties, homes selling for under $200,000 have increased from last year’s 16 percent to a current 44 percent of the local resale housing market. The most evident impact of lower prices is improved affordability.
This certainly reflects what we are seeing. Foreclosure and short-sale listings in some areas of Phoenix (particularly outlying areas) account for 35% of the inventory.
Sellers seem to generally be understanding that they can not base their home value on what the neighbor got last year. Buyers on the other hand do not seem to be understanding that they can’t get short sale and REO (bank owned) properties for 50 cents on the dollar. REOs are moving — sometimes swiftly and with multiple offers at (or even above) the banks listing price. Short sales are typically not moving, and they swiftly become REOs in the vast majority of cases.
Beginning of a recovery? One time blip? Who knows. One YOY data point does not a trend make. But sales seem to be picking up steam, foreclosures are creating affordability, and absorption rates are falling. All of this seems to indicate we may be bottoming. The question once that officially happens is, how long will it last? No one knows. As I’ve said before, you can never truly call the bottom unless you’re looking behind you saying, “Yep, that was the bottom…”.
See the full report for specifics on different parts of the Phoenix metro area.
I think declining home prices are a good thing. One word: Affordability. Is it good for the economy to be putting so much $ into a mortgage leaving less to spend elsewhere?
Jay - The Phoenix Re says
bearlee – I'm inclined to agree with you. No one wants to see their home value decline, but the fact is, they just went up way too fast in the last couple of years. It simply could not be sustained and a "correction" was needed.
They won't decline forever. At some point, a nice and steady rate of appreciation will likely return. Hopefully NOT the ridiculous frenzy that we just went through.
Charleston Real Esta says
Jay, one of the most interesting things to me, and you know I love statistics, is that because there is so much less activity at the luxury end of the market and a lot of activity at the lower to middle end, the median has to decline. The only problem is that you don't buy a median house, it's simply the number in the middle of all sales.
I loved your comment about the 50 cents on the dollar, one of my clients wanted to know if he could bid below list price on reo and before he could even see the home, it was under contract.
I'm glad to hear that unit sales are picking up and I hope Francy and you are taking good care of some of those buyers.
John Wake says
Look at the whole press release and you'll notice that the number of sales in some areas like Scottsdale were lower than last year while sales in Avondale, for example, more than doubled.
John Wake says
Oh yeah, the median home price was 33% higher a year ago in Avondale.
Jay - The Phoenix Re says
Howard – great point about the lower activity on higher end homes driving down the median…
John – exactly. That's why it's kida stupid to lump "Phoenix" into one big bucket. The Phoenix metro area is **huge** and different suburbs can have very different markets. Heck, it can be different between subdivisions within the same suburbs. Real estate is local. Very.
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Sam Chapman says
I like seeing more purchases in your market and hope to see the same in others. That really would signal the beginning of a recovery. The price corrections, though not unexpected, are also good to see.
Tucson Michael says
Where seeing the same type of thing in the Tucson real estate market. I think in Tucson we are scraping bottom and hopefully in 8-12 months this downturn will have been worked out, and pricing will be fully stabilized.
Nice! I've heard from a few home builders that sales are up in some subdivisions (areas) and that it's been that way for a little over a month; maybe closer to two. I hope this keeps up and am glad to hear that resale home sales are also up. There are a lot of homes that need to sell before we see price increases but I'm okay with sales at this point.
Gregory Bain says
Jay, I am a fan of Warren Buffet. He said if you own a farm and have a drought, you don't reduce the value of the farm 30% in the year of the drought. I am constantly going out on listing appointments and the homeowner just can't sell without bringing money to the table. They bought when the market was high – and not from me.
I have more activity, but not anymore sales. I think we still have about six months to go before a real increase in home buying will be solid good news with an index that will supports the bottom is behind us.
Frank Jewett says
Jay, I don't know about your market, but here in Santa Clara County the number of sales increases in the spring, decreases after Memorial Day, and tanks in December and January, so YOY numbers (or ten year averages) provide better information than a comparison of April to March. Is the market in Phoenix also seasonal?
Greg, if you are in a seasonal market, you are unlikely to see a major upturn in six months. That's November, heading into Thanksgiving and the December holiday season. It would be astonishing to sell more homes in November and December than in March or April. We can hope that the economy gets brighter within six months as that would lead to a strong spring market in March-April-May of 2009.
Gregory Bain says
Frank, your point is well taken. It's just that there seems to be an increase in activity without any real increase in buying in my market area. I may be premature but I hope there are people with money that want to invest in second homes and that they are just waiting for the new guy in the Whitehouse to calm their fears. Everythings going to be alright.
John Lockwood says
Nicely done, Jay. I'm seeing similar things happening in Sacramento.
I've featured your story on RealEstateVoices.com. If you sign up there you can vote for yourself. 🙂
Jay - The Phoenix Re says
If you happen to be following this comment thread, I direct your attention to this post:
It appears the methodology Mr. Butler used in determining home resale numbers is flawed. I humbly apologize.
Mike Pasmore says
Funny, what recovery. I just looked at home in Peoria that has been on the market for over 18 months. Orignial asking price $615 – – current asking price $485. The market will correct when values are at the early 2000 levels adjusted for inflation. Tell buyers they should plan to own the home for at least 5-years or they could lose some hard earned money.