The S&P/Case-Shiller home price index came out yesterday, and Phoenix has the dubious distinction of leading the 20 city index in price decline.
I won’t wax poetic about prices in this post. Suffice it to say that home prices do follow the basic economic law of supply and demand. Too many homes for sale, and prices decline. Not enough homes for sale, and prices increase (basically).
No one wants to buy a home and have it decline in value. But despite some proclamations and the common belief of apparently many people, home prices do not always increase.
Yeah, the Phoenix real estate market has been in the toilet for quite some time now. One thing often left out of conversations, particularly in the mainstream media, is that Phoenix is coming off a run up of historic proportions. It was insane here back in 2005/2006. Appreciation rates were averaging 50% per year ”“ a wholly unsustainable rate as I discussed here way back in November 2005.
So, if supply and demand is a leading factor in home prices, what’s happening right now in the Phoenix real estate market?
Here is a chart showing pending sales ((Pending home sale = a home that is under contract, but has not yet closed. In other words, it’s in the process of transferring ownership)) over the last 120 days in select Phoenix East Valley cities. Note the sharp increase in pending home sales across the board ”“ which holds true in virtually every Phoenix area location.
Here is a chart showing homes sold in the same cities for the last 120 days:
And here is a chart showing the supply of listed homes (in months):
Inventory is declining. Most (but certainly not all) pending sales eventually close, so the skyrocketing pendings mean inventory should continue to drop. This bodes well for stabilizing pricing.
One of the problems with things like the Case-Shiller index, and even with charts like I’ve posted above is they tend to lump a ton of data together. Real estate is local, often down to the neighborhood, and different “sub-markets” in an area the size of the Phoenix metro area can behave very differently.
For a perfect example, let’s take a look at the current listing inventory broken down by price range:
So what is this chart telling us?
Look at the bar for homes in the $1.5 – $2M range. See how it’s poking way off to the right? That’s telling you that there is a 77 month supply of homes in that price range that are currently on the market. In other words, if no new homes in that price range are listed, at the current rate of sales it would take 77 months to sell all the existing listings. That’s 6.4 years for those that don’t want to do the math.
Conversely, look at the homes in the sub-$200K range. There is less than a six month supply of those homes on the market (the green line represents the six month supply line).
Generally speaking, a six month supply of homes is considered a “neutral market”, less than six months is a sellers market and more than six months is a buyers market.
So within the Greater Phoenix metro area, when it comes to price point, we’ve got market segments that favor buyers, or sellers, or are neutral.
Price point is but one factor. There are many others”“ age, style, location, ownership (bank owned, vs short sales vs individual owned) to name some. And these factors can all interact, making it complicated as all get out to figure out what’s happening in the market.
REO’s (Real Estate Owned ”“ aka foreclosures aka Bank or Lender owned homes) are a hot topic. As Phoenix real estate has gone through the wringer, the REO market has changed significantly. Stop back by in the next day or two for a look at how that market segment is behaving. I’ll drop one little teaser ”“ there is currently only a 1.4 month supply of bank owned homes on the market.
Charts from CromfordReport.com using data from public records and data licensed from the Arizona Multiple Listing Service (ARMLS). Cromford Associates LLC, ARMLS and yours truly, Jay Thompson, expressly disclaim and make no representations or warranties of any kind ”“ express, implied or statutory ”“ as to the accuracy of the data, nor its merchantability or fitness for any particular purpose.
In other less legal-like words, if you use this data to make personal, business or investment decisions and something blows up, it’s not our fault and you can’t sue us.