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[1] 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.
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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.
- 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 [↩]
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{ 23 comments… read them below or add one }
Great post Jay,
The charts are right inline with the activity that I have been having. Most homes I’m seeing are falling in the 6 month and less realm. Of course, we can get drunk in data, but this looks like some promising numbers.
Shane
Looks like Phoenix might be just about ready to turn the corner. I was reading on another blog that pending sales are up big along with an increase in the median and average home sale prices for Fresno. The drop in home sales that we had been seeing in Houston slowed in March and we saw a higher percentage increase in home sales between Febuary and March than we saw Febuary to March in 2008. If these patterns continue we may be calling the bottom of the housing market in the next couple of months.
**James Wheelock´s last blog post..$240,491 :: 14323 Brushy Arbor, Humble TX, 77396
I’ve been watching this closing on my weekly real estate update posting as well. Interesting to note that almost across the board in the East Valley, average list prices have been rising steadily over the past 4-5 weeks as inventory declines. All positive signs. Get the party hats ready!
It’s great to see that everyday family stuff is moving well and getting more balanced. I have to think that there’s still some room for correction in that upper end range though, given that I could raise a mature young adult in the time it would take to sell everything over a million dollars. Yikes!
Best wishes for a quick turn Jay.
**Norm Fisher´s last blog post..Saskatoon real estate: Week in review (April 20-24 2009)
I really enjoyed the graphs you shared-esp the “month supply by price range”. A great example of how general stats don’t always paint a clear picture. I’m glad to see that more of the moderate family priced housing is getting balanced out there; that is a shock to realize it might be 6.4 years for all those million plus homes to be sold! Good grief!
I am glad to see your numbers moving in this direction! Case-Shiller numbers could also be viewed as skewed because they have a bias towards the type of property selling. So if in 2001 you were moving a lot of 700K homes and in 2009 you are moving a lot of 200K homes – even if housing prices had stayed the same – the median/average sales price of sold homes would drop and make your market look like it was in a decline.
**Sara Bonert´s last blog post..Zillow’s iphone app launches
Man. I thought you were out celebrating your aniversary but you’ve been working! Great graphs. The stuff people can afford does sell. But, most home owners are stuck thinking the house is worth much more. Those home prices will be falling soon – IMO. I also beleive that the banks are holding back on those foreclosed homes – they are in effect controlling the market by only placing a few homes at a time in the REO basket. At least, it seems to be the case in NJ.
A very factual presentation of data Jay. great post.Buyers, sellers, and those in the business should get to read posts like this. Very informative:)
It is an impressive and objective demonstration of the market. Let’s keep optimistic
Thanks for sending out the charts…. great info. Before everyone starts getting ready to call the bottom, keep in mind that foreclosures are still going strong so the supply of houses is not going to drop very soon. Also keep in mind that the artificially low interest rates plus the $8,000 first-time buyer credit are bringing more people into the market. I remember after the real estate problems back around 1992, people thought the bottom was at hand, but prices just kept falling. This won’t be a v-shaped recovery, so be careful.
It is so great to see the numbers moving in the right direction now! I’m glad to hear your market is starting to even itself out a bit; though 6.4 years to sell one of the higher priced, luxury homes is a bit daunting!
**Margaret Safford-metro Atlanta Real Estate´s last blog post..Does the Metro Atlanta Real Estate Market Mimic the New HGTV Shows?
Enjoyed how you could reference a post from 3 years ago-just goes to show that you truly are THE Phoenix Real Estate Guy!
It is nice to see that your area is also starting to correct itself as the number of available houses gets lower-it seems like as the number of homes on the market starts to drop, people will get more confident in buying, (and hopefully the banks will be more confident in lending again) and perhaps the $1million and up homes will start to creep under that 6.4 years to sold time line! At least I certainly hope so!
Great to see Phoenix leading the nation back. We’re about eight months away – in my estimation – in our area of Augusta, Georgia. We are still down 17% on 2008, and 39% off 2007. Inventory dropped drastically at the end of December, and has stayed level for four months in a row. Now if we can just get the buyer’s off the fence, we’ll see charts like yours.
**Joe´s last blog post..Perfect for Entertaining
WE just had our first quarter MLS statistics released today and we are seeing very similar demographics here. The number of buyers has picked up significantly!
Jay,
A very good sign for you down there is that the MLS inventory is declining steadily, it seems. Up here in Las Vegas the inventory is stubbornly holding pretty much steady, even though sales in the lower end are rather good. Lots of foreclosures are still flooding the market.
very informative, good information on this site. In the bay area we are down about 11% in 2008.
It would be interesting to go back in 6.4 years and see if that number of 1.5m-2m dollar homes did get sold….
And, though the people selling 1.5m-2m dollar homes might be in a bind, it is great to see that the other price ranges are getting to more stable market supply amounts!
It would be great if you remembered to write a post in 6.4 years and looked at how the 1.5 million and 2 million dollar homes had done-and then you could reference this post!
Maybe I missed it in the posts or comments, but I didn’t see how these numbers stacked up to regularly seasonal adjustments. I’m new to the Phoenix area (not even quite moved yet) but up in Portland OR, that type of data is fairly consistent when the spring hits every year. Does the Phoenix market not change much throughout the year?
Benjamin Ficker brought up a good point I had not thought of-how much does the market fluxuate there and what is your best season? It might be interesting to compare the numbers from your best times and comparing them to the slowest times.
**Margaret Safford-Metro Atlanta Real Estate´s last blog post..Does the Metro Atlanta Real Estate Market Mimic the New HGTV Shows?
It will be interesting to see how the 1.5m to 2m homes are fairing in a year.