No rebound in 2007
The number of home sales (blue line) in the first few months of the year usually foreshadow how the rest of the year will play out. It’s looking like the number of home sales in metro Phoenix in 2007 will be the lowest for any year on this chart.
The inventory of listed homes for sale (red line) continued to increase and was above 50,000 on May 15. The increase, however, was less than in during the previous months. June’s inventory number should tell as a lot about how the summer and fall will play out.
Prices are all over the board, strong in Phoenix and weak in the outlying areas, but overall the median home price in metro Phoenix is hanging tough despite the lower sales and higher inventory. I’m becoming more and more convinced that for metro Phoenix as a whole (not individual sub-markets) that jobs are more important than home sales and home inventory in determining the median home price.
As long as home sellers have plenty of jobs, they are willing to stay in their homes unless they get “their” price. They don’t have to sell because they have good jobs.
In conclusion, COME ON 2008!
P.S. If you want to sell your home, you need to find a great Realtor (I can recommend one in particular) and you have to be aggressive on price. Remember during the boom, it wasn’t unusual for home sellers to sell their homes for $20,000, $30,000 or more than the comps said the home was worth. There’s no law that says you have to sell your home what it comps out for.
Today in fact, in some Phoenix area sub-markets, we see the opposite of the boom. Home sellers often have to price their homes below the comps to get their homes sold. I know it rips your guts out but that is what you want to do if you want to sell in those areas. I’m just being honest with you.
During the boom, I often told home sellers, “Your home comps out at $X but I think you can sell it for $Y.” That hasn’t changed. The only difference now is that in some locations Y can be less than X.
17 responses so far ↓
1 Ken44 // May 18, 2007 at 5:58 pm
You’ve got to wonder how many owners with property on the market can afford to have their home simply sit unsold. Given the current housing situation if you don’t have to sell, why list it? Just fishing? In today’s market? Hard to believe.
Inventory: My guess is the inventory is within 5-10% of peaking but will remain high for at least another two years.
2008: Assuming that most of the speculators already have their homes on the market we should soon begin to see the affect of long-time owners (five or more years) who for the usual reasons will be selling. However these owners will have a nice appreciation cushion and although they may not like it they can afford to slash their price if need be which may cause the “price-crash” many bubbleheads have been predicting.
Wild card: Interest rates. No doubt the Feds are worried about the housing market and I expect we will see a cut sometime late this year or early in 2008. If the Feds begin a rate of rapid cuts (not very likely) sellers may return in abundance.
Wild card2: Jobs and population growth. The Phx metro continues to grow and a good percentage of that growth is an educated workforce. I expect we’ll see the Phx metro become something of a “poor-man’s Silicon Valley” in the not to distant future.
Summery: One of the reasons why the animosity on many housing blogs is because at least for today most areas of the Phx Metro are experiencing a “soft-landing” Yes, prices are down yet they certainly have not “crashed.” ” Imo, it’s still too early to say what’s going to happen. This time next year will give us a much better picture.
2 Cbass // May 18, 2007 at 9:07 pm
Ken,
I think many of your assessments here are right on. Particularly the fishing expeditions comments you had.
I do though disagree with your take on interest rates. If rates start coming down then we are in recession and the rates going down will not save housing. This is well documented in Japan “The Lost Decade.” In addition what about protecting the dollar to maintain Gov. spending. Also you may have omitted wild card 3, how far will the fallout from the sub prime mess go? Will lending standards continue to tighten?
I think the RE agents, media, etc. have made it sound like “bubble heads” expect prices to drop overnight which is simply not the case. We all know that this thing will take years to play out. Thus they utilize one of the most disgusting and reprehensible fallacies of all, the Straw man.
http://en.wikipedia.org/wiki/Straw_man_fallacy
3 John L. Wake - Realtor // May 18, 2007 at 9:38 pm
Ken,
I agree with just about everything you say… except;
You’ve got to wonder how many owners with property on the market can afford to have their home simply sit unsold.
A lot. They are living in the home after all and they gotta live someplace. They would kinda like a change but they have to get “their price” to make it work… and they aren’t going to get “their price.”
Remember much of the upfront costs of selling a home are borne by the Realtor. A seller just signs a listing agreement. No payment is made upfront by the seller. If the home doesn’t sell, there’s no cost to the seller.
Given the current housing situation if you don’t have to sell, why list it? Just fishing?
Yep. Just fishing. They would like to sell if they can get “their price” but they don’t have to sell.
It’s kind of a hobby.
4 John L. Wake - Realtor // May 18, 2007 at 9:58 pm
CBass,
About the Lost Decade in Japan, I heard Dr. Prescott the Nobel economist at ASU say that the problem was the Japanese banking system. The system was reformed earlier in this decade and the economy started growing again.
I don’t know the details.
5 Ken44 // May 18, 2007 at 10:31 pm
–Given the current housing situation if you don’t have to sell, why list it? Just fishing?
Yep. Just fishing. They would like to sell if they can get “their price” but they don’t have to sell.
It’s kind of a hobby.–
O.k. Thanks for the clarification.
6 Ken44 // May 18, 2007 at 10:39 pm
–About the Lost Decade in Japan, I heard Dr. Prescott the Nobel economist at ASU say that the problem was the Japanese banking system. –
Imo, it’s a mistake to compare what happened in Japan during the 1990’s with the current US housing bubble. Japan’s hidden banking mess was a was a huge problem. Much worse than our sub-prime difficulties.
7 Cbass // May 19, 2007 at 4:34 pm
Ken & John,
Time will tell I guess if were in a worse mess than Japan. I certainly do not expect us to get to that level but you never really know for sure do you? In addition that does not mean there are not worth while lessons or patterns to be learned from the LD? I think maybe you are the one making the mistake in that respect, Jmho.
It is true that the banking industry did play a part in the LD, our banks have been lending money to anyone with a pulse! Hey I can see your point, no banking involvement here.
Did I here from one of the major builders not to long ago we will sell to anyone with a pulse. Yeah no problem here, move along…
8 Ken44 // May 19, 2007 at 5:31 pm
–Time will tell I guess if were in a worse mess than Japan. I certainly do not expect us to get to that level but you never really know for sure do you?–
Yes I think we can because the US banking laws are such that banks could never get away with hiding trillions of dollars in bad debt over the years. There are too many checks and balances in place which is one reason why our sub-prime loan troubles are common knowledge.
9 Cbass // May 20, 2007 at 5:24 pm
Yeah things like that can’t happen in America. I don’t know what I was thinking?
Things like Enron, Tyco, and WorldCom aren’t suppose to happen either but we all know waht happened there. Tell me another one…
10 Ken44 // May 20, 2007 at 11:41 pm
1. You’re attempting to equate the failure of large US companies with what happened in Japan where almost the entire banking system was guilty of cooking its’ books to various degrees. The comparison isn’t remotely close.
2. Interest rates: You can never compare the spending habits of the US to that of Japan. The Japanese propensity to save is only matched by America’s tendency to spend.
11 Cbass // May 21, 2007 at 5:16 pm
No I am not equating the failure of large US companies with what happened in Japan. I was illustrating that just because there is a law, regulation, requirement, or governing body does not mean that bad things can’t or won’t happen. Obviously you feel safe with a few words typed on a piece of paper and I think that’s great, more power to you.
4-2=2 5-3=2
Two totally different circumstances can lead to a similar outcome Ken. Good luck to you buddy.
12 Ken44 // May 21, 2007 at 8:32 pm
Often when US interest rates cuts/ housing market are discussed Japan is bought in the picture . The implication being since rate cuts didn’t help Japan they will not help in the US. I find the logic flawed.
Now does this mean that the US may experience little if any recovery should the Feds decide to rate?
Of course not, I’m simply pointing out the logic behind the bubblehead assumption is faulty and that it is unwise to compare the US with Japan be it economically, politically or socially.
(No I am not in the market to buy a house but if I were I definitely would be scouting around for a deal.)
13 Ken44 // May 21, 2007 at 8:35 pm
Correction: Now does this mean that the US housing market will recover should the Feds decide to cut rates?
Of course not.
14 Astroz // May 21, 2007 at 9:26 pm
I think the fed is to worried about inflation to seriously consider a rate cut at this time. I believe they actually want to raise rates, but know it would devastate a seriously wounded housing market.
I must say that I am surprised inventory is still rising though. I thought we would have topped out around 40k. Does anyone know how many new homes were constructed in the past few years?
Also, I understand that many are just fishing, but half the homes I see for sale are vacant, which is different. Also, why would an agent take a just fishing listing if they know it wont sell and will cost them time and money?
15 Ken44 // May 22, 2007 at 2:18 am
- Also, why would an agent take a just fishing listing if they know it wont sell and will cost them time and money?-
Good question.
16 Ken44 // May 22, 2007 at 6:01 am
–I think the fed is to worried about inflation to seriously consider a rate cut at this time. I believe they actually want to raise rates, but know it would devastate a seriously wounded housing market.–
I don`t think there`s any doubt the Feds are very concerned about the housing market. I expect rate cuts to begin either by the end of 2007 or early 2008.
Such cuts certainly will not re-inflate the housing bubble but they may help kick-start the market.
17 John L. Wake - Realtor // May 22, 2007 at 2:23 pm
“- Also, why would an agent take a just fishing listing if they know it wont sell and will cost them time and money?-”
That’s what we all ask ourselves. It smells a little bit of desperation. The number of full time Realtors will fall a lot this year. Perhaps they are grasping at straws on the way out.
On the other hand, many Realtors will now cancel a listing if the Sellers refuse to price their homes competitively. Last fall one famous agent who specializes in multi-million dollar homes in Scottsdale and Paradise Valley, said she had enough and canceled 5 listings in one week when the Sellers refused to get real on price.
I bet an agent wanting to break into the luxury market would take the overpriced listing.
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