Test Your Personality!
Does the graph below make you more or less likely to invest in Phoenix real estate in the next 12 months?
Click graph
Via Seeking Alpha.
Phoenix leader in U.S. real estate price (declines)
Older post: Arizona homebuilders in financial trouble
Newer post: U.S. economic growth in Spring surprisingly strong
{ 10 comments… read them below or add one }
Peter Fork 08.31.08 at 5:46 am
Prices are a lot better for buyers than 2 years ago. But as long as you have over 50000 homes for sale, a third of them empty, another third owned by the banks, prices will continue to go down.
Brian McMorris 08.31.08 at 11:57 am
I agree with you Peter, the bottom is not in until inventory is back to 15K or 20K, close to the long run average. Supply exceeds demand, and it is hard to build a case for higher demand with a weak economy and tough lending conditions.
I still think (since I have in early 2007) that $160K on John’s charts, or $130-135K or the Case-Shiller charts is the target, about 15-20% lower from here. That gets us back to pre-bubble levels in 2002.
John Wake - Real Estate 08.31.08 at 12:19 pm
One point, I believe a “normal” inventory would be just above 35,000.
Butler at ASU gives the normal percentage of homes standing in Maricopa county that are for sale at any one time. I got the number somewhere. In my mind, at the current number of homes existing in Maricopa County, the normal number for sale would be around 35,000. I’ll check when I get time.
Brian McMorris 09.01.08 at 10:48 am
John, I just got my number by eyeballing your chart from “Arizona Real Estate at a Glance”. In the more normal (don’t know if average) period of 2000-02, the data show 15K inventory. That makes numerical sense if typical Days on Market is around 100 (3 months). The current days on market is about 330 (11 months), so inventory would be 3.3 times 15K or about 50K, which is close to the current inventory shown on your site.
If we use “normal” inventory of 35K, then 3.3 times would mean there should be 110K homes on market right now, which there is not.
david wilson 09.01.08 at 10:13 pm
Current middle median price is 245k. Pre-bubble in the early 2000’s was about 130k.
Prices need to decline by AN ADDITIONAL 47% to get to pre-psycho bubblelevels, not just a tiny bit of 15 to 20 %. Try doing two minutes of research on the thing called the internet, if you blasted in from Chicago, California, etc., last night. And there’s a thing called a calculator…………………………….Gee, who da thunk it. It adds and subtracts and multiplies………………………..and divides.
Just another benefit of the educational system and/or transient nature of Phoenix metro area. Nobody seems to have a brain or a memory.
Peter Fork 09.02.08 at 5:11 am
Median income in the U.S. is a bit lower in 2007 than it was in 2000, so it would make sense if home prices were as low as they were in 2000. On John chart, it was about 130k, compared to about 200k in July.
I don’t know about incomes in the valley though.
http://www.epi.org/content.cfm/webfeatures_econindicators_income_20080826
Brian McMorris 09.03.08 at 11:35 pm
Peter, one thing to point out here is that the data on the linked site show the “inflation-adjusted” income. It doesn’t work to compare that number to housing prices over a period that are not “inflation-adjusted”.
One would need to back out the income deflator to get a good comparison. I don’t know what that is from 2000 to 2007, but it probably is something like 20% in total. So, take the current Case-Shiller average of around $153K and multiply by .80 to get a better comparison of housing cost on that inflation adjusted basis.
The result is $122K. The link shows $50K as median inflation adjusted income (maybe more or less in the Valley? who knows). Using this method, we are just about at that 2.6 AI multiplier. But I would prefer to use non-adjusted incomes. It is a better representation of what people actually pay today for housing as a multiple of current income.
You might see if you can find that data on the US Census site. Or maybe try the St. Louis Federal Reserve site (FRED) which is a treasure chest of economic data over long periods of time.
http://www.research.stlouisfed.org/fred2/
Brian McMorris 09.03.08 at 11:52 pm
I went ahead and took the liberty of figuring the national price deflator from August 2008 to January 2000. I found the needed data at the FRED site under the “CPIAUCSL” series. The CPI was 169.30 in Jan. 2000. Last month, it had risen to 219.18. This works out to a deflator (multiplier) of 0.772. Looking at the data series, the commodity inflation the past 2 years really shows up.
BTW…this data is the source of one of the Dem party’s statistical fallacies. The Dem leaders like to cite how incomes have actually fallen since 2000. But this is only true on an inflation adjusted basis, and takes into account the 2000-03 recession, when real income, naturally, declined. Most recently in 2003-08, incomes have been increasing.
The chart shows the regular rythms of household income, always skewed upward AFTER inflation the past 50 years. America isn’t such a bad place to live, afterall.
http://www.census.gov/hhes/www/income/medhhinc.html
Nice to debunk another myth.
Peter Fork 09.04.08 at 9:51 am
Brian, thanks for the info. I agree America is not a bad place to live at all.
A correction about post #7. You say: “Case-Shiller average of around $153K”. It’s not 153k$, it’s an index of 153 in June 2008, 100 being the median price in January 2000. I assume you took that number from this source:
http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_History_082653.xls
That means prices are still 53% higher than in January 2000. That corresponds to a 5% average yearly increase in the past 8.5 years. Inflation averaged 3.2% for that period, for a CPI increase of 30.31%:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
To make housing affordability for the median family return to the January 2000 level, prices would still have to go down 17.5%, according to those numbers (153.19/130.31), given that the inflation-adjusted median family income didn’t move since then.
Concerning Dems’s “fallacy”, I think they compare incomes over a business cycle, peak to peak. What they say is that the last business cycle was the worst for the median family since a long time, and that is what the numbers show on the graph you cite:
http://www.census.gov/hhes/www/income/medhhinc.html
Brian McMorris 09.06.08 at 4:20 am
Peter, good catch on the Case Shiller data. I guess the index numbers were close enough to the actual dollars that I made that leap.
Regarding the idea that last business cycle was a poor one, yes, I agree with that statement, we got bashed in 2000-03 for our previous excesses (under Clinton) and had a weak recovery due to the damage done by the Tech bust plus the 9/11 tragedy and the military and homeland security costs that followed. But that is not what the Dem pundits are saying. They say that people are worse off today than in 2000 by median income. That is just not true according to the Census data.
But you are right, it has been a tough 8 year stretch. But if you look back in time using other economic series, the cyclicality of the business cycle is obvious and somewhat consistent, having nothing to do with politics. I think the business cycle is more about the aggregate of human nature for an economy: the cycle of greed to fear and back again.
No one party has a corner on those elements. The last similar period of sideways economic and market action was the 70s. It started off with a Republican president (Nixon then Ford) but ended with a Democrat (Carter). Carter did not solve any of the problems, nor could he. Only time could fix the trouble, plus shock treatment adminstered by Paul Volcker, in the way of very high interest rates. That finally broke they cycle. in 1982. Then, we went back to a period of greed.
10 years seems to be a typical correction phase. So, maybe we will finally get past all of this by 2010, regardless of the election.