After a few months absence, I’m back with Phoenix Area Home Market at a Glance. It gives you the most important information you need to know about the Phoenix area residential real estate market, all on one graph.
I hadn’t published the graph since July because the Arizona Regional Multiple Listing Service (the local MLS) made a major change to their Phoenix MLS statistical reports and I wasn’t sure how the old MLS reports jibed with the new MLS reports.
About the only change I’ve had to make in the current graph is to show only single family detached homes whereas the previous graphs showed “residential,” a rather imprecise term.
The change, however, works out well because I actually prefer showing only single family detached homes.
{ 12 comments… read them below or add one }
ks 12.17.08 at 9:52 pm
I would never had thought that the green line could have that kind of drop. Wow!
I wounder what the plot would look like if foreclosures were not included.
That is one impressive plot.
ken44 12.18.08 at 6:10 am
2009 is likely going to be just as brutal.
david wilson 12.19.08 at 12:45 pm
$160k med price? Don’t think so.
A quick look on Ziprealty.com and housing-watch.com shows 210k.
John Wake 12.19.08 at 2:20 pm
david,
I checked it out to make sure I didn’t misread the data and it turns out the median single family detached price in November as reported by the Arizona Regional MLS is indeed $155K.
http://www.armls.com/pdfs/HmSalesArmlsNov08.pdf
Brian 12.20.08 at 10:25 am
Look at that John…my prediction from 2006 has come true, and then some. I am a big “reversion to the mean” sort of guy and believe that outliers are ALWAYS corrected back to a long run trend based on fundamentals. To recap, your charts had show even in 2006 the deviation from the normal house price trend starting in 2004. Prior to that, the trend line was running along at about 5% appreciation from 2000-2003. That is sustainable. But then, BOOM, up it went in what can only be described as a bubble. It even looked like a bubble back then.
The silver lining for buyers is that any overshoot to the downside will also be corrected back to the mean trend. So, if the trend were to have taken the median to $160K now, then if it ends up getting as low as $130K, another 15% down from here, a nice pop will be built into the price for future buyers.
Being the trend guy that I am, I can’t help but notice the classic “Head and Shoulders” formation that is building in inventory. This formation is based in human psychology and holds much of the time in bubbles. The right hand side of the inventory graph shows the formation of a shoulder. Once that is completed (by a growth in listings) and it looks like it may be soon, then inventory will take a drop back to historical levels of around 20K units. A bonus in the formation is the “double top” in late 2007 and early 2008. This is another well established pattern based in the idea that there is a limit on how good, (or how bad in this case) something can get before the market corrects the excess.
I think my original prediction based solely on reading your charts, of a mid-2009 bottom in price declines, is still on track. BTW…James Cramer, very independently (no, he does not check with me on ANYTHING ;o) ), has come up with the same date for the housing bottom and reports it on his CNBC show regularly.
Brian 12.20.08 at 10:54 am
I went looking for my old quotes in your archives John (thanks for keeping the records even through your blog code conversion). I haven’t found the earliest of my predictions, yet, but did come across a good post on these “At a Glance” charts from April 2007, before RE really hit the fan.
There were some insightful posts there. Where is “The Kid” and “Sifta”. They were right on with their speculations. “Ken44″ is probably licking wounds right now (aren’t we all?), and “CBass” as always, was asking good questions. But I like your quote from that post “Homes are for living in”. That is one great insight that would have saved this crisis had more people looked at it like that.
http://www.arizonarealestatenotebook.com/2007/04/19/arizona-real-estate-market-at-a-glance-4/
Always fun to walk down memory lane. Maybe here at the end of the year, you could go back and list your “Top 10″ posts since you created your blog.
John Wake 12.20.08 at 2:50 pm
Brian, I thought prices would eventually revert to the mean, more or less. Given the stickiness of home prices, I expected that prices would fall some and then level off. After that, inflation would lower the real prices for a few years or more, until we got back to the mean, more or less.
A year ago or so ago I read that Appendix in the study from National City that said historically the greater the over-pricing the QUICKER the correction. That kinda opened my mind to the scenario that is playing out.
That same historical study (I think it was that study) showed a lag of about 2 years from the peak until prices started to fall. That also played out almost exactly.
ken44 12.20.08 at 6:22 pm
@Brian
When I bought my properties I was in for the long run. It was never my intention to flip the homes for a quick sale. I also enough down payment so that my proprieties basically pay for themselves. (Renting thus far has not being a problem and rents have climbed from $750 in 2004 to the $1100 range.)
Would it have been better to wait? In retrospect of course but on the other hand any money I’m down in AZ I’ve more than made up with Cal. with property bought in 1998.
In any case, I’m confident AZ home prices will rebound over time and I am fortunate I am not in a position where I am forced to sell now.
Peter Fork 12.22.08 at 9:44 am
@Brian: A price trend model based on past prices is a model doomed to fail. This is a mistake people made in almost every asset bubble. House prices are a consequence of demographics, jobs, salaries, and inventories. If inventories are high (especially empty houses), salaries don’t go up, immigration is going down, and people are loosing their jobs, prices will fall, whatever the price trend was in the last 5, 10, or 100 years.
@John: Thanks for updating this graph, it’s my favorite. Can you add population gain, unemployment numbers and median salaries to it?
John Wake 12.22.08 at 10:44 am
Peter,
That would be cool but I already spend way too much time on economic analysis for a Realtor.
Population gain is often a pull-it-out-of-your-hat number in between the 10-year censuses and tends to reflex conventional wisdom. However, APS is having the lowest percentage increase in new electricity customers since they started keeping data in the 1950’s, so it’s obviously crazy low right now.
Affordability would be a good number although it is a bit capricious because of the variability of interest rates which are used in the calculation.
One number I would like to do if I ever find a free week, is to graph out foreclosure sales as a percentage of all sales by zip code with the idea that prices will strengthen when that percentage declines, and to compare the market strength between zip codes.
Brian McMorris 12.22.08 at 2:38 pm
Peter, Trend analysis is a simple observation that history repeats in patterns. It does not factor in all the fundamental data you cite. Though I have said before that the basic fundamental in real estate is that it does not really appreciate through time, but just follows inflation. Dr. Robert Shiller has proven this rather conclusively, unless someone has 10 years and several Ph.D. student helpers available to challenge his findings.
The problem with fundamentals is that even if you can get good data (very difficult in regional housing markets as you just demonstrated), what does it mean? What are the exact correlations? How much should the data be weighted? None of this can be known and in statistical terminology, the historical sample size is just too small. So, I choose (just for my entertainment, really) to use typical economic patterns that show up in all types of financial activities and leave the details to someone else.
I think we can all agree that an overshoot to the downside of the historical trend is likely (since we are already there with lots of momentum as shown by the steepness of the curve) which is what any trend model would forecast.
Brian McMorris 12.22.08 at 2:50 pm
BTW, John…your interest in economics, even though limited by the actual paying work of real estate, is what keeps me coming back. This site attracts people at least willing to think a little and debate and not just regurgitate the drivel they have heard.
My definition: “economics is the intersection of human psychology and competitive instinct as it applies to the needs of daily living” (especially including Real Estate). From classic economist Alfred Marshall: “It examines that part of individual & social action which is most closely connected with the attainment & with the use of material requisites of well-being”
Fascinating!