Phoenix Area Housing Market Updates - 2008
Market Update--The Give and Take of the Phoenix Housing Market - August 2008
The market is largely following traditional patterns—with inventory holding steady, pending (under contract) activity slightly down, with a slight uptick in sales. Not so traditional is the steady erosion in the median sales price of homes as prices continue to decline and the lowest segment of the market, under $200,000, sees substantial activity.
My overall take on the market is that it is working through its issues and slowly repairing itself. I see underlying trends that support this notion.
There is a potential glitch in the market coming and that is the elimination of down payment assistance for FHA home buyers effective October 1 (Check out Phoenix Market at Risk of Sudden Slowdown for more detail). We’ve seen the reemergence and now dominance of FHA loans in the market in the past six months as buyers can acquire a home with as little as 3% and even no money down as part of a down payment assistance option. Given the heavy usage of down payment assistance, especially at the lower price band of the market, we may see a number of buyers drop out of the market as a result.
So, we will have to watch this development more closely as we approach mid-September. There are efforts underway to reinstate down payment assistance but even these efforts, if successful, will not bring the program back in its entirety and will likely institute greater costs for buyers to take advantage of it.
Market Update--The Two Halves of the Phoenix Housing Market - June/July 2008
The housing market in the Valley has really split in two—the market for homes under $400,000 and the market for homes over $400,000.
In terms of buyer demand for homes, “absorption,” as measured by the percentage of available homes currently under contract, averages 17.4% for properties priced under $400,000. For homes priced above $400,000, the number of homes under contract drops substantially to 7.3% of available properties.
Custom luxury homes are the hardest hit area of the market. Custom luxury homes priced at $1,000,000 and above are trending at a low 5.1% of homes being under contract. Based on this, one can imagine further price declines for these properties.
Some would argue that the bottom of the market is here now as evidenced by a recent Wall Street Journal article on the subject. I see possibilities that the bottom of pricing is forming in certain areas. Buyer demand has consistently improved since end-January and remains stable even going into the Summer months. That’s a great sign. As well, I see other trends that point to the market working to resolve itself slowly.
Are there still foreclosures out there with more to come and other uncertainties in the market? You bet! But, unlike the past two years of this down cycle, this year is showing a series of positive, consistent patterns of market behavior and so far, I like the opportunities I see out there.
Market Update--More Buyers, More Foreclosures - April 2008
Buyer activity has seen marked improvement since late January and is at a six-month high with 7,700 homes under contract. This improvement has been consistent and sustained though still insufficient to draw down inventory, which remains steady around 55,800 properties Valleywide. There is a lot of attention on short sales and foreclosures right now and I estimate that these properties represent 20-25% of the homes under contract. It has been amazing to see how fast these properties have come onto the scene and their impact on pricing in neighborhoods.
An interesting data-point is that in Maricopa and Queen Creek, two cities that have been hardest hit by distressed properties, the number of homes under contract is almost 2X other Valley cities— ~20% of active properties! Home buyers are finding terrific deals there as a 2,500 square foot home can be had for about $160K!
In other developments, Arizona was recently designated a ‘Declining Market’ which means that buyers obtaining a conventional loan have to have a 10% down payment to buy a home. As a result, we are seeing Federal Housing Administration FHA loans reemerge as the low-down payment, low-cost financing solution. In combination with a reduction in the number of mortgage options out there for buyers, I envision FHA loans becoming a de-facto standard again until the Valley’s market designation is once again lifted and down payment requirements ease.
Overall, prices will continue to slide but how far is anyone’s guess. I wonder if we might be seeing the slight underpinnings of the bottom given some properties I have seen, but only time will tell if this is the case.
Market Update--More Buyers and Foreclosures - February 2008
We have seen inventory growth relax the past few weeks and so we are currently at 56,000 available properties. It remains to be seen if inventory will take up again and push the market to a peak as happened last Spring. The only consistent thing in this down market has been its inconsistency. On a positive note, buyer activity has recently picked up to 5,800 properties under contract from about 5,000.
With regard to foreclosures, activity is robust,. Statistically, though foreclosed properties represent somewhere around 7-10% (estimate) of available properties in MLS, they make up around 20% of the properties currently under contract!
As a result, foreclosures are having an impact on prices for other existing homes. Many buyers will inevitably check for foreclosure deals in the vicinity of other properties they might be interested in. In this sense, buyers’ pricing expectations have moved away from sellers’ expectations and a seller has to be more committed than ever to sell.
The market remains murky on many fronts but the one exception is that good opportunities are out there for the smart buyer.
Market Update--Buyers Should Begin to Watch! - January 2008
Though timing is debatable, indicators point to recession coming or already here, which will further intensify problems in the market. From one perspective, this market is splitting in half. For sellers, the market is getting more challenging as foreclosures are working in areas to lower home values. As well, though inventory dropped over the holidays by ~5,000 listings, we are seeing inventory rise again to make up half that number already. If this continues, inventory could crest over 60,000-65,000 properties Valleywide in the next few months to set a new record. Bottom line, sellers have to stay committed to the process and follow a specific sales methodology to get their home sold.
For buyers, I see a strong year in terms of opportunity. I am seeing very compelling deals out there and areas are opening up to buyers that wouldn’t have been achievable six months ago. Prices are still volatile and my expectation is that they will slide further to the buyer’s advantage given inventory and economic stress.
My recommendation is that if you or someone you know is looking to purchase a home this year, get in touch with me now. I can help you by creating a search portal based on your requirements which will allow you to follow this changing market closely, and more importantly, identify great values. By the way, I work as fast or slow as my clients want to go!
