The question I get asked most is understandably regarding whether we are at the bottom or whether we can expect to see more of a drop or decline in prices. The answer is not any easier for me than for anyone else. Though I pay close attention to what is happening in the overall Phoenix real estate market and in specific areas across the Valley, the trends and available information paint a mixed picture. So, I thought I would share the latest here.
Locally, inventory has been declining, pending sales activity is substantially higher, and sales are showing increasing strength. Though this data varies for each area of the Valley, the overall snapshot has shows some interesting aspects. Of course, we have to keep in mind the broader national issues such as job losses, a rein-in on consumer spending, and poor corporate reporting results. As I do believe that the real estate market is what has to lead the nation out of its doldrums, one could wonder whether we are seeing strength in our market as a signal to an improved outlook or if this is just a momentary development with more twists and turns yet to come.
But let’s get to what we see locally…
Available Homes Have Declined Very Modestly
Based on the graph, you can see that overall inventory levels are nearly at a two-year low. However, the absolute number still remains at large at just over 49,000 available properties. Several causes for this include increased buyer demand for foreclosed homes, recent auctions that took place, and the complete decline in new build activity. Ironically, this last point is actually a helpful development for the overall market as little ‘new’ inventory is being added. Reaching the 45,000 milestone will have much greater significance for our local market so this trend is one to watch over the coming months.
Pending Activity Showing Solid Results
“Pending” or homes under contract shows two significant developments. First, the trajectory is impressive. We have seen a rapid rise in the number of properties under contact in the past few weeks. This is simply explained by an increase in demand driven by declining prices and manifesting itself in properties being sold through Realtors, auctions, and other market mechanisms.
The second development is the relative strength of the 2009 Pending sales curve. Though we have to be cautious as to the longevity of the strength of the curve, clearly 2009 buyer demand is more robust than that seen in the last three years. Whether the curve will soften and look more like the 2006 curve over time remains to be seen. If it does, this will signal that 2009 is to shape up as a stronger year than 2008.
The daily curve above shows the same overall growth in Pending sales activity. My sense is that the curve is much too sharp and should start to ease in the coming 1-2 months. However, its overall strength will still remain at a good level.
Sales, Sales, Sales
Sales reflects the strength of Pending activity as the sales curve shows improvement over that seen in 2007 and 2008. Indeed, the curve is closely following that seen in 2004 and 2006.
This final curve gives us an additional outlook as to the level of strength in sales data right now. The curve reflects that if sales stayed steady throughout the year, 2009 would see approximately 64,000 home sales. Lastly, notice that the upward trend appears to begin back in July of 2008 and that its direction when compared to the early part of 2008 is nearly opposite. Another positive sign and one to continue to watch.
The Crystal Ball is Cloudy
Overall, we see some positive developments in the local Phoenix real estate market but we have to temper these with knowledge that there are major broader economic issues playing out here and across the country. There will be more challenging times and foreclosures ahead. These will challenge the curves above but the reality is that the more foreclosures in the market, the more buyers have been coming out to take advantage of deals. Though painful, foreclosures are the antidote to the previously anemic buyer demand we experienced.
Time will tell.
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