Pardon the rephrased statement of James Carville- but ultimately, it’s inventory that is going to define the bursting of the housing bubble. From the current report of the Arizona Real Estate Center: With 5,545 recorded sales, the resale home market in July continued the slowing trend. Although this activity is slightly above the 5,460 sales of June 2006, it is well below last year’s 10,200 recorded sales. Although there was a slight increase in sales from June to July, it wasn’t enough to put a dent in the current inventory. The number of Phoenix listings now stands at 53,126. It’s been awhile since we’ve looked at the graph of sales vs. listings. (Data from Arizona MLS) The graph has been updated to show data back to 2002:
July 2006 sales numbers most closely resemble the sales numbers of July 2002 (5736 sales) – which was considered a good year. A 2002 article states: In recent weeks, (in addition to Richmond American, the focus of the article) other home builders also said they were surprised that orders for new homes remained so strong in metro Phoenix. If this month’s sales numbers were in a vacuum then it wouldn’t look bad. However, in July of 2002, there were 25,928 listings- half as many as we have today!
As the graph shows, sales are not out of line with their performance in the recent past. However, the housing sector is being hurt by the rapid rise in inventory. The "soft landing" crowd would have you believe that a strong economy, job growth, desirable area, etc.- will be sufficient to prevent a significant downturn. If that were the case, the number of properties being listed would not continue to rise at an alarming rate.
There are currently 9.5 times more listings than homes sold- nearly 10 sellers for every buyer– and this figure is only for the resale market. According to Valleywide Homes, there are 4880 builder specs available as well. Additionally, 44% of Valley listings are vacant, the builders keep on building, and well… even the robust and desirable Valley of the Sun can’t keep up.
If sales remain at the current level, (which they won’t- sales are seasonal and drop after August) and inventory remains at current levels (which it won’t, homes continue to go up across the Valley) it would take nearly a year to clear out all the homes for sale.
The large number of vacant properties and specs belies the "sellers will wait for their price" theory– there are too many people who can’t wait. One indication of this is the increase in the number of price reductions on ZipRealty, even with all the relists.
Forget what you know about past housing downturns. In spite of any other factors, the housing landing will be hard, and the culprit will be inventory.