Yesterday Jay Butler released his monthly report on the Phoenix housing market, and I must say, Butler and I are not seeing eye-to-eye on this one. This month we’ll have Butler’s analysis in black, and mine in blue. I’ll leave it to Doomers to decide which interpretation makes sense to them:
The local resale housing market appears to be fairly stable, with 4,910 recorded sales in June 2007. The activity of June closely followed May 2007 at 5,220 sales and was not far below last year’s 5,460 transactions. The month of June brought the second quarter activity to a close with 14,990 sales, in contrast to 14,185 sales for the first quarter and last year’s second quarter sales of 18,310.
The local resale housing market continues to deteriorate, with 4.910 recorded sales in June 2007. This is 6% below May 2007 sales of 5,220 and 10% below the 5,460 transactions in June 2006. The month of June brought the second quarter activity to a close with 14,990 sales, in contrast to 14,185 sales for the first quarter. This means the normally busy second quarter was up only 6% from the first quarter, indicating an unusually slow second quarter. According to ARMLS data, the June number would be well below any June in the past six years, with 6164 homes sold in June 2001.
The current level of activity brings much needed sustainability; however, the 2007 year-to-date total of 29,175 homes is well below the 36,290 for 2006 year to date and 58,030 sales for 2005 year to date.
I think the current level of activity brings much needed sustainability means that it’s hard to picture sales getting much worse than this. However, judging by home sale trends in previous years, it is likely the sales will continue to drop from here.
"While the resale market is following a very traditional pattern, there are increasing risks that the market could move lower, driven by geopolitical risks and tighter mortgage underwriting guidelines," said Jay Q. Butler, director of Realty Studies in ASU’s Morrison School of Management and Agribusiness at the Polytechnic campus. "Both of these factors could make it increasingly difficult for people who desire another home to be able to finance it."
The resale market is not following it’s traditional pattern. Tightening lending standards after the subprime problems at the beginning of the year resulted in a much smaller spring bump than expected. It is interesting to note that after months of saying:
The general expectation is that the 2007 resale housing market should be a good year, but no where near the records, assuming that there are no negative geopolitical events and that the sub-prime problem remains fairly contained.
This month Butler says:
There are increasing risks that the market could move lower, driven by geopolitical risks and tighter mortgage underwriting guidelines.
It is my expectation that the market will move lower, driven by the tremendous imbalance in supply and demand and the problems in the mortgage industry.
Much like the ever-increasing sales activity of the last few years, the rapid improvement in prices has disappeared. The median home price in June was $263,145 in comparison to $262,000 for May and last year’s $267,000.
Not only has "the rapid improvement in prices disappeared," so has appreciation. The median home price in June was $263,145 in comparison to $262,000 for May and last year’s $267,000. So while up slightly month-over-month, year-over-year, the median price is down 1.4% in nominal terms. Appreciation has been below 2% for nearly a year in nominal terms as well.
Butler said of my own community of Gilbert:
The resale market in Gilbert decreased from 330 to 315 sales and the median sales price decreased from $330,000 to $297,000 ($300,000 in May).
That would mean the median price of a single family home dropped 10% year-over-year in Gilbert.
ARMLS will be reporting their sales numbers next week. If their June sales figure is comparable, Phoenix now has around 11 months of inventory on the market. Obviously, the Phoenix market will continue to be in the doldrums for awhile.
Jay Butler is a spin doctor and your spot on Twist. What’s amazing is the amount of people buying into an overpriced market. 50% debt to income ratio is beginning to look like the norm. A person needs a roof over their head and I guess for many, the ball and chain mortgage. Short term all of this doesn’t make alot of sense to me but trying to picture all of this 3 to 5 years down the road, I get this feeling of gloom. In the late 80’s and early 90’s the housing market out here was really bad. I sold a home in 1994 that I lived in for 9 years and lost 15% on it. And that wasn’t counting all of the improvements that were done. I learned my lesson to be prudent moving forward. Sold my last home in 2005 for 2 1/2 times what I paid for it and would love to buy another. But not at current price level’s. Thankyou for all of your hard work keeping us informed.
Good analysis and translation of the “realty speak” into English.
I know it’s been said lots of times, but perhaps different verbage would be of assistance to somebody, so here goes:
There are 3 main ingredients to the sale of RE.
1. The Person
2. The Property
3. The Price
If you have a lot of (your own) money, you can do whatever you want with whatever property you want at whatever price you want.
The organizations that do have a lot of money and loan it out on houses are now tightening up the flow through “lending guidelines.”
If you want THEIR money, you need to change either:
1. The income, debt level, credit rating or down payment (commitment) of the Person.
2. The value of the Property.
3. The Price.
Regardless of what so many people seem to be indicating with their “sticky” listing prices and arrogant dismissal of “low ball offers,” the easiest thing to change, and change quickly, is the PRICE!!
I would implore Mr. Butler, and the RE spokespeople in general, to pick just one drum to beat.
If they want to report more sales, tell people to drop the prices quickly so more lenders will want to risk on that property at that price to that person.
If they want high (median) prices, then get ready for less and less sales.
Of course, we could always just let people with no down payment, median income, high debts, and poor credit keep making $ 300,000 to $ 500,000 promises they can’t keep and call that “good.”
It’s worked so well so far!?!?!?!?!
Oh, and congrats to Richcinaz for the patience to wait.
twist
I just wanted to say thank you for keeping me informed on everything here in the valley. I have become impatient, but I will not pay these inflated prices for homes here. So I have decided to pack up my family and move back to Colorado. Would you know of any links or sites to pass on for housing in Denver? Or anyone else out there who reads the blog. Thanks again.
Funny Jay B. never mentions the inventory differences between now and 05 or 06
Dogseyeview-
That’s one of my peeves as well. You can’t really say how well sales are going if you don’t know the total available for sale. Butler says he doesn’t use MLS data though, that his info comes from recorded sales, so perhaps that’s why he doesn’t mention it. It seems more relevant to me than “geopolitical risks.”
Hey Twist,
Yes, but that seems sort of convenient for this purposes, huh?
Dogseyeview-
It is, but in reviewing his reports when inventory was tight, he didn’t mention it then either.
I can’t see leaving supply out of a market report, but as you can see Butler and I don’t exactly see eye to eye on how the Phoenix report ought to be done. : )
My guess is that the most pressing “geopolitical risk” we face is the continued conversion of the US Dollar into scratchy toilet paper.
Other than the ramifications of abandoning Israel (see Genesis 12:3)…
I don’t know what else could have as adverse or wide reaching effect on RE as a worthless dollar.
At least they’re starting to think bigger with their BS. Now it’s “geopolitical risk.” Before, it was the weather.
As if it wasn’t hot in Las Vegas and Phoenix when people were standing in line for house lotteries at new developments. I guess the REIC slobs realized how thin the weather excuse was wearing. But “geopolitical risk,” — wow, that’s a serious threat that no blogger would dare discount!!
– The Judge
Butler is one of the bloodhound crowd. Zero credibility. Good work Twist.
To the gentleman returning to Denver its basically the same here in Colorado.
In Colorado Springs we have roughly 450000 sheople and 6800 houses for sale. Phoenix area has roughly 4500000 and about 60000 homes for sale. I went through my old neighborhood yesterday and fools I mean builders are doing 1500000 spec houses HELLOOOOOOO. My litmus test of a neighborhood is to count the seconds between realestate signs at 30 MPH 9 seconds was the average for not being able to see one. Used to be 25 seconds. Its really twisty up there and you can rarely see more than 5- 10 houses at a time. The Dr. I worked with always told me that neighborhood was different and houses would only go up because it was in the mountains. Well it ain’t different and it never is.
sequoia 512
If housing were the only bubble, I wouldn’t be nearly as concerned. Housing isn’t overpriced everywhere, but the dollar is overvalued everywhere, the market is overvalued everywhere…
Thanks for the great work, Twist! God bless!
Judge-
I think “geopolitical” might be a little better excuse than weather- it’s not as seasonal.
great post Twist. People who refuse to make honest comparisons get crossed off my list pretty quickly.
A 10% YOY decline in housing prices is a massive drop - especially for all of those people calling for modest gains or modest losses. 10% in a single year is not a modest loss.
Morganb-
Butler lost me when he called the market “stable.” It might be “status quo” at the moment, but “stable”?
Good point, Twist. I don’t if REIC types have to take a course in “weasel words,” but most of them sure have it down to a science. The one that really gets under my skin is “correction.” I also hate when they say prices or appreciation are “flat,” when prices are clearly going down.
– The Judge
Judge (comment #16) -
Looks like the REIC can just haul back and spew as long as newspaper editors have those fat RE ad budgets in the back of their minds. No critical thinking here
“Nation’s head Realtor says market ‘isn’t down’ “, by Don Jergler, Long Beach Press Telegram, July 16, 2007.
John-
The NAR reminds me of an old Doonesbury cartoon I saw years ago. It showed an RJ Reynolds executive interviewing a prospective employee- an attorney they wanted to hire. They went down his credentials, which were impressive, then the executive said, “Now we have this one last little test. I need you to say with a straight face, “I believe that cigarettes aren’t bad for you.”
The lawyer couldn’t do it, and the executive said, “Next!”
It sounds like Gaylord could pass the test.