Yesterday Jay Butler released his monthly home sales report for the Phoenix area:
MESA, Ariz. — For the first time since July 2005, the local resale housing market has posted year-over-year improvement. April had 5,585 recorded sales in contrast to 4,855 sales for a year ago and 4,335 sales in March 2008. Given the improvement, the basic question is whether this is the first sign of the much anticipated recovery or merely a blip in a continuing weak market, said Jay Butler, director of Realty Studies in the Morrison School of Management and Agribusiness at Arizona State University’s Polytechnic campus.
Sales exceeded last year’s sales by 15%, although they remain well below the level of the last few years:
Butler says of the increase:
“One of the driving forces in increased activity has been rapidly declining prices that have fueled renewed investor interest and potential owner-occupants, especially in the lower income ranges,” said Butler. “Investment interest is being driven by the anticipation that home prices will rise again in the next few years. The lower median price is being impacted by several factors, including the large number of vacant homes, especially in certain neighborhoods,” he said.
Investors may find that they are jumping in too soon. With over 54,000 homes still on the market in Phoenix, home prices remain in freefall. Falling home prices and high gas prices may see these homes becoming a "second wave" of foreclosures in outlying areas.
Median Price
The median price continues to drop rapidly. April’s median price of $210,000 was down 21% from last year’s $265,000. The median price in March was $220,000. The median price peaked in June 2006 at $267,000.
The drop in median the median price is a measure of the mix of homes sold, and is not always an accurate reflection of "same house" appreciation. The mix of homes sold has changed significantly:
Last year, 41 percent of the resale homes sold for more than $300,000, while it was 24 percent for April 2008. Influenced by foreclosed properties, homes selling for under $200,000 have increased from last year’s 16 percent to a current 44 percent of the local resale housing market.
In practical terms, this means that "same house" price drops are greater in the higher price ranges, as fewer homes are selling in that price range.
In Phoenix, as in other areas hard hit by a declining house market, interest in foreclosures has increased as prices have fallen. Both Phoenix and Las Vegas saw YOY sales increases in April. High inventory and a cooling economy however, are liable to continue to depress prices and show that this is a "sucker’s rally". "Recovery" is still a long way off.
Hey, what about the factoring in of it being the spring selling season?
If this 15% increase had been “seasonally adjusted” in the same way todays gasoline price was (and showed a 2% drop because if it; on what planet did gas go down last month???), then this number would actually be down 20-25% still.
It’s amazing how numbers can tell you anything you want to hear if you just use the right formula.
We are a long, long way from over on this.
Based upon sales per dwelling during 1980 to 2000 a natural rate of sales should be somewhere between 2006 and 2007 numbers (given the current much increased population of dwellings). We are still below those numbers and it appears that although unit sales are improving, the values are still declining.
Dogtown, they are going by last year’s april sales. Unfortunately, foreclosures are surging by 60%, so there is more to this declining market that they are not mentioning.
http://biz.yahoo.com/ap/080514/foreclosure_rates.html
These bottom fishers are gona feel the pain soon…
haha
Twist, I especially agree with your last 2 paragraphs. “Median and average” price are not the best indicators because they do not compare “apples to apples.” This explains why in greater detail:
http://www.foreclosureexpert.info/2008/05/forget-the-aver.html
I think we’d all agree that it would be naive to consider the uptick in sales volume to be the sign of a recovery. More likely, it’s reflective of the fact that more properties are being sold (or forced into sale) by lending institutions, who are far less likely to irrationally hold onto a property in a declining market.
A sales increase due to foreclosures, short sales and REOs is hardly a good sign.
One of the driving forces in increased activity has been rapidly declining prices that have fueled renewed investor interest and potential owner-occupants
Can anybody shed some light into what a “potential owner-occupant” is? I don’t think that’s a checkbox on your mortgage app.
hey twist - you talk about the recovery being a long way off. I think it’d be nice to have a solid definition of what a “recovery” will be. If you listen to the NAR, they’re spinning a “full recovery” (I guess 2005 prices?? And of course, this will happen in 2H08…). Knowing that won’t happen, I’d love to hear peoples’ opinions on this. What will the bottom look like, and maybe discuss the next few years as we enter the “recovery”.
foreclosure expert -
Loved the article! You’ve perfectly articulated an argument I’ve had with several folks about home values in the Dallas area. There are really only two valid comparison points: price per sqft and building class. Here in Dallas, class 14 is a track brick venere, where class 23 is a quality custom. So where class 14 may go for $75, the class 23 will go for $120. But it still isn’t apples to apples. It’s actually the higher quality homes (and therefore more expensive) that are taking the biggest hits in my area.
Sandman-
From what I gather here and on other blogs the “Bottom” you speak of ain’t going to look pretty. It will be flat for quite awhile until certain fundementals change.
Firstly, with tightenned credit or rather a return to historical norm (30yr fixed, 10-20% down) a home must be affordable, i.e. 2-3x family income.
Second, wages must keep up with inflation. An impoverished citizenry can not afford home ownership. Outsourching, offshoring, and H2B visas may help the corporate bottom line but it won’t help Americans.
Third, inventory levels must return to the 4 month or less level. Excess inventory depresses price but if prices are too sticky coming down expect inventory to remain high.
And lastly, America’s debt to savings ratio must dramatically improve. This IMO is critical. How do we dig ourselves out of this hole? Forgiveness? WTF! Eveyone gets a clean slate from JPM/BS down to J6P? That ain’t gonna work in the long run. As Ollie used to say to Stan “That’s a fine mess you’ve gotten us into”
..but values NEVER fall in highly desirable areas such as north scottsdale. LOL. not. even. close. to. bottom.
Foreclosure Expert,
Price/Sq Foot can be a useful relative measure when looking at the big picture, but it is not perfect, especially when comparing two houses in the same area. It does not take into account such things as lot size or improvements (like landscaping, swimming pool, granite etc.) or even the overall condition of the property.