I found it interesting that in the Arizona Republic’s report on last month’s home sales, they didn’t really report on last month’s sales. In fact, based on the data, it was difficult to tell which month they were talking about. If you watch such things, you know that in fact ASU’s reports lag by a month, so this is based on November sales. The original report is easier to follow than the Republic’s summary below:
The median price of a house in the region reached $162,500, up 3 percent from October, according to the W. P. Carey School of Business at Arizona State University. Compared with November 2011, the Valley’s median home prices is up 35 percent.
Home sales fell 9 percent between October and November, to 8,009. November’s home sales total is only 1 percent below the pace in November 2011.
The number of homes for sale, without a contract, increased 8 percent during October to 13,495. But listings are still down 7 percent from December 2011.
To get a clearer picture of things, lets look at last month’s numbers: (Data from ARMLS, which calculates sales differently from ASU)
December sales were 5964, up 4% MOM, but down 10% YOY. December’s median price was $163,500, down 2% MOM, but up 31% YOY.
For those of you who say “Twist, you’ve always said the YOY figure is the more important number when looking at real estate. Since the YOY is up so significantly, that indicates a healthy market, right?” I’ll say that it is the more important number, but it does not indicate a healthy market. Here’s why.
Housing markets are a reflection of the economy of the area. When you look at why prices are up in Phoenix, it’s not due to a greatly improved economy or a large influx of people. Investors have had a speculative frenzy in Phoenix, and that has driven prices up. Lenders have limited supply, however, and prices have become higher than investors are comfortable with, so things have cooled off. When prices run up due to speculation, the rise is not sustainable.
It is not always the case that a bubble comes and goes with the market returning to normal. On occasion, you can have a Bubble Part II. Check out this appreciation graph from Las Vegas back in 2007:
While the second run up was not as great as the first, the market did see a rise in prices before taking a serious downturn.
I am not saying that I predict the above model for Phoenix prices. Government policies have manipulated the market and made things difficult to predict. I do think though that a 30% YOY rise in home prices doesn’t make sense when a city isn’t in the midst of a big economic boom though. This is not sustainable.