Six months ago we talked about the Phoenix housing market being a "tale of two markets"- a world where homes below $100K were flying off of the shelves and where million dollar homes sat and languished. As you can see, that is still pretty much the case: [Data from ARMLS]
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The most significant change in the last six months was the percentage of sales below $100K. Last March, sales below $100K were 40% of sales, now that percentage has dropped to 29%. Sales have improved in upper brackets, but only slightly:
Where are prices headed?
Let’s take a look at supply and demand. I am not a big fan of the term "months supply", because in some ways that term is misleading. It is however, as a ratio of listings to sales, a useful number. It tells us how balanced supply and demand are.
The National Association of Realtors considers a six month supply of homes on the market "balanced". Let’s say then, for the sake of argument, that you would probably expect prices to rise when months supply drops below the six months supply, and lower when months supply rises above that.
If that were the case, based on the above chart, we can expect a lot of downward movement in home prices over $400K. As those homes only represent 7% of sales however, they can fall substantially without having a huge impact on the median price, which was $145K in September. Just because the median isn’t crashing though, doesn’t mean that the marked is "stabilizing". Minimal sales at the upper end will drive foreclosures and mean big losses for lenders. According to RealtyTrac:
In 2006, about 55 percent of foreclosures were on subprime loans; in 2009, subprimes represent just 35 percent of foreclosures, while another 35 percent are in the middle tier and 30 percent are in the top tier.
Inventory is down- at least the "daylight inventory"
Last March there were 34,581 single family homes listed at the end of the month. At the end of September there was 25,301. It sounds like a significant improvement, but the question is, where have the homes gone? Some have sold, sure, but not all of them.
For example, there were 1183 homes listed for $2M or more last March. 81 homes have sold in that price bracket since then. You might think that there would be 1102 or more homes listed or more, depending on how many new homes were listed. There were however only 774 homes listed in that price bracket at the end of September. The rest of the listings have expired, been canceled, or perhaps the price of the home has been dropped below $2M. That’s a 35% reduction in the $2M+ inventory, but only 7% was due to sales.
Why the inventory drop?
There are multiple reasons- sellers become discouraged and pull their homes off of the market; some go into foreclosure and possibly, banks are moving them from active listiings back into "shadow inventory". RealtyTrac said of the national housing inventory:
We know when the banks are taking properties back it’s taking longer for them to put them back on the market. "Last year our analysis found that only 31 percent of bank-owned properties were listed for sale. We’re assuming, given part of the market dynamics this year, it’s closer to 50 percent.
Given that the rate of foreclosures in Phoenix is well above the national median, it is possible that ratio could be even higher here.
So with sales rising and price drops moderating, is the Phoenix housing market looking better? In a word, no. While some price ranges and areas might be looking better, you could fly a 747 between the current housing market and "recovery". There’s still a lot of pain to come.
