ARMLS STATS 5/4-5/10/09

ACTIVE WITH CONTINGENCY CONTRACTS REACH 4,000!
SALES IN MAY START STRONG-big sales Month ahead?
Inventory falls to new multi-year low-Total Listings under 38,000!
Single family homes inventory now well into 29,000's....falling...

PENDING SALES: 13,857 (+204 from last week)
PENDING SingleFam: 12,452 ( +195 from last week)

Active W/Contingency: 4,070 ( +352 from last week)
AWC Single Family: 3,682 ( +310 from last week)

CLOSED 5/4-5-10/09 1,678 ( -1116 from last week)
CLOSED SINGLE FAM: 1,491 ( -1002 from last week)

ACTIVE INVENTORY: 37,818 ( -1013 from last week)
Active Single Family: 29,374 ( -897 from last week)

CLOSED MTD (5/10/09) 2,105
CLOSED Single Fam. 1,868

New Active W/Contingency contracts have reached fresh highs, implying a great amount of new purchasing activity. The absolute numbers are likely to be much higher, but this is normal, as June is one of the best sales months of the year. We have also had a very strong start to May, so that begs the question "Is May going to be the monster month to knock the last of the cobwebs off the Arizona housing machine?"

It could be-but lets look at the other factors first. As I have said from the beginning, where the rubber meets the road in housing health is going to be inventory. We saw more inventory slide last week; we are almost at a sustainable ratio of sales to inventory. I would say that we are, but we still do not have a strong enough demand for new homes as of yet, and our builders health is paramount to our economy. Their sales to inventory is getting better as well; the index number that many real estate professionals follow shows us to be in a range not seen for a couple of years, but this is also due to the relatively low number of new subdivisions currently being marketed. So, the upshot is, new sales are not strong enough yet to support our economy. Still, the numbers are encouraging.

Single family inventory based on April sales, is actually under 4 months of supply now- 29400 single family homes across the entire ARMLS system is not that many. You still have a decent selection of homes, but my guess is home prices are already firming up for quality purchases. Of course, the number of bank-owned properties is going to affect the price statistics, which is why I focus less on pricing than demand. I heard an anecdote that an agent put a non-foreclosure home in decent condition on the market last week, and received upwards of 8 offers in three days. We are beginning to see signs of buyers realizing that the combination of prices and interest rates will never be better, and those that can are pushing to buy now.

On the negative side of the inventory discussion is that many are expecting an avalanche of new foreclosure listings in June. No one seems to know how many. However, given our current inventory burn, it may not even register to us at all. My guess is that if that prediction comes to pass, we will have a slight rise in inventory, but that the strength of sales will absorb it through the summer, and we will likely be left where we are now-in a 3-4 month range of supply; quite acceptable for us in Phoenix, and below normal levels of supply for much of the country, where 6 months is thought to be normal in a stable market.

One small "inside the numbers" inventory-related number that I wanted to highlight was new listings. Something significant happened in April, and that is that doing a comparative study between 2005 and 2009, the number of new listings fell below the number of new listings put on the market in the same month in 2005...that is significant because the 2005 monthly statistics are fairly consistent, while the 2009 April statistic showed a substantial drop in new listings compared to the months preceding it. It is the first month that has shown this steep drop. It is also substantially less than 2008's new listing tally for April-approximately 20%...

For those very interested in the new listing numbers, it is likely that March was a month of massive inventory insertion from foreclosures, as that new listings number was high: 14000+; higher than last March, and we seem to have absorbed that inventory quite well. by contrast, April new listings barely topped 11000. We have talked about the idea that perhaps that many people who already own that might normally have considered selling in the past, will not do so, as they might feel they won't qualify, or would only qualify for a lesser quality neighborhood, and therefore have no intention of selling, even if they could get an acceptable price. I do think this is a factor in suppressing inventory, and while I think we are going to have a steady supply of bank-foreclosed property in the future, this is going to be offset by more people who are going to stay put and not become inventory statistics. This could be an ongoing factor in keeping inventory levels low.

Will this be a drag on pricing statistics? Without a doubt it will, but consider this if you were looking for a house, and were not interested in doing a lot of work yourself: would you buy a fix-up from the bank because it was cheap, or would you buy a home from a private party who has taken care of it? Most people are not interested in becoming carpenters and drywallers, and as we see more first time buyers enter the market, you will likely see more demand for the better quality homes, even if they are not steeply discounted.

Now, is May going to be a big month? All signs point to "yes". We are slightly ahead of April's pace of sales at the same date, and at this time in April, there had been only 2 weekend days, where in May 09, there have been 4 out of the ten days were weekends. As of last May 1o, we had only 1,351 total sales, which ended with 5590 total. We are likely to push 9000 sales this month. This is okay, but crossing 10,000 would be an achievement. I don't think we will reach that number this month, but I think in June, given the AWC contract level, we are likely to get to the 5 figure mark in sales. Significantly, we are also in all likelihood, going to pass the 2008 total MLS sales of 59000 by the middle of August!

Other inventory questions

Inventory has certainly taken quite a tumble, but the rate of decline is already becoming unsustainable. Even this week, we lost almost a 1000 single family homes; by the end of May, can we expect that number to reach 26000? I honestly don't know the answer-our rate of decline suggests we will, but should we really be expecting our inventory to fall to a two and a half month level? That is hard to conceive, but it is possible. I think that we can expect inventory to fall further through May, but that inventory levels are likely to level off over the summer. Two and half month's of inventory will cause prices to go up, without a doubt.

Will we see inventory rise with the addition of foreclosure sales? We might. I think it will only be a bump, but it might go up a bit, and it might not happen until this fall. Summer sales are strong enough to absorb much of this inventory. Nothing falls forever, just as nothing rises for ever.

How does this tie into the broader economy?

Low levels of inventory will eventually draw builders back into the market. I think they are waiting on pricing, which right now is not attractive to them, as foreclosure inventory is priced very low; but as those prices start to rise, which they will, and when they can offer alternative new housing at comparable prices, you will see the builders return to production. These are likely to be more affordable homes than the mcmansions that became all the rage, but that is a healthy thing. I don't think you will see the monstrous projects that we all got used to either; builders will take smaller risks, perhaps focusing on smaller to medium sized subdivisions to test the market before committing to planning new whole communities the way they have done in the past. Lenders may not be ready to risk that kind of investment either.

Another way this impacts our economy is obviously the re-employment of the trades, from framers and drywallers, to surveyors and engineers, builders will need people. This is a crucial item for our economy, and I hope we start seeing this before the end of the year. The White House is now forecasting 3.5% growth rate by the end of the year, and many indicators are showing that is possible. Let's hope so.

A good week, to be sure-there are a lot of reasons for optimism in the housing market now; we are heading in the right direction with excellent momentum.