***MAY SALES: 9900***
Inventory continues to fall, Single Family falls into 18K's.
Summer slowdown set to begin? Pending weaken-slightly.
Is May indicative of what we should expect from housing?
Pending: 13,645 ( -260 from last week)
Pending Sfam: 11,846 ( -212 from last week)
AWC: 7,824 ( -41 from last week)
AWC Sfam: 6,740 (-46 from last week)
Active: 23,291 ( -701 from last week)
Active Sfam: 18,616 ( -576 from last week)
Closed 5/30-5/5: 2,212 ( -208 from last week)
Closed Sfam: 1,895 (-150 from last week)
CLOSED MAY: 9,900
Number of New listings in May: 10,599 (-10.3% from last year)
May finished on a very strong note, with almost a 1000 more sales than last year, and besting Aprill '11 by 400+ (4.4 %). Active listings slipped sharply yet again, as May became another month where limited inventory was added to the market. New listings in fact bottomed for the year in May. If one were strictly looking at the MLS, you would think we have reached a level of inventory that would invite higher pricing. So far that has not been the case, but it doesn't seem logical that pricing can avoid the laws of economics forever either. The median price slipped a bit in May by $2,000. This is a fact that I didn't find surprising, considering the makeup of the homes sold. If you look at inventory, you can see there has been a sharp drawdown in the number of Active listings, especially compared to single family homes. This means there are a lot of condos and manufactured homes selling, and we all know where the prices for condos are. It takes a lot of sales of $150,000 homes to make up for the sale of a $20,000 condo. The mix of homes selling is what is dragging down the median, not necessarily the equivalent property value. Of course, that is not the only culprit, nor probably the main one. The problem is lending, as we have talked about before. We are seeing that lending is difficult, and this is dampening purchasing. I just spoke to an agent yesterday who told me she has heard from a lot of people who want to buy, but are prevented from doing so by the harsh 20% rules required by Dodd-Frank rider in the financial reform legislation. You can liken it to closing the barn door after the horses have already gotten out.
The continuing strong sales numbers and the weakening inventory numbers do point to a price increase at some point, but we are just not there yet. There is the talk of shadow inventory, but those homes never seem to reach the market do they? If the banks were so interested in getting properties sold, they would lend money and worse case, put these homes on the market, right? Well, in some ways they are. Foreclosure auctions are doing very well, and have seen some price increases due to strong competition. If they are able to sell at auctions, both foreclosure and private auctions, and the homes never reach the MLS, how do you count those as inventory? Our ARMLS market is based on the number of homes listed, and the number of sales that occur; this shadow inventory is not part of the MLS, as we are only comparing the number of inventory against sales that occur in MLS. If banks are getting their needs elsewhere, then we won't see it as inventory. We still sold 9900 homes last month, the second best month since 2005.
I would also make another point about shadow inventory. How many of these homes that they claim as shadow inventory would become inventory regardless? A lot if not most would. Divorces happen, people lose jobs or move away, financial condition changes- whatever the reason, many of the homes in "shadow inventory" are "the inventory"- They don't happen all that once, but if there were not these things, there would be none. There is no doubt a larger percentage of bank owned than there are in normal times, but the idea that these are all coming at once, or are swamping the market has proven to be a falsehood. We are always affected more by what consumer sellers are going to do than by the bank inventory. Right now, there is little inventory, in large part because consumers are behaving differently. I'll put this in these terms: consumer listing of homes has slowed; if they can afford to stay where they are, apparently people are not trying to sell their homes; let's call this "negative shadow inventory" because these are people who might normally want to move up, but have negative equity, or feel that they can't re-qualify for another mortgage, (a very real and justified fear), and therefore are not making their homes normal inventory as they would in normal times. Now, the reasons for this aren't all positive, but right now, lower inventory is better and necessary to prices making a comeback. Is negative shadow inventory quantifiable? No, not even a little bit. You would have to interview everyone who doesn't list their house to find out why they are not adding to inventory; not likely to happen. But, in defense of this theory, inventory is sliding sharply despite the foreclosures, and despite this idea of shadow inventory, so it seems like negative shadow inventory is offsetting the wave of foreclosure inventory. Inventory is falling right now, not rising; we have a slightly more than 2 month of supply of homes in the MLS, and we have a strong trend of lower new listings each month; prices at foreclosure sales are rising due to competition; I can't see home prices staying flat forever.
In fairness and solemnity to the dire situation of the housing market of the last few years, I am going to do a little forecasting. I don't necessarily see prices rising sharply this summer. June is likely to be a decent month for sales, but the pending numbers are already softening a bit, indicating we might see sales in the 7K-8K range in third quarter. Inventory is very low, both in MLS and in new homes, but we cannot expect a massive influx of buyers in the summer. We may in the fall, as people rush to avoid winter elsewhere, but I am not going to forecast on that either. More likely, we will see sales fall from second quarter levels 10-15%, and we will see our normal fall sales, but by next February we will see a sharp uptick in sales and demand. Inventory levels may put on some winter fat by then, as I feel we will start adding inventory at some point this summer, but come February, we will see some very strong sales happening, which will lead into a real estate recovery boomlet for us here. Our economy is likely to be in sounder condition by then, and perhaps the labor situation will improve. I also see the government doing something by then about down payment percentage. The government may not like the risk of 20% down, but it almost assuredly will be lowered, which will boost housing. Most voters can't put 20% down, so they will likely see this as something that needs to be done. In short, we won't see a price recovery until next year's strong selling season, but we may continue to see strength compared to last year throughout the summer.
I want to talk about May just a bit. 9900 sales is excellent; only 10599 listings going on the market is even better; we have gutted inventory, and history has shown prices will not linger at these levels of inventory and sales. The laws of economics have to followed, and 2 months of inventory will lead to home price increases, as long as people can get financing. If we remain in what is essentially a cash market, we will continue to have flat pricing; it will go up, but not as fast as it should. We have only 18K Single Family listings now; that is number we have not seen since prices were rising seemingly 10% a month in 2005. At some point the gears will mesh and we will wake up and realize that real estate is the most undervalued it has been in three generations, and people will do all they can to buy it. May is a good example of one of the best months of real estate that we will likely ever encounter in Arizona, and here we still sit not realizing that even if it is not the spark of a turnaround, it is the messenger. Despite all of the national economic bad news, high gas prices, foreclosures, high unemployment, and uncertainty, we still had one of the best months of sales MLS has ever produced. At some point, inventory levels matter, and the number of sales matter, and the fact that rent is double to triple the monthly mortgage on the same home matters; price is going to start rising broadly eventually, and May is an indicator of that.
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