Pendings up slightly; Inventory Still trending Lower.
End of month on weekend will slow sales for July
Sales total should beat last year easily
Pending Sales: 12,304 ( +93 from last week)
Pending Sfam: 10,765 ( +99 from last week)
AWC: 7,749 ( -63 from last week)
AWC Sfam: 6,700 ( -38 from last week)
Active Listings: 20,595 ( -191 from last week)
Active Sfam: 16,371 ( -182 from last week)
Closed 7/18-7/24: 1,879 ( -122 from last week)
Closed Sfam: 1,626 ( - 97 from last week)
Closed Month to Date (7/24): 5,594
Sfam: 4,823
Trending numbers continue to move in the right direction for a recovery in housing in Arizona; Pendings are up, inventory is down, and sales are beating last year's figures, even in what is typically a very slow month for housing. New listings for July are also sharply lower; the projection for the end of the month new inventory in July is 9,208 listings; that would be the lowest figure of the year. Keep in mind that is a projection based the average daily listings for the month so far, so it could change, but its likely that an estimation can safely be made up or down within a 10% spectrum. It will probably be under 10,000 listings. As long we continue to see trends such as those, it means housing is getting healthier. The only truly disturbing number we see is that stubborn median price, which continues to hover around $110,000. I would have expected to see it rise a bit now, given low inventory, but as the condo inventory that is on the market continues to sell out at low prices, its probably not unexpected that we will see the broad price markers look flat.
August should be a stronger month than July, and we are seeing indicators like the pendings climbing again above last year's levels at this time. Now, I took a bit of a break last year at this time from doing the stats, so for the next six months we are not going to have a good weekly report to check the numbers against, but indicators last July at this time were noticeably softer than they are now. I am going to venture a guess that we will see August sales approach the 9,000 mark, which would be in line with the very strong spring numbers. At that level, we are probably still burning inventory, and since little exists, we could see some spot pricing pressure before next February. Crossing 9000 sales in August would be a strong indicator; August 2010 produced only 6965 sales, and August 2009, which wasn't a bad year number wise before the double dip, produced 8,042 sales. Getting to 9000 would be superb, but even getting to 8000 after last year's dip would be excellent.
There may be some indications too that homebuilders are starting to feel some increased demand; there is a lot of builder activity in the southeast valley, and you are seeing builders advertising for administrative and sales workers again. There is a lot of reason for optimism, and I think the general economy is just going to dictate if we will be on firm footing sometime yet this year, or if it will have to wait for February of 2012.
In the news, Case Schiller has now posted two straight months of home price gains spread across the top 20 markets in the country. Interestingly, despite our superior sales and inventory numbers, Phoenix's number were unchanged. Our median price was definitely higher in June, so our price gain might be lagging a bit. It was up from May to June well in excess of 1% however. It is a good sign nationally that the crisis of confidence may be dissipating to a degree.
There is also this little bit of counter-intuitive news from June: new homes sales fell- slightly- but prices were up sharply. But, at the same time, prices were up 5.8%. What does this tell us? Let's take a closer look at this. First off, why are prices up when it looks like demand is down? I have a hypothesis for this. Let's bring the new home inventory number into this. 164000 new homes available across the country. That is a record low number for the industry. This does show why prices are going up, but it doesn't explain the reduced sales.
Here is my hypothesis: the sales are reduced because there are not enough choices of new homes available. If there are not enough choices available, certain people will put off buying, buy a used home, or continue to rent.
Lets use an example to illustrate this principle. Let's say a real estate sign installer starts getting busy with requests from agents again, and figures out that his 15 year old truck has seen its better days, since he has it in the shop once a month. So he decides its time for a new truck. He starts going around to the dealerships to look for one; he goes to chevy, he goes to dodge, he goes to ford, but to his chagrin, discovers that they all have been selling fuel-efficient cars like crazy, and have cut production on the mid-size truck quasi-fuel efficient truck he needs to make his business profitable. He goes around to all the dealers but the only trucks they have are the big cummins diesel dualies and 3/4 ton trucks starting at $35,000, or we have some little ford rangers and nissan frontiers. The dealers tell him, well this is all there is now for new trucks, why not just buy one of these? Or maybe you would like to buy a Crown Vic, we can give GREAT deals on those right now, and look at our inventory. Well the man knows he can't profitably operate his business with paying for a truck of this size, in addition to the fuel costs, and the small trucks won't carry a big enough load, and obvously the crown vic doesn't help him, so of course, no sale. They tell him if you can wait three months we will have some dodge dakotas and Chevy Colorados in stock, or if you can't wait, we have some used ones reasonable on the lot. What does the guy do?
Well, the point of this little exercise as we know is to show that 1. He is not going to buy a new vehicle if it doesn't fit what his needs are. Its the same with a house. If the house available is a 2 bedroom condo, a young family of 4 is not likely to be the buyer; likeways, if it is a 6 bedroom behemoth, they are also not likely to be a buyer. So to me, the low inventory presents a matchup problem that decreases actual sales. Lets go back to the scenario. What does the guy do? We have already determined he's not buying a new truck that is either too big or too small, or a big sedan, no matter how cheap the price is, so the new vehicle is out. There are used trucks available, but this guy never had good luck with used vehicles, and besides the payment on the used is just as much and from experience he knows that he will spent a lot of money fixing it besides the payment, since it is a work truck and it gets used heavily, so he really doesn't like that option. The other alternative is that he turns around, looks at his truck, and says:
"well, I can maybe make it work for another three months until they build something that works for me."
So to add a corollary to my earlier hypothesis, sales are being suppressed by lack of choice. A guy who needs a midsize pickup isn't going to buy a sedan just to buy a new car, no matter how good the deal, or how much supply has driven the price down. It doesn't suit his purpose. Let's put this in another way too: Consumer activity is slowed by the lack of choice. Just because there is a load of product out there at cheap prices doesn't mean anything if its not what the consumer wants. Resale homes are not as sensitive to buyer whims as resale vehicles, but for those that want a new home that is 3 bedroom 2 bath that they don't have to remodel, no matter how many used condos or mansions are available at relatively cheap prices, they aren't going to buy it, because it doesn't fit their need, and they don't want used.
Now, just to throw the twist in the illustration, lets say the sales manager is in his office, and gets a phone call. Its the wife of a guy who ordered a new Dodge Dakota 4 months ago that was delivered this morning and is still sitting on the flatbed. In fact the sign guy looked at it, but hey the car is sold, so out of the question. Well, the manager takes this call, and hears a sobbing woman on the other end telling him how her husband had a heart attack last night and died today, and she won't be taking the truck. Sorry. Hmm. What does the sales manager do? He looks out mr sign guy out there turning up his nose at his used inventory and heading for his truck thinking he will scrape by with his pile of junk for a few months. Here he has a willing buyer who needs the singular item sitting on the trailer, but as far as he knows, is unavailable to him. The sales manager of course goes out, and says well, I tell you what, I feel for you, and here is what we can do. I worked out a deal with the guy who ordered this truck; he can wait, but I am going to have to throw in some wheels and underbody coating and some silhouette mudflaps, but he will wait four months to re-order. The thing is, those things cost us if we let you buy this today. We only got the one, mind you. If we can do that, would you be willing to pay the extra $2,000 it cost me to get this truck for you?
So the sign guy, looks at this truck with the mirror hanging off, the Arizona pin striping in the paint, and thinks
"this is the truck I want- no, better, its what I require, and I will probably spend $2000 fixing that hunk of crap in the next three months. I am just going to do it, because I will be happier this way, and I can get on with my business." Boom, there is your 5.8% rise in price. A lack of supply, a lack of choice, both contributing to lower sales and higher prices. My point is of course, that if builders were building more homes, they would be selling more houses, which is why the story goes into the fact builders are breaking more ground now.
I know that was a long illustration, but it is so important we realize that our economic problems are tied more to a crisis of confidence than any parties particular policies. We have survived a baker's dozen of bad presidents in our history, and the economy has always overcome. But when we operate like the sky is going to fall, we retard economic growth. Builders should be selling more homes, but they are not providing enough inventory in many locations to make it a a viable choice for consumers. The most attractive homes seem to be commanding some attention and getting sharp price increases. That wouldn't happen if there was more inventory, but then you would be selling more homes which would be better for them than the higher price for one.
My prime example of this is the Wittmann submarket. Wittmann is a custom home area that not everyone knows about, but is an area that has shown some excellent recovery in the last few years. Wittman lately has had far more homes under contract than there is available inventory; at one high water mark, there were twice as many pendings and AWC as there were available listings. Not an insignificant event. Consequently, we have seen strong sales at fairly good prices out there, but you know, not one builder has stepped up in the last year to try and meet the demand out there for a nice solid 1800 sqft home in the $150K-$200K price range. Resale homes sell within 60 days out there, land is relatively inexpensive and easy to build with few engineering issues, and you are working with the county planning, who practically hold your hand for you in construction. Yet no new builders. There is one guy who has some nice homes out there he has built, but god bless him, he is just still too high priced in the mid $200's. I wish him the best, but he outside the current sweet spot. Prices have come up, but not that far.
I have been told by builders that they could build for $40-$60 a foot. If you can build for that, then you would make money in Wittmann and you wouldn't even be over the price range that foreclosure basis homes are selling for. New homes will sell out there for $175,000, but there is no evidence of that because there is not currently even a choice for a consumer to make in that regard. Until a smart contractor out there decides to cowboy up and show some confidence in the market, there will be no proof that new home activity is improving, and certain people will put off buying instead of having to choose from the relatively few resales, and the zero new homes, which obviously then slows down economic activity for us all. Its a crisis of confidence, and we need to get past that soon, or this recession will continue.
Enough econ 101 for the day! Hope you enjoyed it, and I do appreciate hearing from you folks who read it. Thank you.
chris just
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