Pending Sales Rise, Inventory slightly lower
July closings at 8,549.
Would you rather be in inflated stocks, or already discounted Hard Assets?
Pending Sales: 11,937 ( +366 from last week)
Pending Sfam: 10,434 ( +312 from last week)
AWC: 7,799 ( +176 from last week)
AWC Sfam: 6,760 ( +168 from last week)
Active: 19,836 ( -195 from last week)
Active Sfam: 15,698 ( -219 from last week)
Closed 8/1-8/7 1,405
Closed Sfam: 1,205
Despite the drumbeat of negativity in the news, the real estate market here is so far still marching forward this summer, albeit with a few caveats. As we noticed last week, home sales were very strong in July, a typically weakened month in Phoenix. The median price was a little lower, which is puzzling, but not enough to be disturbing. It could simply amount to a lot of condominium sales which come in at lower prices. We are getting down now where there are only about 4000 listings of other than single family homes now, so that means condo sales must be occurring with great regularity as well. These are going to be lower than the median price and will probably drive the number down. It is difficult to measure that median number with any great degree of certainty what drives it.
Well, the elephant in the room is what is going to happen on Wall Street. The stock market swung back pretty strong today, but it doesn't mean the instability is over. The fact that globalism and multi-national companies is the source of financial viruses is now without question. The US needs to seriously think about how they want to encourage re-investment in America and our mostly strong system based on productive Americans, as opposed to through our taxing regime, encouraging our biggest most profitable countries to keep and invest their money overseas in banks and bonds that are now looking very suspect. I think the market falls a bit more, and I think another group of americans figures out that investing in Wall Street is a gamble in which you hope to be betting on the same company at the same time the giant players who can move the markets do so.
There is a silver lining to this, however. Gas prices may slip, and we might see, like we did after the fall of the market 10 years ago in 2001, that people will put their money into hard assets like real estate. This is always cyclical anyway, but financial contagion is a catalyst for a broad shift toward investment in that what we can see. I have no faith in the market at this point, given their exposure to other banks on the continent. Hard assets are at least that; you own them and prices can still go up or down, but you still have the asset. People can do no more with gold than they can with land, and you see people rushing to buy gold and driving it skyward. Of course, gold is more liquid than land, and that is what makes it more attractive now. Eventually builders will need land to increase housing units, as the country and especially Arizona grows. That is a no doubter, and land, if you want to think about it in Wall Street terms, is extremely over sold. I will give an example of this. I know of a piece of farmland in Pinal county for sale for about $5000 per acre. Right now, alfalfa is selling for a minimum of $250 a ton. In Arizona, an acre in Alfalfa can produce anywhere from 8-13 tons per acre. Even at the low side of things, the gross return on that for a farmer is a 2-3 year payback. Now, obviously, there are many expenses in there, but the return on investment is very quick, and that is traditionally a very high return on farmland, implying that the price of the land is very low, since the price has been coming down even though Alfalfa has shot up 200-250% in the last year. People have been wary of hard assets, and probably with good reason, but at current prices they are a very smart buy.
Housing this week shows we are probably leveling off in our inventory reduction for the rest of the summer, or even the rest of the year, but as long as it doesn't start rising precipitously over the next 4 months, we will be going into the first quarter buying season in excellent position. I had high hopes for buying demand for the rest of the summer; now with this last bit of nonsense in the stock market, we might see some marginal demand destruction if people get spooked. Hopefully this settles down immediately and everyone can get back to business.
One interesting stat for the week was that inventory for single family homes, as both a percentage and even the raw number, fell faster than overall inventory. I don't know if there was a raft of condos that came on the market, but I am assuming that was probably the case. It just could be that single family purchasing is recovering to the point where it is growing faster than overall demand. It doesn't happen often, so it was kind of interesting. Stronger single family home demand signifies to me a stronger market, as families buying homes is the backbone of the industry.
EDIT: Stocks have slid back into the negative. Trust in hard assets; farmland or energy land if you can get it.
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