ARMLS STATS FOR GREATER PHOENIX 6/16/09

Single Family Listings fall to 25,000's
Sales Pace slightly ahead of May '09
AWC Contracts Rise, but Pendings dip-Short Sales to Blame?

PENDING: 13,302 (-120 from last week)
Pending Single Fam: 11,865 (-118 from last week)

AWC: 5,260 ( +225 from last week)
AWC Single Fam: 4,753 ( +198 from last week)

Closed 6/8-6-14/09 1,723 ( +113 from last week)
Closed Single Fam: 1,529 ( +95 from last week)

Active Listings: 33,275 ( -529 from last week)
Active Single Fam: 25,536 ( -471 from last week)

Closed MTD (6/14/09) 3,405 (MTD 5/14/2009: 3,331)
Closed MTD 6/14/09) 3,029 (MTD 5/14/2009: 2968)

Inventory continues to recede in Phoenix despite dire predictions of a wave of foreclosures overwhelming market. It is still likely that we are also going to have a W-Shaped recovery in housing, with inventory staging a rise either in the late summer, or during the fall when buying activity abates somewhat. There are foreclosures out there, without a doubt, and they will return to the market at some point, and will make an impact. Whether or not that can turn around a recovering market is debatable. For now, inventory has reached a very comfortable place for us compared to many markets around the country. The Twin Cities supply is over 7 months, Las Vegas is similar, and the L.A. Times reports that California's supply is "back to normal" with just under a 10 month supply. We are in relatively good shape here inventory wise. I think it will probably create some sense of stability for homebuyers, which will in turn lead to us exiting the psychological minefield we have been wandering through for several years. As we saw in May, our median home prices in the MLS are already rising (see last week's post). We continue to hear anecdotal evidence of buyers climbing all over each other for the best listings, and the obviously, we are seeing the number of homes available drop precipitously over the last several months.

Let's put the inventory numbers in even better perspective. 7,990 single family homes sold in May between $0-$500,000- June is slightly ahead of that pace, but let's just say 8,000- I think it will be higher, but let's use a conservative number. There are as of now 19,383 listings between $0-$500,000 in the MLS. At current sales rates, that is a 2.4 month supply of homes. Someone might look at that number, and say well that is the best month of sale for the year, what about the months of January and February, etc? A fair point, but we have to consider we are six months away from January, and we are anticipating being in full recovery in the resale market by that point. There will be foreclosures, there will be pricing issues at the higher end, but we will be stable by that time. In the meantime, we are in a strong sales season until October, at least, in which inventory will continue to abate. The statistic itself is a current snapshot measurement, so when we were back in January, the supply ratio was much higher. If you want to look at the yearly rate, why wouldn't we wait until all the statistics are in for the year? We are trying to look at this in the now, and right now, our supply of homes in this category is 2.4 months.

I am also hearing evidence of builders raising their heads, preparing for another run at construction. No doubt, the housing industry will be a leaner place, with less opulent homes, but if they are seeing reasons for starting up operations again, all the better. We need them for the jobs they provide, and for those of us in the land market, we need them to start viewing where they anticipate growth to be.

I wanted to touch briefly on the pending- AWC relationship. Our AWC contracts continues to rise, but are we seeing that rise because of new contracts, or is it being inflated by the number of long-term short sales clogging it up? July is not expected to be as strong as June, so it is entirely possible that our demand numbers have peaked, and that pendings will start to recede. The number of AWC may predict slightly otherwise, but until the evidence of sales starts showing up with these dramatically higher AWC levels, I am going to tend to think the number is artificially high by short sale listings. It still means they are potential sales, so that is a good thing, but the number should be thought of as diluted, as whatever number of sales that number represents is probably going to be spread over several months time, at least, as short sales take that kind of time to manifest. I run into the same thing with short land sales- they just don't occur rapidly as a normal contract.

I do think we will probably finish ahead of May's sales in June-the fact we are slightly ahead predicts this, as in the past a slightly faster pace is amplified at the end of the month by the last week of sales, so there is a chance we could finish considerably stronger than May, although right now, given some of the demand numbers, I wouldn't predict it. June is likely to be statistically a dead heat with May, although inventory levels look to be lower by that time, making the numbers somewhat better.

It is going to be interesting to see what effect the $8000 tax credit starts having on sales going into the late summer; however, the talk of extending it and even increasing it might dent its effectiveness. I think extending it past this year at this time, might be wholly unncessary; I think you want to drive people to buy sooner than later, and by allowing it or increasing it may not necessarily have the desired effect. A downside effect may be that it causes another real estate bubble, as anytime you start filling a baloon with subsidies this is the case. Look at the automotive business in Arizona a few years ago, with the renewable fuel fiasco, the boom in ethanol production that has now gone bust in the midwest, and frankly, we probably needn't look past the housing bubble created here by cheap easy financing. I think the view to shut that down after November may be unpopular in my industry, but these things need to be curtailed, and we are going to be in recovery or not, regardless if they pass that subsidy again. It should have been done 2 years ago, and we would have not suffered through as bad a slump as we are. To pass it now is just pouring gasoline onto a fire. The fire is lit, sometimes you just need to step back and let it burn.

ARMLS STATS 6/1-6/7/09

AWC CONTRACTS TOP 5000; MULTI-YEAR HIGH
Inventory Falls, Pendings Rise, Closings Off to Good Start

Pending: 13,422 ( +502 from last week) Pending Single Fam: 11,983 ( +458 from last week
AWC: 5,035 ( +308 from last week)
AWC Single Fam: 4,555 ( +264 from last week)

Closed 6/1-6/7/09 1,610 ( -1255 from last week)
Closed Single Fam: 1,434 ( -1143 from last week)

Active listings: 33,804 ( -543 from last week)
Active Single Fam: 26,007 ( -482 from last week)

A sharp rise in AWC contracts shows demand is still strong, and should hold fairly steady, at least through July. The number of AWC contracts denotes new contracts generally, but this number could also mean that short sales are difficult to get through. That flies a little bit in the face of conventional wisdom, as most industry people will say that short sales are easier and quicker now than they were a year ago, so it appears we do have continuing growth in demand.

Pending sales did come back from the end of the month drain that occurs when close to 3000 homes sell in the last week of a month, but they have not come back to yearly highs. They may not reach that level again this year, as June is usually the most active months, meaning the pendings peak prior to, but in a housing recovery year, we may see strong continuing demand as more buyers take advantage of the $8000 tax credit, and the generally cheap housing that is available.

The other good bit of news is that the first week of the month got off to a pretty good start. 1,610 sales would put us on par with May sales, more or less. It would be nice to top May Sales, but it is a little too early to tell. I am hopeful that the strong AWC number translates into a sharp rise in pendings over the next few weeks. I think we would all like to see a blowout month of June. It would eliminate a lot of doubt in the media about the housing recovery.

Inventory levels continue to fall, but they did not fall at the almost 1000 per week clip that had been the norm during May. It could be that there were a lot of foreclosure properties that became available in the first week of June, as many had been saying. It could also be that we have reached the end of the universal theory of elasticity relating to declining inventory; the number has become so much smaller that larger drops become more difficult. The fact that inventory is still declining is frankly surprising, even in a good sales month. We were supposed to see this tsunami of foreclosures hitting the market in June, and they very well could be, but the market seems to be absorbing this wave. We already saw prices rise a little in May, and anecdotal evidence points to strong demand for quality properties, as buyers are flocking to quality bargains right now. My guess is that inventory will decline for a while longer, but we are going to start seeing a new factor come on the board that affects housing inventory : new construction.

We are starting to see some urban projects being picked up, as the number of single family inventory declines. There was also an article last week published about some of the big builders like DR Horton and Toll Brothers thinking it was time to start building up their spec inventory-at least nationally. Builders are going to re-enter the fray, as demand and prices start to pick up and with inventory levels fairly low, there is some opportunities for them. There is some cheap already buildable land out there, and we have even seen some of the ready-to-build lots start to sell. This is the germination of the housing market's recovery if we are struck by no other freak cicrcumstances. It may not be an overwhelming recovery, as the only real buyers now are going to be first time buyers and perhaps locally, a new crop of snow birds or retirees finding their way to the sun, but it does look like recovery to me in the near term. Move-up buyers are going to have a tougher time, as these owners are not likely to realize gains on their purchases, and therefore less likely to buy significantly higher priced properties. This will be mostly an entry-level recovery, and I think that is where we will see construction. Over half of all sales last month occurred in homes priced between $75000 and $200,000.

I think at this time we can say we are doing well, but I do think we are topping out a bit in demand, as pending growth is peaking, and inventory is probably going to stop falling sometime in June as we reach a short term price-inventory equlibrium. I don't expect sharp runup in prices overall; maybe at the low end there will be stronger pricing; stronger sales will likely attract more inventory from those optimistic about reaching a price level they can afford to sell at. This will tend to level the price a bit, but these are normal market factors, and the good news is if we reach that point, it means we are likely back in a normal market, which is something we would all like to see.

ARMLS STATS 5/25/-5/31/09

***MAY SALES TOP 9200***
INVENTORY DROPS UNDER 35,000 Listings
Single Family listings falls to 26,000+...
AWC contracts continue to rise-

PENDING SALES: 12,920 (-862 from last week)
Pending Single Fam: 11,525 (-816 from last week)

Active W/Contingency: 4,727 ( +146 from last week)
AWC Single Fam. 4,291 ( +130 from last week)

Closed : 2,865 (+886 from last week)
Closed Single Fam: 2,577 (+805 from last week)

Active Listings: 34,347 ( -1424 from last week)
Active Single Fam: 26,489 ( -1101 from lasts week)

CLOSED MAY '09: 9,293
CLOSED SINGE FAM MAY: 8310

May Sales finished very strong last week, pushing us well into the 9000's in sales. This was an excellent month that also saw inventory levels drop sharply- in excess of 12%. There are 4000+ less listings then there were at the beginning of May. The number of new listings posted was less than April as well, and was less than there was in 2005. We now have 3-4 months inventory for both single family homes, and overall residential, and if you take away the bloated $1,000,000 luxury market, there is only a 2.8 month supply. The real activity does continue to be in the first time homebuyer market. A statistic was put out that 81 % were being purchased by first time buyers, while 19% were investors. the proportion seems a little high, but if the market is made up predominately of people buying to live in these homes, then this is a real recovery, and not just a fire sale.

One of the most interesting stats that I have seen over the last few months is the number of listings going on the market in April and May, and fell into 4 digit territory in April and May. The number has continued to fall, despite the number of foreclosures coming on the market. This demonstrates that many average consumers are not putting their homes on the market. They may fear being unable to re-qualify, or they may not be able to get into as nice a home as they already have, and have decided to stay put. However, I don't think that we are going to escape a W-shaped inventory recovery- we are likely to see some spikes in inventory at some point this year. However, the federal tax incentive for buying a home expires in November, and it is likely that there will be a rush to take advantage of this through the summer, which will likely keep our demand numbers high. It is only a matter of time before we start seeing prices increase in the starter home market. My guess is that they already are. It is an inexact science measuring them, as stripped out homes cause disproportionate price destruction in the statistics. Good homes are already in short supply in the lower end- 2-3 month supply has always been a catalyst for price appreciation in the Phoenix market, and there is no reason why this isn't true now. We have a relatively modest number of single family homes available, and it is easy to see that within a month or two, there will be outright competition for quality starter homes.


The good news about this is builders will start seeing reasons to build again; low inventory in a market that is demanding starter homes is a catalyst for building. They won't be mcmansions, but good solid homes, probably smaller, but there will be some demand, as the availability and prices of no-work-needed starter homes become key issues for buyers who have no experience, expertise, or interest in buying a fix-up, which are becoming the larger share of available inventory. We are already hearing anecdotal evidence that buyers are not interested in buying short sale properties because the process is too complicated and drawn out; buyers are even less interested in buying something in which they need to re-install carpet, re-paint or drywall, or re-do the kitchens. They are looking for something to move into when their apartment lease runs out, and they need to time it that way, and they aren't going to have a lot of money for doing fix-up. Some of this is of course social speculation, but I don't think I am far off; these are realities.

The last remaining trouble spot in our market is of course the luxury market. There are currently 2,944 single family listings of over $1,000,000. That is in excess of 11% of the market. Measure that against sales making up less than 1% of May sales-(only 81 $1M+ sales in May) and you can see where the inventory bubble is now- 36 month supply of Million dollar homes. Take this into account if you are looking in this category- you should be able to buy at a considerable discount.

My general impression is that we are headed for a real estate recovery locally by the end of summer. We may not see drastically increasing prices as of yet, but we are seeing them in the better quality homes. There is starting to be evidence of this nationally; this morning this little gem was posted on the CNBC website: "Pending Sales Up....". A very encouraging article.

These are some new statistics, so I am not sure how well I trust them yet, but I think it gives us a little insight into trends, even if not absolutely accurate.

The median price for all housing in May locally was $120,000- I have seen April's median price listed as $118,000, but in extracting that number myself this morning from the MLS, it gives a figure of $115000. That is a fairly significant jump. It also appears to have been a low point, as March was $119,763. April '09 may turn out have been the bottom of the market in terms of pricing.

Another interesting stat is that the average time from list to close was 85 days in May; falling from the 102 days it took in May'08, and improving just slightly from the 86 days on the market figure from April '09, and 90 days from March '09. The trend is going the right way. Days on the market is more ideal at 60 or less, but if you think about that, most contracts are 30 days, so 60 days leaves 30 days to market and come to an agreement, and 30 days for close. That is fairly quick in the scope of things, and I don't think we are going to see that kind of run on housing just yet. We have to account for the many short sales that are occurring, and anyone who has done one, knows the kind of time they take to do. So 85 days is not all that bad in the current market, but we would like to see it fall much further.

May was a very encouraging month that I think solidifies our hope that we are in the midst of an actual recovery in real estate in Arizona. Prices are not what many of us would like them to be, unless you are a first time homebuyer, but we should all be happy that they are out buying, as they are the demographic currently pulling us out of this multi-year slide.