What Does the Bottom of the Real Estate Market Look Like, Anyway?
March 27, 2009 by Kristin LaVanway · Leave a Comment
If you look at the current real estate market statistics, it sure looks like things are starting to turn around here in Phoenix. Sales volume is up, equivalent to 2007 levels, and the inventory of homes on the market is down – about an 8 month supply. Things look even rosier of you take the short sales out of the picture – those zombie listingsthat bloat the inventory levels – and you will see areas where homes are selling in a matter of days, often with multiple offers. OK, so it’s not all good news. Prices are way down, 40% less than they were last year, with median homes prices about where they were in 2005. But it looks like the house value free fall may be over. The laws of supply and demand suggest that if house are selling faster and the inventory is shrinking, prices should start to increase as the demand outweighs the supply.
As a Realtor, I get asked a lot about the real estate market. And I get to hear a lot of opinions as well. But it strikes me that a lot of people are waiting for a mythical “bottom” to the market. They want to see a definitive change in direction, a clear U-turn from bad market to good market. And that is impossible to define. Why? Because the “real estate market” is made of a bunch of smaller markets each with their own dynamic. And every person has their own perspective within each market. So one person’s U-turn is another person’s continuing downward slide.
If you look at the current average home price relative to the medianhome price in Phoenix, it appears that the average home price has not rebounded as quickly. The median price is at about the 2005 level, but the average price is hovering near the levels we saw in 2003. Why? Because majority of the homes that are selling are bank-owned and priced on the low side of the pricing spectrum. Homes in the higher price tiers are not selling as quickly or for as much, realtively speaking, so those upper numbers that dramatically influence the average sales price just aren’t there. If you are an Average Joe, the median price is probably a pretty good indicator of what is happening to home prices in your neighborhood, but if you are Bob Big Bucks, the lower average sales price may mean that your $2M home, while fabulous, is still a white elephant. Your position on the home price food chain is relevant.
The statistics I quoted cover the entire Phoenix Metro area, but may be higher or lower in different towns. For example, there is currently 3.7 month inventory of homes in Queen Creek – 2.4 months if you take out the short sales – which is a VERY strong Seller’s market. Prices are already increasing in that town. But if you live in Scottsdale, the news of a 19 month inventory – a VERY strong Buyer’s market – does not bode well for the value of your home in the near future. Note that the average home price in Queen Creek is about one-fourth that of Scottsdale.
So, the question is: Have we reached the bottom of the real estate downturn? And the answer is: It depends. For the average homeowner, it certainly appears that your home will be worth more next year than it is right now and for the average home buyer, you might have to pay more for a home next year than you would right now. But if you own a $2M home, you may still be facing a downward trend in the value of your home and for you home buyers shopping in this price range – there are deals a-plenty!
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I am a Realtor in Gilbert, AZ, working with clients throughout the Phoenix Metro area. I am lucky to love what I do and appreciate the difference I can make in people's lives.
In a previous life, I was a rocket scientist - really! - but decided to step away from corporate America to be a Mom to my four boys. Found it hard to do bake sales, so I ran a small independent programming business instead.
Flash forward...I am now a single mom and I face many, many challenges everyday. I am living through the hardships that many are facing in this economy. These experiences have motivated me to help other people in my shoes.
I have teamed up with Dean Ouellette to form the East Valley Team - the best darn team in the Valley. Check out our site at http://www.EastValleyTeam.com. I spend way too much time on YouTube - check ou tmy channel at http://www.youtube.com/klavanway
