In July I was asked to write an article on the state of the Valley's housing market for the North Valley Magazine. I decided to take a look at historical sales activity from 2002 (before the 'boom') to the present.
Using data from the Arizona Regional Multiple Listing Service, I showed that our market is more out of balance than many would believe. Inventory levels in 2002 ran around 25,000 homes in the MLS, which does not include new construction or For Sale by Owners. In 2007, we're over 56,000. Furthermore, between May 2005 and May 2006 inventory rose from 9,451 homes to 51,013! Days on market has risen steadily from around 65 in a normal market to around 90 in May. Today that number is over 96, so we still have not bottomed out yet.
Normal sales levels are around 6,300, but in July 2007 only around 5,300 homes sold. Consistent with the law of supply and demand, the increased supply and decreased demand has resulted in a healthy drop in the average sales price.
Not all is negative, however, as a few historical trends should continue to bolster our market. While no one knows for certain what the future has in store for Arizona, more than 5 decades of consistent growth and economic prosperity point to a bright future. Data from the US Census Bureau, the Bureau of Labor Statistics, and the Bureau of Economic Analysis show that Arizona has been among the top states in the nation for more than 5 decades in key indicators - population, employment, and personal income growth. Furthermore, Ariozona has been growing by more than 100,000 new residents per year.
By 2030, Arizona's population is expected to swell from 2000's level of about 5.1 million residents to over 11 million, bumping Arizona from the 20th to the 10th most populous state. These statistics support a health housing market in the long term.
I ended the article by proposing what I call the "5 Building Blocks to a Successful Sale in Any Market."
While most industry experts agree that the long term outlook for the Greater Phoenix real estate market is favorable and balanced, what about today’s home seller? What can she do to cope with the challenges of our market?
I’ve put together a list of five qualities, or building blocks, that any home seller can follow to consistently yield above-average sales results regardless of market conditions. They’re equally-important and just as relevant in a seller’s market as they are a buyer’s market. They are:
Right on pricing: The most accurate way to develop a pricing strategy is to put yourself “in the shoes” of a prospective buyer and visit several homes for sale in your community that are similar to yours. Only after you know how your home stacks up against the competition in terms of features, upgrades, and condition can you price it appropriately. Buyers today visit many homes and can very quickly identify when a home is not priced consistently with other similar homes.
Stand-out staging: You should never open your home up to a prospective buyer until it’s ready to show! Buyers in today’s market are rare and valuable commodities and you will only get one chance to impress them. Whether you lean on the experience of your REALTOR®, hire a professional home stager, or do it yourself, make sure you’ve tidied up, de-cluttered, and made necessary repairs or alterations to prepare your home for sale before you put the sign in the yard.
Aggressive marketing: The goal of any home seller should be massive exposure of their home to as large a pool of prospective buyers as possible. Your marketing plan should include a print component to attract local home buyers, as well as an extensive Internet strategy to attract global buyers. The fewer buyers there are in the market, the more important it is to extend the breadth and depth of your reach.
Diligent follow-up: Every single buyer who visits your home should receive a follow up phone call for feedback the day after the showing. Over time, you may receive consistent criticisms that give you the opportunity to adjust ‘on the fly’ and position yourself more favorably for the next visitor.
Smart negotiating: Many buyers and sellers focus so intently on “getting their price” that they overlook other factors that could mean the difference between a successful deal and a parting of ways. Before you rush to the negotiating table and risk losing a valuable buyer or the house of your dreams, take time to learn what’s important to the other party and compare them to your goals. Once you understand how your interests align, you’ll be in a better position to put together a win-win deal.
Saturday, September 1, 2007
What's going on with the Phoenix housing market?
Subscribe to:
Post Comments (Atom)
6 comments:
While the data, historical trends, and projected growth forecast would lead most to presume the Phoenix metropolitan area is positioned well for a healthy appetite for home sales, the article lacks substantive acknowledgement of three very mutually important factors: (a) jobs whose rate of pay will allow transplants to afford a home; (b) lenders who will lend them money for said property; (c) mortgage interest rates and lending standards throughout the evolution of population growth. Each of these points must be addressed from an honest perspective and be void of any spin. Only then should anyone give merit to the author’s insights and professional opinions.
The magazine only gave me 2 pages to work with, so I could not touch on every angle related to the issue, but you make good points, Dave.
Arizona's economy has typically been driven by "the 5 C's":
-Climate
-Copper
-Cattle
-Cotton
-Citrus
However, today many of the cities that comprise Greater Phoenix are making strong ongoing efforts to shift their economies to more sustainable and potentially lucrative industries, such as aerospace and avionics, healthcare, R & D, non-hospitality-related services, and technology and supporting industries.
Regardless of one's opinion about the regions short-term success, leaders do seem to have created an environment that is attractive to businesses and workers, as evidenced by:
-JP Morgan awarded Greater Phoenix #1 as the nation's largest metro area for employment growth;
-#1 in North America for best development and FDI promotion, by fDi Magazine;
-#1 in the nation for entrepreneurial startups by Entrepreneur Magazine;
-2nd best large city for doing business by Inc. magazine;
-2nd best market offering strong job opportunities for young professionals according to the National Association of Colleges and Employers.
While we appear to be positioned for long-term success, Wal-Mart remains the state's largest employer, so there's definitely room for improvement. Indeed, all I have to do is take a drive up Pima Road through North Scottsdale and look at the sea of million-dollar plus homes to wonder who all these people are!
I think your last 2 points are bigger issues in today's market, but will work themselves out in the long term, to the benefit of the housing market. We've seen lending standards tighten up so much even over the past several weeks that many homebuyers who are currently in escrow no longer qualify for the loan programs under which they were initially approved!
We're seeing lenders going out of business almost daily and many of the so-called 'creative' financing programs that were designed to put anyone with a pulse into a home are non-existent. Now many of these buyers are turning to FHA and other buyer assistance programs, while others simply cannot qualify to get into a home.
The short-term effects of tighter lending standards will hurt the Sellers who have to sell today in the forms of increasing inventory and decreasing prices. We're reverting back to the novel concept that only people who can afford homes should be able to purchase them. In the long-term, this fiscal responsibility will create a healthier, more sustainable market.
Since it's not yet clear what new policies and new standards are going to be set at the national level, anything I'd say would be speculation.
Finally, one other very important point that I did not have space to address in my article related to the other effect of past lax lending standards --- foreclosures. Distressed properties and foreclosures create pricing challenges for 'traditional' sellers and they have the effect of reducing appraisal values, thereby pulling down property values as a whole. The last few listings that I've sold did not hit appraisal...
-Justin
Hi Justin,
I must apologize now that I realize you were provided a limited footprint for content associated with your article.
In short, I appreciate you taking additional time to articulate further on the current state of affairs in our market space.
I also agree with you about those so called financing entities (rightfully no longer in existence) who would give a home loan to anyone who could utter the words, "I want to buy a home."
I would be very interested in knowing what percentage of our market (ideally city-by-city) who secured a 30-year fixed rate mortgage vs. an ARM; and most importantly, how many of those who have an ARM are or will be at risk of defaulting within the next 12 to 24 months.
This, in conjunction with the whip lash speed with which lending standards have been shored up, will certainly present a troublesome situation to our market, especially given the glut of homes that have made their way on the market over the last 12 months.
Thanks again for your added commentary on this very important matter.
Dave Roberts
Good questions, Dave. I would very much like to see the same data.
I can tell you that in August the Business Journal reported that there were more than 13,000 preforeclosures recorded in Maricopa County between January - July 2007, a 140% increase over the same period in 2006. Not sure how many of those actually sold at auction or became REO properties.
I am sure a certain percentage of the foreclosures were and are on the backs of in and out-of-state speculators. To get a sense of how desperate times have become, one would need to know how many of the 13,000 over the last half of this year are real families who contribute to the local economy and not out-of-state investors.
As I thought about this question, I pondered what the overall price tag might look like associated with number of foreclosures you mentioned in your previous post. I then did some quick research and used the average price for a home in the Phoenix-Mesa-Scottsdale area according to NAR 1st quarter figures*: $262,500. When I multiply that out, that's a whopping $ 3.4B! One word: startling! I can't even begin to fathom the impact this will have on tax revenues, public services/safety, schools -- let alone the impact on the business community (and employees) who provide products/services to residential sector.
Why is it that a good majority of the "industry experts" and government leaders are never late to get on thier soap box when the economic landscape looks bright, but hide their heads in the sand when it comes time to do what is right to ensure long-term economic stability in our region? By the way, this is more a rhetorical question borne more out of pure frustration than anything else... I would literally give up eating meat for a year if someone would just take the time to build an agile and comprehensive, yet easy-to understand market modeling tool which accesses our short and long-term strengths and weakness, to help the general public, businesses, and local governments better understand where we are today, where we are headed tomorrow, and what needs to be done to avoid systemic economic disasters like the one eating away at our economy and the lives of those in and around our communities today. I realize there are a variety of individuals who try to get the job done, but most seem to fall short of painting a clearer, more realistic picture in the interest of influencing good order and discipline (particularly in the real estate sector).
Again, great commentary that deserves a broader audience.
* http://money.cnn.com/2007/05/14/real_estate/first_quarter_NAR_prices/index.htm?postversion=2007051514
Outstanding blog. Arizona has been hit much harder than our market in Colorado Springs, but our market is seeing the same problems.
Visit Colorado Springs Real Estate Resources for more great info.
Post a Comment