When the tax credit was enacted in February, inventory was 9.1 months. Because of the spurt in home sales since then due to the tax credit, inventory declined to 8.2 months in August, closer to ‘normal’ than at any time since 2007
Phoenix, AZ (Vocus) October 23, 2009 -
For a long time now, newswires and headlines have been screaming, “Foreclosures Soar” and “Millions Lose Their Homes”. The Sunbelt States, California, Florida, Nevada and Arizona, lead the nation in foreclosures for the first half of 2009, as they did at the end of 2008. Experts predict foreclosures to continue well into 2010. Despite this continued doom and gloom, the Sunbelt, specifically Arizona, is seeing definite signs of promise.
The National Association of Realtor’s 2009 statistics for Phoenix, Arizona show little variation from June/July to mid October: active listings are down; new listings are down; inventory is down; and the number of sold properties is up and holding. “Although we’re likely to see the economy worsen with more foreclosures, there is inherent and tangible value in today’s market. Some Phoenix area residential properties are already selling at or below replacement costs so these assets won’t take much more of a hit. Real Estate doesn’t go to zero,” states E. Patrick LaVoie with The Westward Fund. LaVoie stated earlier this year that the Sunbelt States, although hit hardest by the recession, were the most likely to recover first.
“As human beings, we have to acknowledge the devastating impact of the current economic crisis on individuals and the nation as a whole. As business people, however, we need to be leery of reports and headlines that focus only on the negative, without due diligence to the positives that are now occurring, especially here in Arizona,” continues LaVoie. “Despite the irrational rise in the equity markets, the recession is certainly not over, especially when contemplating the impending credit crisis, 5-year ARM maturities and the commercial catastrophe that is imminent. However, we must not allow the negativity to overshadow the positive facts that exist in specific markets. All too often, we tend to correlate what is occurring nationally to more specific local economies, which is often misleading.”
“Foreclosure activity continued its upward trajectory nationwide and in the majority of metro areas in the first half of the year, but there are some significant differences beginning to show up in the data,” said James J. Saccacio, CEO of RealtyTrac. “While some of the markets that had the highest saturation of foreclosures over the past few years have seen declining rates, new markets like Provo, Utah, and Boise, Idaho, have seen large increases. As unemployment rates increase in different parts of the country, it’s very likely that we’ll see similar patterns develop elsewhere.” In April of 2009, the nation’s adjusted rate of unemployment rose four-tenths of a percent from the preceding month, to 8.9 percent, while unemployment in the Sunbelt State of Arizona remained relatively unchanged at 7.7, consistently below the national average.
“With low interest rates, lower home prices and a first-time buyer tax credit, we’ve been seeing healthy increases in home sales, which are a hopeful sign for the economy,” stated NAR’s Chief Economist, Yun. “There have been sustained sales gains in Arizona, Nevada and Florida.” Total home sales for the U.S. as a whole decreased 2.9 percent during the first half of 2009. However, regionally, the western states incurred the greatest cumulative increase of 11.8 percent, with Arizona, California and Nevada home sales increasing by 41.5%, 20.8% and 76.8%, respectively.
As more distressed properties enter the market causing lower prices, increased consumer affordability results. NAR’s Housing Affordability Index stood at 158.5 in July, below April’s peak, but it remains 36 percentage points higher than last year. The Index measures the relationship between home prices, mortgage interest rates and family income.
NAR representatives testified at the U.S. House Small Business Committee hearing recently that the $8,000 homebuyer tax credit, set to expire November 30, is “the best available tool for sustaining the still-fragile housing market.” NAR President McMillan urged Congress to extend the credit into 2010, claiming that the credit is “stimulating the economy and reducing inventory close to price stabilization points.” Nearly 2.0 million first-time homebuyers are expected to utilize the tax credit this year.
In a normal market, housing inventory averages 6 to 7 months. This is the time it takes to sell all the active listings at the current rate of sales. “When the tax credit was enacted in February, inventory was 9.1 months. Because of the spurt in home sales since then due to the tax credit, inventory declined to 8.2 months in August, closer to ‘normal’ than at any time since 2007,” stated an NAR representative. “Even with a good recovery taking place, the market is not yet back to normal. With a gradual absorption of inventory, we are on the cusp of a general stabilization in home prices,” stated McMillan. “Each home sale pumps an additional $63,000 into the economy through related goods and services,” the equivalent of one new job.
According to the highly-respected Cromwell Report, Phoenix inventory decreased dramatically from a high of nearly 20 months in January 2008 to 11.3 months in February 2009, to slightly above a 4 month supply in July. It was still in the 4 month range on October 16, 2009.
Pending home sales have increased nationally for seven consecutive months, the longest series in the history of NAR’s Pending Home Sales Index, which began in 2001. The Index rose 6.4 percent to 103.8 in August of ‘09 from 97.6 the month before, 12.4 percent above August of ‘08. In the western states, the cumulative Index rose 16 percent in 2009, 22.3 percent above the preceding year.
“When buying real estate, consider all the facts and trends specific to your target market,” advises LaVoie. “Today’s market is not all negative, positive things are happening, especially in the west and certainly in the Phoenix Metropolitan area. We’ve never seen investment opportunities like this before and we may never see them again in our lifetime.”
An NAR spokesperson recently observed, “The buyer psychology may be shifting from, ‘Why buy now when I can purchase later?’ to ‘I don’t want to miss out on a recovery!’” Patrick LaVoie adds, “Buy right and buy smart, because bought well is half sold.”