I recently came across some interesting information; seven industry and economic experts answered a series of questions about our current market's condition and where it was headed from here. I'm going to list their answers to some of the key questions, as well as some other bullet points I thought were interesting. I've also added my own emphasis to their responses. This is going to be a very long post, but I think the information is worth sharing…
Question: "What is this year's prognosis?"
Vicki Johnson (First Vice President, Desert Heritage Mortgage) – 2007 looks to be a year of continuing the readjustment toward a balancing of supply and demand in the housing market. The resale market is adjusting gradually as seller's reduce their expectations from the price levels of last year. As buyers and sellers psychologically adjust to the new reality, we believe the market will normalize in an evolutionary way over the year.
Chris Mozilo (Area Sales Manager, Countrywide Home Loans and President, Arizona Mortgage Lenders Association) – Last year, the number of resale transaction slowed demonstrably and some cities in Maricopa County saw modest decreases in the median price of homes sold. As is the case at a national level, the Valley's housing market is expected to continue to present challenges this year. I believe we will continue on a path toward a more "normalized" market in which there's balance between buyers and sellers.
Tim Sullivan (President, Sullivan Group Real Estate Advisors) – There will be an uneven but notable improvement in the Valley's housing market in 2007. The areas with the most unsold supply will struggle until the "supply hangover" is burned off. The luxury market should continue to expand.
Drew Brown (President, DMB Associates) – The signal for a healthy real estate market is a balance between supply and demand. We still have an oversupply of inventory in the Valley. My concern is that a significant number of permits could be issued in 2007, causing a year to pass without correction to the oversupply in the market. Worse, if some of the predictions for new supply are correct, we could actually add to the current imbalance. If this happens, the market may not reach equilibrium until sometime in 2008 or later depending upon the national economy.
Marshall Vest (Director, Economic and Business Research Center at the U of A's Eller College of Management) – The correction under way will continue through the year as excess inventories are worked off and houses are priced more reasonably. Look for reduced home-building activity. Some consolidation and "right-sizing" will take place in sectors that rely on growth such as real estate brokerage, mortgage brokers, title companies, engineering firms, and homebuilders. 2007 will be a tough year for housing.
Margaret Dixon (President and CEO, Prudential Arizona Properties) – The gap between buyers and sellers expectations will continue to narrow as buyers gain confidence in the long term viability of the housing market and sellers accept that in order to sell in today's real estate market, they must view the competitiveness of their asking price through a buyer's eyes and not the rose colored glasses of 2005.
Mark Upton (Executive Vice President, Technical Olympic USA – Parent Company of Engle Homes) – It will be a recovery year, selling excess inventory. Market comes into balance in the second half of the year.
Question: "Have we hit the bottom?"
Vicki Johnson – The "bottom" of the market really looks much more like a long and relatively flat period rather than any sharp "bottoming" with any short-term noticeable "recovery." Rather, we believe the market will gradually digest the oversupply and then return to a modest strengthening with historic growth trends moving the market methodically.
Chris Mozilo – In any market environment, we can never know for certain that a market has hit a bottom until it stabilizes and starts to show gains. The Valley's housing market is very diverse, so the timing for achieving stability and showing gains will be different depending on the specific neighborhood. For example, the market in the West Valley , known for new home sales, will have a different experience than more mature, centralized neighborhoods.
Tim Sullivan – The market has not yet hit bottom. Along with the oversupply of unsold units, some homebuilding companies are still "right-sizing" to the market. With a continued slowing in the pulling of permits and sales that chug along, we are heading in the right direction. Look for the bottom to be signified by a flattening in prices. Let's say, 7/7/07 for luck.
Drew Brown – It is bumping along the bottom. The imbalance of supply and demand will determine how long it will remain there. An unknown variable is an oversupply of units that will not be whittled away if a significant number of permits are introduced in 2007. This oversupply is in much less conspicuous places than in past market cycles. This "hidden" supply needs to be taken into consideration.
Marshall Vest – The biggest portion of the correction is probably behind us, but the bottom is still a few months off. The bottom will come at different points for various sectors, however.
Margaret Dixon – Yes. The realization that the frenzied market of 2004-2005 is really over occurred in 2006. 2007 will continue to see the absorption of a larger than normal inventory with homes priced competitively selling at a steady pace fueled by the stream of people moving to the Valley.
Mark Upton – We're very close to the bottom.
Other Interesting Points:
New Permits. There is a general consensus that the New Home Builders will play a key role in the market's recovery. If they continue to build homes at a pace faster than the market is ready to absorb, the oversupply could actually get worse. This is a wildcard, since no one knows exactly what the builders are thinking right now.
Affordability – while it's generally agreed that prices have risen faster than incomes over the last couple of years, which combines to price some first time homebuyers out of the market, Phoenix is still the most affordable major city within its circle of competition for new residents.
Interest Rates play another wildcard role. Favorable changes in interest rates could help to shorten our recovery cycle, while increases in interest rates will extend the recovery.
Destination City. Unlike some parts of the country, where a change in business climate might forever alter a city's demographics, Phoenix continues to draw over 100,000 net new residents each year. The exact bottom of the downturn may be hard to peg, but believing our current market is a temporary situation is a no brainer. The market will recover at some point.
What the numbers show. While I agree with a lot of what was said, and my own predictions aren't too far off from some of these experts', the numbers do not show any signs of absorbing inventory quite yet. Even though sales are "chugging along", there are more Active Listings each week. This means that each Sold home is being replaced by more than one. Until we see a change in this trend, it's hard to believe we're through the worst of it. Let's see what happens over the summer…
I hope you found this information interesting and useful. Special thanks to Lillian Wong at Countrywide Home Loans for helping to compile it. Lillian can be reached at 480-650-5412 for any mortgage needs.
- Chris Butterworth