Wednesday, June 6, 2007

Phoenix Real Estate Market Trends: are we nearing a turnaround?

I pulled some data from the MLS this morning and a couple of interesting trends caught my eye. I then delved a little deeper, using the City of Peoria as my example. I used Peoria for a couple of reasons: A) I live in Peoria, so it's nice to know the most details about my own neighborhood, and B) Peoria is a suburb much like all the other suburbs in the Greater Phoenix area – new construction and existing homes, expensive areas and less expensive areas, a blend of residential, commercial, and retail. My gut feeling (and I haven't seen anything to disprove this) is that the general trends from one part of the valley (like Peoria) will match the general trends in most of the rest of the valley. (Here's an article I wrote some time ago to explain more about my research methodology.)

Let's start by looking at a graph of what I'm seeing. The red line represents the Number of Sold Homes (single family, detached homes), and as you can see the line is all over the place – hard to pin down a trend here. I have more thoughts about this, but that's another topic for another day. I'm really interested in the green & blue lines ($ price per sqft and Days on Market, respectively), and I'm mostly looking at the last 8-9 months worth of data.

I wrote a forecast a couple of months ago with a lot of information in it (click here to read), but the gist of it was something like this: I'm expecting to see a shakeout later this year. Prices will fall significantly (10% - 15%), which will have many sellers asking themselves if they still want to, or are able to, sell at these lower prices. Many sellers will not want/be able to, and will pull their homes off the market. This will help reduce our over-supply, which in turn will help to give our market more balance. Those who wish to sell at these lower prices will then be able to. Many of those who wish to sell ALSO wish to buy once their home sells, so this will have the added effect of unlocking some pent up demand.

Now, back to the graph. From about 8 months ago to about 4 months ago, it looked like the $/sqft line was holding flat while the DOM line was increasing sharply. The sellers were holding still on their prices but the buyers weren't buying. But the last 4 months are different – the DOM line is flattening out while the $/sqft line is decreasing. Sellers are lowering their prices, and Buyers are buying!

If this trend continues, we may be witnessing the very beginning of a (much needed) change in the market. Let's keep our eyes on it and see what happens.

- Chris Butterworth