Monday, July 2, 2007

MLS Data: some statistical analysis

Last month I saw some trends in the MLS data that I wanted to keep my eyes on. I'm not going to do a full-blown market forecast (here's my last one), but I am seeing some interesting numbers I wanted to share with you (fellow stat-nerds and math-geeks, you know who you are!) Also, you can click here for a quick review of my methodology.

First of all, let's set the scenario. 2002 and 2003 were considered "normal" for Phoenix. 2004 started to heat up, and 2005 was the single hottest, craziest, once-in-a-lifetime kind of year in Phoenix's history. Now, the pendulum has swung back to the other side, with 2007 being one of (if not THE) slowest markets in Phoenix's history.

Active Homes on the Market: We all believe this market is being driven by an oversupply of homes available for purchase, so let's start here. The number of homes for sale in 2006 peaked around Halloween, then decreased rather quickly over the rest of the year by a total of 13.5%. However, as soon as the New Year came, the number of homes on the market grew significantly, back to the 2006 peak by mid-March, and continuing another 15.8% above that peak by late-May!

Currently, the number of Active Listings has stayed flat over the last five weeks. Does that mean we've reached the peak (the market's bottom)? Or does that mean we're catching our breath before the next round of foreclosures and sub-prime lending woes hits our market?

Peoria's Active Homes on the Market: Much like the larger data sample, Peoria's numbers rose 33% from January 1st through the spring. But they've stayed flat the last couple of months; in fact, today's number is the exact same as the number from April 30th.

Sold per Expired: How many homes actually sell compared with how many listing contracts expire? Historical perspective – there were approximately 7 Solds per Expired in 2003. Early last summer, there were almost 4 Solds per Expired. That number dropped consistently, month after month, to a low point of 1.71. This week the number is back up to 1.85, the highest level since early January of this year.

Peoria's Sold per Expired: Peoria's numbers are even more drastic. At the beginning of last summer, Peoria had about 3 Solds per Expired. If you put 16 homes up for sale, 12 would sell and 4 would expire. Peoria bottomed out at 1.27; of the 16 homes for sale, 9 would sell and 7 would expire. Today Peoria is back up to 1.7; 10 of the 16 homes are expected to sell.

Again, none of this paints a rosy picture of the current market, but it does paint the possibility that we've reached the market's bottom.

Days on Market (Pending Sale): Looking at the homes that are currently in escrow (Pending), we saw a run-up throughout 2006 and a peak of about 104 days in January, 2007. Today's number is 97, which again is very similar to numbers seen this spring.

Bottom Line: I'm not ready to jump for joy and celebrate in the streets, but I am seeing more data to support the theory that the worst of the market is behind us. Could I be wrong? Absolutely – this is a relatively small data sample and it's very early in the trending to make definitive conclusions. However, we haven't been able to draw any positive conclusions over the last 6 months – we were only able to wonder when the falling would stop! And when we add the much more subjective, gut feeling of what we're seeing and hearing "on the streets", I'm feeling pretty good that we've started the long, slow road to recovery. (said with fingers crossed!)

- Chris Butterworth