Tuesday, November 13, 2007

How can the Fletcher Heights Area absorption rates be so different?

Last week I posted some charts showing the recent activity in the Fletcher Heights area. My guess is that most neighborhoods in Phoenix will have activity that looks similar.

Today I wanted to take a closer look at the Months Inventory chart, and why there is such a significant variance among the different price ranges.

Disclaimer: The following are general comments, which I realize do not apply to every buyer and seller out there.

First-time buyers are more likely to be shopping in the lower price ranges. This represents a pool of buyers in the lower price range that isn't well-represented in the higher price ranges.

Retiring / Downsizing buyers are more likely to look at small to medium sized homes – not the 4,000 square foot homes in the $500k price range. And as a general rule of thumb, within just about any neighborhood, smaller homes are less expensive than larger homes.

Buyers who don't have to sell first. Regardless of income, it's easier to cover two mortgage payments simultaneously if those payments are smaller.

Cash Buyers. Although many higher-end, $1 million home-buyers pay with cash, I've found that buyers in the $400k - $800k range are probably relying on income rather than cash. But there are investors out there with cash in their pockets looking for particularly good deals, and who are more likely to buy a lower-priced home.

Sales & Commissioned buyers. Higher priced homes are generally purchased by people who earn higher-than-average income, which typically includes those in sales, management, and entrepreneurs. This represents a one-two punch: 1.) Many sales people have lower numbers right now (especially Realtors & loan officers!), which means they are not ready to make such a large purchase. and 2.) The lending environment does not favor these buyers right now, since loans for borrowers with convoluted tax returns are harder to come by.

Self-fulfilling, spiraling concept. Since lower priced homes are still selling, these sellers are able to buy their next home. Someone sells their 3-br for $225k, and buys a 4-br for $300k, which allows the seller of the 2nd house to make a lateral move across town, enabling that seller to make his next move, etc. Since there are less transactions in the higher ranges, there are less people able to make their next transaction.

So, buyers for these higher price ranges are probably either: stuck in their current home, having a bad year income-wise, or having a harder time finding a good loan. While buyers in the lower price ranges are not quite as affected in their day to day living by the current economic environment.

Your giving his $0.02 of analysis Realtor,

Chris Butterworth

[tags] Fletcher Heights, Absorption Rates, Inventory [/tags]