Will the Phoenix area housing market recover in 2012? That's the big question. Listing inventory is next to nothing, days on the market is trending down, prices are inching upwards, and the tide of bank-involved activity is receding. That all sounds like the stuff of recoveries, no?
A couple years ago I thought this is exactly what the start of the recovery would look like. Banks go away, prompting "regular" sellers, who no longer have to compete with the banks, to raise their prices a bit. As prices rise, more sellers are no longer upside-down and are able to sell. Buyers appear in the form of former homeowners who have been renting for the last few years and are now ready to own a home again (from a credit worthiness perspective.) Eventually the market becomes more like normal than we've seen in about a decade. I've even read others expressing the same thoughts within the last few months. Unfortunately, today I'm not so sure..
As I watch the market and talk to various people, I'm seeing 2 factors which make me think this recovery will be slower than anyone is expecting.
1.) Few Buyers - even though many people lost their homes in waves over the last few years, they aren't coming back into the purchase market in waves. Maybe it's taking them longer to get their financial houses back in order. Maybe it's more difficult than expected to save up for a down payment. Maybe people are gun shy about buying and are comfortable with the lack of commitment offered by renting. Regardless of the why, it's becoming clear the buyers will come back into the market as a trickle over many years, rather than in waves over a few years.
2.) Few Sellers - I can't even count the number of homeowners I talked with over the last few years who decided prices were too low today (and falling), and they wanted to wait for the market to stabilize and come back a bit before they'll be ready to sell. These would-be sellers are now facing a couple hurdles:
a) Money - the market simply isn't going to spike the 20-30% these homeowners are looking for anytime soon. If they can't see the other side of the equation - that the home they want to buy is also reduced in price AND interest rates are ridiculously low, which means moving today probably makes sense regardless of the actual prices involved. If they want to move but can't get over the pricing hurdle, they'll most likely end up waiting for awhile longer.
b) Time - take this example: moving made sense in 2007 when the family had kids of 8, 5, and 2. They thought it would be great to have an extra bedroom and upgrade to a better neighborhood, but they weren't able to pull the trigger as prices fell. Today the kids are 13, 10, and 7. The family has already figured out the shared bedroom situation, the kids are deep into school & don't want to leave friends behind when they move to new schools, and the family only has 15 years left on their mortgage (which they've probably refinanced to 5%). It no longer makes sense for this family to move. They'll probably stay put until the youngest kid goes to college.
I'd love to be wrong, but I'm forecasting a long, slow, gradual recovery, with each year being a little better than the last. Of course, this is all subject to change if the government can't balance it's budget and interest rates double from where they are today...