State of the Market

My fellow Phoenicians, the State of the Market, is strong!

If you listen to the national news, and look at the stock market bounces in the last week or so you’d think that we are plummeting into an abyss and doomed to repeat the past economic bubble burst. I have a different view of things.

Personally I believe, being that we are in a heated election season…again…the “panic” is more for votes than a reality. I also tend to believe that markets are manipulated in sync with the politics by those that have the most control in order to drop stock values, only to gobble them up and grow them again, thus making more money.

But enough of that…let’s talk about how this effects real estate.

People tend to hear the news, look at the ebbs and flows of the stock market, and make their decisions on buying or selling a home based on the media interpretations. What I feel they should do is buy and sell based on your community, and your needs at that time.

So…that said, Phoenix is doing very well. Pricing is fair, homes are selling. Let’s take a look.

 

Starting with Monthly Sales, according to the ARMLS in July the Phoenix market was very active. Historically speaking, summertime sales slow a touch. Not for the heat, but for the fact that people tend to take vacations, and just aren’t thinking of buying a home. The exception being families that relocated to different areas and don’t want to move their kids during a school year.

This past July showed a different trend, sales flattened out for the most part rather than fall. Buyers were more active than they typically are this time of year. Why is that? 

 

Well, it wasn’t due to added inventory.

In this market we have always been accustom to almost twice the amount of available listings at any given time. The inventory levels today have gone from “Oh my…it’s a sellers market…prices are going to explode and we are going to have another bubble”

To

“This is the new normal.”

We can expect the amount of homes available for sale to stay around the levels you see below. This tends to be the byproduct of the low prices and low interest rates we experienced as we dug out of the downturn that started in  2004-05.

Many buyers on the way back up were able to get their “Forever home” at a great price and have no need to sell. This results in lower availability, and our “New Normal”.

What feels odd to many is the old adage of “Low inventory creates higher demand, thus uncontrollable growing prices.”  This market has tossed that adage out the window, and buyers understanding of what happened in 2004-2005, chasing pricing up, has prevented us from repeating the woes of the past and simply accepted that this inventory is, indeed, normal.

 

Below shows how the buyer is controlling the market, even at these inventory levels, rather than the seller controlling it as if it was a supply and demand situation.

Look at the “New List Price” chart from prior to March 2019, and then what has happened from March to July. Prior to March, especially in January, asking prices were climbing. This was the result of sellers, and sellers agents, living in the world of “Supply and Demand” and reaching for higher and higher prices based on what they perceived as low inventory. The old way of thinking.

Compare that to the actual sales prices in the next chart. Prices that buyers were willing to pay. Actual sale prices didn’t follow the asking prices up. They seemingly stayed somewhat flat until the asking prices began to come back to those sales levels. When they got close enough to be comfortable, and normal, buyers began to buy, compete, and eventually you see the sale prices begin to increase.

There is no such thing as a “Sellers Market” anymore.  There is “Fair Market”.

The fair market falls in line with healthy appreciation as you will see next.

This chart is probably the most important one I am showing you.

The shaded area is a healthy 2-3% annual appreciation of home values. That is now, and has always been, the goal for growth in your investment.

The squiggly line is a chart of average sale price per square foot.

A couple of points to look at:

  • In 2004 we see that the sale prices began to out pace the actual value of homes in Phoenix. That created the panicked feeling in buyers of “If I don’t buy NOW I’ll be priced out of the market and never own a home!” Couple that with lenders that were more than happy to loan you as much money as you could want and more, and buyers pushed sale prices way too high. Miles above the appreciation values.  That, is your bubble.
  • In 2006-2007 that bubble broke. Loans came due, people couldn’t pay, foreclosures and bankruptcy were taking over and the real estate market collapsed taking the economy down with it.
  • Jump ahead to 2019. See where in roughly January (recall the pricing above)? We spiked! Sellers agents fell into the ‘Supply and Demand” mindset and pushed asking prices, and yes some sale prices higher.  Again, right out of the appreciation levels (or actual value). The difference here…as you saw above, buyers didn’t come with them.

Where are we today?

  • As you can see, we are currently holding at the very peak of the appreciation levels. Homes are selling for top dollar (Good for Sellers).
  • Homes are not selling for more than they are worth. (Good for buyers)
  • As long as we hold steady at these levels, appreciation will grow a touch beyond the sale price levels, and the market will eventually follow it up…we just can’t allow the sale prices to out pace the appreciation…and buyers seem to be savvy enough to keep that from happening.

One final piece of good news, “Home Affordability”. This is a measure of household income. Regardless of what we hear in the media, the numbers show that wages are up, income is higher, consumers are feeling good, and potential buyers can afford homes.

If we can keep homes priced within the appreciation range, and Phoenicians keep working hard, the State of the Market will continue to stay strong!

Bottom Line:

Sellers. Understand that there is no such thing as “Supply and Demand” driven pricing in our real estate market anymore. It’s about fairness. If you sell at the high end of your appreciation value, you did well. Let’s visit your home and see what we need to do to get those buyers interested.

Buyers. Keep up the good work. You are in control of this market. Keep playing fair, understand the value of a well-finished home, and make strong offers. Let me help you navigate the neighborhoods you are most interested in and develop your home plan to get into your new home.

I have an awesome team of professionals in our corner to ensure a smooth transaction.

If you’re not ready yet, we can help you set a plan to get there with free advice and guidance.

I would be honored to earn your trust, your business, and your referrals. Give me a call, let’s get started today! (602) 818-6065 or Kevin@GiantAgent.com

 

Posted on August 20, 2019 at 8:11 pm
Kevin Jacobs | Category: Affordability, Market Information | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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