SUB PRIME I, ONE YEAR ANNIVERSARY

Today is the one year anniversary of "Sub Prime I." Our real estate market in metro Phoenix was recovering from the slow down one year ago, until the sub prime bomb went off. I was happy to see the market recovering: Inventory was at 37,906; Pending home sales were at 6,905, Supply based on Pending was 5.5 months and sales for the week were at 1,264. In contrast, today our market is: Inventory level is 45,676; Pending home sales are at 4,388; Supply based on Pending is at 10.4 months; and sales for the week are at 881. As bleak as that might sound it is much better today that we were right after Sub Prime II in August. Let me put this in a chart:

Period ---Inventory ----Pending Sales --Months Supply --Wkly sales

pre SP I --------37,906-------- 6,905------------- 5.5 ----------1,264
Post SP II ------47,406-------- 3,694 ------------12.6 -----------516
Today ----------45,676-------- 4,388 ------------10.4 -----------881

It really appeared as we had survived the slow down in February of 2007, as these numbers show. However, the hidden bomb was SP I and SP II (sub prime 1 in March of 2007 and sub prime 2 in August of 2007). The question today is are we moving out of the woods or is there a SP III on the horizon. I hope we are headed out of the woods and here is why I feel that way:

1. Interest rates are much lower today. Our real estate market is very interest rate sensitive.
2. Demand is moving back into the market. Pending home sales are up almost 50% from the beginning of the year.
3. Prices are down. In some areas prices have fallen over 50% and in many areas they are below the boom pricing.
4. Raising the Jumbo limit. If this is true for the valley, it will be the shot of adrenaline we need.

Only time will tell. One thing about finding a bottom to any market. You won't know until the market has started to recover.