Market Review and Forecast, May 2008

I am often asked, "what is going on in the market Jeff?"

First, we know the run up in home prices in early 2005, was caused by a severe imbalance in the supply and demand of homes. Supply was practically nothing and demand was at all time highs. Many buyers/investors got sub-prime loans. They had inadequate credit or income and no method of paying the payments should the market turn or their payments increase and were hoping to continue the valuation ride up.

The balance of supply and demand has been correcting since March of 2005. Supply jumped by 40% in October of 2005. I was shocked that home prices continued to increase into 2006. This market is so huge it moves like a big oil tanker being pushed by a dingy. Prices topped out in 2006 and started to slide. But inventory levels dropped from October of 2006 to Jan 1 of 2007, by 20%. We had 34,000 homes on the market at that time. Although the outlying areas took a beating, it appeared that the pricier parts of town, Scottsdale-PV-central corridor-Awatukee-Arcadia, and parts of Phoenix made it through holding their value.

As sales increased in February of 2007, the market was looking good but shaky. We reached a high of 1,268 home sales per week at that time. Then in March, I noticed an issue. Home sales were dropping and dropping fast, down to about 850 per week.

This was the "sub-prime" meltdown. We lost all the sub-prime mortgage products. This took a big bite out of demand. Home prices in Scottsdale started to weaken, but not bad. Then in August we had "Alt A" meltdown. Another mortgage product disappears and demand drops further. Hundreds of banks went out of business. The Fed came in and pumped 3/4 of a trillion dollars into the system to stop a full world financial disaster. It worked.

I have a professional real estate coach and he told me, "sell your home and rent. You will be able to buy it back for a 30% discount in a year or two," he said. I didn't want to and didn't follow his direction. He was from Florida, and at the time I thought they got hit worse than us, it won't get that bad in Scottsdale.

As we went into the off season and holidays, home prices in Scottsdale were down, but not bad. Sellers were holding their own on the prices. I was surprised. Then spring hit. It was like all the sellers from last fall said, "I thought it was the time of year, but now it is spring and no sale, OK lower the price." Prices were dropping like rocks.

This is when the short sales and foreclosures started hitting our area and hitting it hard. There is a boat load of foreclosures coming and they will continue to push our market lower. In September we foreclosed on 1,200 homes. That was the same as all of 2006. In January, 2,000 homes were foreclosed on and then in March, it was 2,500.

I listed a home in Arcadia in October. A similar home just closed escrow for $675,000. My seller insisted on starting at that number. We have now "chased the market" down. We kept lowering, but too slowly to catch the market. Finally the home sold for $500,000. I think we are going to look at that as a great number in a few months.

Back to the market. Inventory levels are coming down right now, but slowly. Sales are increasing. Last week was the highest since before the sub-prime meltdown. We have nearly 45,000 single family homes on the market and are selling around 1,250 per week. That is an 8.3 month supply of homes. Most of the new homes coming on the market are short sales and REO(bank-owned foreclosure homes). They are usually in poor condition. So, they will have to compete for the buyers with their price. The market is getting better, but prices are probably going to continue their slide until next summer or the following spring. There will be different areas of strength. We expect to see a "U" shaped bottom, versus a "V" shaped bottom.

I looked in North Scottsdale and compared the sales to see what the numbers show.

Here is what they show:

Time Period march to may 07 oct to end 07 first Q 2008 since Q1 08 to now
Time Period Ave Price Ave Square Ft Ave Price per SF

Q2 2007 ---$832,349 ---2,878 ---$289.21

Q4 2007 ---$840,026 ---2,981 ---$281.79

Q1 2008 ---$712,444 ---2,768 ---$257.39

Q2 2008 ---$591,123 ---2,625--- $225.19



Based on this area alone the market is clearly down over 20%.


I want you to imagine for a moment. Imagine you want to buy a house today. You have a ton of homes to choose from. The media is telling you not to buy today, because it will be cheaper in the near future. How are you going to act??????
Will you pay more than the last sale?
Will you care if the last sale was an REO?

What buyers are saying is: I want turn key, the best price and a good deal. They are fearful of buying now and the home dropping another 20%. I am telling my buyers to expect further declines. But I feel comfortable selling a home to a buyer with a 3 to 5 year time frame.

I expect home values to drop through the year, firm up next spring and stay flat through next year. In 2010, we should see some appreciation.

The big question is: What is today's value? (My answer is similar to that of the National Association of Realtors and was molded by the different coaching calls and my experience. I have been selling homes since 1995, over 1,000 home to date.)

Answer: Based on recent, last 60 days, sales and competition on the market, we price your home. Now we monitor showings, we should see 2 to 4 per week in this market. We are in season. If we don't get that activity, we missed the price. If we do get the activity, what are they saying? What is the feedback? If no one is interested nor saying good things about the home, like we want to buy it, then the activity is saying we are close. But we need to adjust the price again. We want to get in front of the market before it moves lower.

Call Jeff for a personalized Market Assessment for your situation. 480-502-7699