METRO PHOENIX INVENTORY LEVELS - WHERE ARE THEY AND WHAT IS NORMAL

After doing my daily analysis of today's inventory levels and sales of single family homes, I pondered on what to expect. In today's market inventory levels have been declining, but ever so slightly. This is a good sign, but how good?

I went through and ran some more numbers. Over the past 6 years we have averaged 65,315 single family home sales per year. Now that is an average, but also the same level as 2003. I feel that is our next goal, get back to the same sales levels as in 2003. This probably won't happen this year, but is very possible for next year as our market continues to recover. Based on those sales numbers, what would be the expected inventory level? Home sales are very seasonal. So, I computed the weighted average for sales over the past 6 years. It told me what I knew, the strong months are February through July. That is when the sell, they close March through August. We see drops in the rest of the year with the holidays being the slowest months of the year. Dah!

I used the weighted average that I created and established an expected 6 month inventory level based on those numbers. We use 6 months of sales as a pivot point moving from a buyer's market to a seller's market. Less than 6 months is a seller's market and more than 6 months is a buyer's market.

Based on a year with sales of 65,000 single family homes, than this time of year the weighted 6 month level would be 37,790. We currently have 44,400 single family homes listed for sale. That would be 7.1 months supply, a buyer's market. But wait, we are not on track for 65,000 sales this year. However, trying to see where we are today with supply and demand this is encouraging. What I am trying to say here is that we are not far from getting back to the pivot point between a buyer's market and a seller's market. We are definitely not as bad is it was just a few months ago.

On the supply side, we need to see 6,000 homes come off the market. There are so many over priced homes on the market right now. If they would just get it, "they are the problem." Their value would not be dissipating so quickly if they were not listed for sale. They are not going to sell at a price greater than today's value, the banks won't allow it!

On the demand side, demand is rising nicely. Thanks to the new FHA limits and Fannie Mae bringing the 3% down back into the market. Right now we are on track to sell at a rate of 5,500 home in May. To be at a level of 65,000 sales per year, using our weighted average, we would expect sales of 6,300 this May. So, we are off by about 200 sales per week.

With today's actual demand and using the weighted average to find the 6 month supply, that supply number would be 33,000. Based on today's sales, we have 11,000 too many homes on the market.

Remember the market just started recovering. We have 7,700 home in the Pending category. Thus we expect closings to continue to increase. At what rate, time will only tell.

There you have it, read into the numbers what you see. I see a recovering market that is still a buyer's market. Thus values will continue to have downward pressure.

Thanks for your time! It can't be replaced.
Jeff Cameron