Phoenix Real Estate Starts the Year on Several Positive Notes

The Arizona Regional Multiple Listing Service just published their monthly review of the sales data for the prior month.  Much of the data they published mirrors the details I shared with you last week.  Pundits are no longer stating that the Phoenix housing market is in "intensive care," and note several bright spots to its recovery.  Overall, the outlook is more positive than a year ago with an emphasis of a continued strain in inventory coupled with a lot of competition to buy lower end homes.

SALES Month over Month

Sales in December rose 9.7% over November to 7,840. The December sales figure reverses a downward trend line which started from a June high of 11,125 to a low of 7,146 in November (with the exception of August which rose 3.9% ). Thus 2011 went out in a flourish, typical of the last month of the year, as buyers hastened to close before year’s end.

SALES Year over Year

December’s figure fell 6.7% below 2010’s decade record breaking December sales figure (8,401). The 2011 December sales figure (7,840) is the third highest of the decade, surpassed only by 2010 (8,401) and 2004 (7,902). Only two years since 2001 showed declines from November to December (2004, 2005).

NEW INVENTORY

New listings added to the market in December continued on its downward trajectory which started from a high of 12,312 in March to finish in December at 7,339. Slowing of new inventory added to the total inventory pool is seen as healthy because it affects the market inventory supply.

TOTAL INVENTORY

Total inventory coasted on a steady downward trend all through 2011, starting at a high of 42,881 in January and continuing to 24,712 in December. December’s total inventory figure represents a 42.37% drop from January’s high. This metric is marching steadily in the right direction. Reduction in total inventory plays a major role in the supply and demand balance so critical in correcting the Valley’s pricing doldrums.

MONTHS SUPPLY OF INVENTORY (MSI)

Months supply of inventory, which had been trending upward since June, took a downward turn to land at 3.15 months in December. The December figure is 16% lower than November (3.75). To put this December’s MSI in perspective, consider that in December 2007, market wide MSI was 15.98 months. December 2011’s figure of 3.51 is 80.4% lower than the MSI in December 2007 when the Valley’s real estate bubble burst. Market wide MSI is seen only as a barometer of overall market health and does not correlate with MSIs in smaller market niches. However, declines of this magnitude are tallied in the plus column for market recovery.

NEW LIST PRICES

New list prices, which had been trending upward since July for the median price, and since August for the average price, fizzled out at year end declining in both November and December. The median new list price declined 5.8% from November to December to land at $129,900 from $137,900 in November. The average new list price’s performance followed a similar pattern by declining 10% from November to December, to fall from $222,400 to $200,200 at year’s end. However, median new list price, which started in January at $124,900, did increase 4.76% in 2011 through a series of small steps forward and backward. In retrospect, while the increase is lackluster, it is positive and fuels hope that in 2012 this upward movement will continue. The average new list price showed an overall decline from $204,300 at the start of 2011 to $200,200 at the year’s end.

SALES PRICES

Sales prices fared better than new list prices and followed an upward trend in the fourth quarter. Median sales price in Q4 were $112,000, $115,000 and $117,000, rising 4.46% over the quarter. The December median finished 6.36% higher than $110,000 figure in January 2011. The average sales price showed a similar Q4 pattern and finished December at $162,200. This represents a 3.31% increase in the average sales price in 2011.

FORECLOSURES PENDING

Foreclosures pending in December continued on the 2011 downward trajectory, and finished the year by breaking though the 20,000 barrier to cross the finish line at 19,979. Foreclosures pending are homes in some stage of acquisition by the lender, prior to actual foreclosure. Reduction in the number of foreclosures pending each month is a positive recovery metric. Foreclosures in the 5,000 range are typical of a healthy market. Thus the fall of foreclosures pending from the high of 50,568 in November 2009 to December’s figure represents a 60.49% drop, which will ultimately result in a reduction in actual foreclosures. Since the Valley’s pricing woes will not be righted until the number of foreclosures in the inventory supply is greatly reduced, the glimmer of a recovery seen in this metric grows brighter each month.

DISTRESSED SALES

Distressed sales, comprised of lender owned sales and short sales, have dominated the total sale composition for many months. In November, distressed properties as a percentage of total sales dropped below 60%, and remained relatively unchanged in December at 59.8%. This month, the number of short sales (2,526) eclipsed the number of lender owned sales (2,165) for the first time, suggesting a shift in lender appetite toward debt work out with home owners, rather than taking the property back through foreclosure. This shift represents a trend toward the lesser of two evils for homeowners unable to cope with the current terms of their mortgage.

AVERAGE DAYS ON MARKET (DOM)

The average days on market bounced up by 5 days in December to 95, after November’s low of 90. Even with the increase in December, the overall 2011 trend line for DOM remained on its downward trajectory. It is worth noting that as short sales account for a larger percentage of closed sales, their normally longer DOM could raise the overall market DOM. Market wide days on market is merely a barometer of overall market health, and should not be used to predict days on market in smaller market niches. Each niche has its own supply and demand, which influences the DOM for that niche. A brisker movement of property from active status to closed can signal an increase in recovery momentum, and thus a positive recovery metric.

COMMENTARY

December, typical of most months in 2011, saw its own share of good news. A rise in sales activity, typical of the last month of the year, and the continued decline of new inventory added to the market led the list. Other positive signs include declines in total inventory, MSI and foreclosures pending. In the positive category, the shift in the distressed sale composition, with short sales surpassing foreclosures for the first time, and distressed sales remaining below 60% of total sales for the second month in a row. While the valley has seen the signs of recovery in many metrics, pricing remains problematic. New list prices in December were singularly lackluster, with the median and average new list prices declining 5.8% and 10%, respectively. Sales pricing though, both median and average, rallied in Q4, and finished the year racking up single digit gains over 2011, albeit slight. The most holistic perspective lies in embracing that pricing recovery is built overtime, in layers, on strong pillars. On the supply side, total inventory and new inventory added each month must come down. Even though these numbers are not where they should be, they are moving steadily in the right direction. Distressed properties, which wreaked havoc on pricing, needs to exert less dominant pricing influence. These metrics are doing just that as their percentage of sales declines, and lenders trend to short sale work outs over foreclosures. While these figures are also not ideal, they too are inching appropriately in a positive direction. 

On the demand side, the Valley is experiencing record sales activity, despite anemic net migration and job creation. Other economic news should positively affect demand. Arizona, at a 2.8% projected 5 year growth rate, is number three right behind Texas and Nevada. According to Lee McPheters of the JPMorgan Chase Economic Outlook Center at the W.P.Carey School of Business, Arizona’s population should increase by 1.5 percent in 2012 to support housing demand, including a 20 percent rise in single-family housing permits. The prognosis delivered December 7 at the 48th Annual Economic Forecast Luncheon, co-sponsored by the economics department at the W. P. Carey School of Business and JPMorgan Chase, diagnosed Arizona as a state that is no longer in “intensive care,” but now proceeding through a slow recovery.

Arizona will end 2011 as a top ten growth state, now adding jobs faster than the national average, after a weak start in the first half of this year. Yet the slow recovery is influenced by job growth, which is still below the long term average (3.7%), and lower than previous recoveries. Credit bureau TransUnion, which tracks consumer credit predicts mortgage delinquencies, will fall more sharply in Arizona next year than in any other state. In addition, it expects the proportion of past-due Arizona home loans will drop nearly in half by the end of 2012, albeit from high levels.