Signs of recovery showing in metro Phoenix housing market

Posted By Mike Padgett

Aug. 26, 2008

Despite the stormy economic times, and the gloomy reports from some uninformed quarters, “the housing market in metro Phoenix remains a glass well more than half full,” says R.L. Brown, publisher of The Phoenix Housing Market Letter.

In an economy struggling “with some really serious problems as well as being challenged by low consumer confidence,” Brown sees the combined sales of nearly 7,700 new and resale homes in July “a strong testament to the underlying strength and resilience of the market here.”

“This is not 2005 and will not be 2005 again, but this is far from a dead housing market in spite of the economic mess we find ourselves in,” Brown said.

His newest report shows that new home closings in metro Phoenix are down nearly 44 percent, with 1,764 sales reported for the month of July, compared to 3,128 for the same month in 2007.

Permits issued in July for new homes totaled 1,493, down 41.7 percent from 2,560 in July a year ago. From January through July, 9,738 permits were issued, down 58 percent from the 23,222 issued for the comparable period in 2007, Brown’s report shows.

In the resale market for July, sales were up 16.9 percent – 5,928, compared to 5,072 a year ago.

And among condo conversions, sales totaled 153, down more than 60 percent from the 388 sold in July 2007, Brown says.

“Both the new and resale markets in metro Phoenix continued at just about the same pace that we have seen over the last several months, with new home closings sagging slightly and resale closings adding some velocity from sales of REO properties and the banks’ growing willingness to negotiate short sales for homeowners in trouble,” Brown said.

REO properties refers to “real estate owned” properties repossessed by lenders after borrowers were unable to make their payments.

Brown adds that he is seeing a trend among resales. In July, 43 percent of the resales in Maricopa County and 69 percent of the resales in Pinal County were REO sales or owned by the banks. Brown says that means buyers are responding to properties that are “priced to sell,” and it also means that non-REO properties that are not priced according to the local market have little chance of selling.

“This situation is not likely to change much over the next several months, and perhaps not until well into 2009,” he said. “It is very clear that the REO sales are essentially setting the value of the housing market in many or most neighborhoods in this region, and we anticipate that this will likely continue for many months to come.”

Brown also correctly points out that while foreclosures dominate today’s headlines, they are a very small part of the total picture. He says that “while tragic, the foreclosure mess will have the most dramatic direct impact on a relatively small percentage of the homeowners in Phoenix.”

He goes on to say that while the foreclosures “will indeed be painful and will cause a general devaluation in housing values in most of the region,” those unfortunate situations “will not cause economic tragedy for the vast majority of homeowners in the region.”

That’s because most homeowners “don’t have to sell into this market and aren’t behind in their payments.” In fact, he continues, the foreclosure challenges “will force a rethinking of the debt burden of many who will change their spending and credit habits (and) for the better.”

Brown is right. Many homeowners are facing foreclosure because they overextended themselves. In some cases, it was because lenders and builders winked at their own rules regarding minimum income qualifications.

Brown’s report spotlights the changes taking place in the market today, such as the market’s healthy absorption of repossessed homes, banks accepting short sales, homebuilders revaluing their land inventories, and new strategies facing the housing industry for the next several years.

As builders write down or walk away from their land inventories, or come up with updated land cost strategies, “builder economics will indeed allow profitable homebuilding of products” designed for the new home buyers, Brown says.

On his Web site – www.rlbrownreports.com – Brown has a special housing report on the metro Phoenix housing market.

Aug 26th, 2008

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