April 2009

A BUYER’S MARKET

The Phoenix residential real estate market has currently become a “BUYER’S MARKET”.

Our definition of a “buyer’s market” is when an over-supply condition exists, causing supply to have a greater impact on the market than demand. The characteristics of a buyer’s market are:

- Inventory level is high

- Demand is not keeping pace with the inventory level

- Time-on-market is increasing or high

- Sales price is decreasing

Below is the supply and demand evidence that supports the introductory BUYER’S MARKET sentence.

Supply

The reality of today’s market is that supply is at a record level:

Resale listings are at a RECORD level.

New Home specs are at a RECORD level.

Demand

The reality of today’s market is that demand has fallen nearly 50% from last year to a level below the demand level in 2003.

Sales Price

The median resale sales price as reported by ARMLS has continued to drop for the past seven months.

What does the future hold?

We believe that the pattern which is emerging in the new home market is an indication of where the real estate market as a whole is headed.

Existing and Emerging Price Pattern in the New Home Market

Following are the events which have lead up to the current New Homes Motivated Seller market (BUYER’S MARKET).

1. Spec inventory level began a significant acceleration in October 2005 (400+ per month).

2. Spec inventory level reached the bottom end of the normal range in November 2005 (1752).

3. Spec inventory level reached the middle of the normal range in December 2005 (2218).

4. Spec inventory level set a new record in January 2006 (2451).

5. Spec level has climbed and remained high (4055 – end of November).

As the spec count began to approach a normal level, builders began offering small incentives, then came larger incentives and increased Realtor® commissions. Over the last few months some incentives has grown to as large as $89,000. In the last month we have the seen the beginning of a shift from the open-end incentives to actual price reduction. Some of these spec price reductions have been as large as $100,000. The number of builders making large price reductions seems to be spreading.

Impact on Resale Market

A logical progression of these price reduction leads from the new home builders, to investors holding houses in new home subdivisions, to the investors in resale homes, and finally to the individual home owner. How large and the exact timing of the impact on pricing in these market segments is uncertain.

What Can You Do for Your Client in the Current Market Situation?

We have got a suggestion on this:

- Use the powerful information in this article, our newsletter and In-Depth Analysis Newsletter to help them understand the realities of the current market and the direction in which it is likely headed.