Phoenix Real Estate Market Update (selling a home, employment, buying)
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Take into consideration the sq. ft. price has increased using the median home sales price to determine this, is not the entire story.
Prices went up on the Million Dollar plus home considerably, which raises the median home sales price per sq. ft. That does not mean the homes actually increased, what it means is the homes that sold were the higher priced homes.
This is a distortion of homes increasing in price, and why the median home sales price is a poor guide.
Couple this with the foreclosure rate going up rapidly about 15% in the past month, and it is not a great indicator of a great trend in the real estate market.
When you consider the price decline has been over a 5 year period. This chart says it all, no matter how we want to look at it.
Prices went up on the Million Dollar plus home considerably, which raises the median home sales price per sq. ft.
The above logic does not work with median home sales price. That is, assuming you are trying to show a general downward price trend with only a few million dollar home increase in sales price.
Unlike the average (or mean), the median is not swayed by a few outrageous samples. That is why people use the median, and in this case misused.
Examples:
Samples A: 1 1 1 1 2 2 2 2 3 5. Average is 2. Median is 2.
Samples B: 1 1 1 1 2 2 2 2 3 105. Average is 12. Median is 2. Median is not changed from A to B.
Samples C: 1 1 1 1 1 1 2 2 3 1007. Average is 102. Median is 1. Median is actually less.
As you can see, the median tends to ignore the last sample no matter what it is.
Take into consideration the sq. ft. price has increased using the median home sales price to determine this, is not the entire story.
Prices went up on the Million Dollar plus home considerably, which raises the median home sales price per sq. ft. That does not mean the homes actually increased, what it means is the homes that sold were the higher priced homes.
This is a distortion of homes increasing in price, and why the median home sales price is a poor guide..."
Oldtrader, the prices below are not just the upper price ranges. They are in various price ranges. (And this was in the slow season)
$150,000 and below.......... 4.0% UP
$250,000 - $299,999..........4.3% UP
$300,000 - $349,999..........8.1% UP
$350,000 - $399,999..........3.2% DOWN
$400,000 - $499,999..........2.1% UP
$600,000 - $799,999..........3.4% UP
$800,000 - $999,999..........5.4% UP
$1,000,000 - $1,499,999...20.4% UP (Not a typo)
$1,500,000 - $1,999,999....0.03% UP
$2,000,000 - $2,999,999....2.5% UP
$3,000,000 and Above.......10.9% UP
Regarding Median Price; In our Phoenix area there are many more sales in the lower price ranges, which tends to skew the median price down, not up.
The total dollar amount of sales in the above 1-1.49 mil range is less than the total dollar amount of sales in the lower price ranges of 300k and below.
Due to the skewing lower that the lower price range causes, given the higher number of sales and total dollar amount of the sales, the price per square foot is the better guide. However, median price is the standard measure for most data gathering companies.
I'm going to repeat this Nov 10, 2011 quote from the Cromford Report. .
Quote:
...With pending $/SF also up 3.6% since it's low point on August 20 we are currently on a strong upward pricing trend, with no sign of a triple dip anytime soon. In fact we are now at almost exactly the same average $/SF that we hit on April 6, 2009, more than two and a half years ago."
I'm not sure why an experienced Realtor like yourself would prefer to utilize the information from Zillow over the information from the Cromford Report who compiles the information directly from the MLS and county records. I don't think there is anyone who has better up to date data, and understands the Phoenix market better than Mike Orr and Tom Ruff at the Cromford Report.
I'm also not sure why you would ignore the Supply and Demand trends, knowing that Supply and Demand determine future prices. Nor the pent up demand we have, along with the huge number of Baby Boomers who turned 65 on Jan 1, 2011, and will continue to retire for the next 18 years. And there will be a large number of them looking to retire in the Phoenix Metro area.
You're also not seeing what we, who are still in the business, are seeing in the field with daily communication with our current clients, the new clients that are more numerous during the slow season than in the past few years, and the difficulty of getting an offer accepted whey there are multiple offers on each property where we place an offer.
We're seeing cash buyers, who typically would win out with a lower bid, losing out to higher offers with a mortgage.
Just yesterday my buyer won a bid for a house at 5% above list price. The home had 6 offers the first day on the market. Two were cash below list, and the listing agent said they were immediately rejected. the other 4 were above list. Another offer was the same price as ours, but other terms in our offer made ours the stronger offer. This was the 4th offer this buyer had made in the past month, and was outbid on the other 3.
We know there are world and national economic issues affecting our market, and some of them can have a negative affect. However, we also know that there are many positive local economic factors that will affect our market in the not too distant future. I've discussed many of them in recent posts.
Ultimately, J6P has to come to believe that prices have bottomed and that the economy is strong enough that he has a reasonable expectation of continued employment. I think if we can get through to the spring buying season without another shock, the economic recovery will be more obvious and the dry up in inventory is going to be big surprise to people who have been on the sidelines. The rush to buy before they are gone is going to create a mini-boom which will pull things back toward trend a bit.
But, like I said, I tend to the optimistic.
Thanks to both Ponderosa, Captain Bill and Old Trader for their factual posts here. I think I am too emotional here as I clearly bought too early and misread the market. I should stick with stocks I guess. The bottom line is that time is in our favor here and with some patience we'll see a strong uptrend build - it is inevitable. My problem is just the "patience factor". Despite the headwinds I'm not seeing a recession either and when it hits it will be a normal one which is not as bad and not necessarily an issue for the housing market. Until then we should see higher inflation btw which also is a positive.
The above logic does not work with median home sales price....
Right, Oldtrader seems to be mixing up the use of average/mean with median (middle number of a set of numbers). Prices going up on $1M+ homes would not drive the median up, but more sales of those homes than lower priced homes would (which has not been the case as explained by Bill).
On your price changes by different price categories above, you accidentally left out the $150,000 to $250,000 category. Also, is there a breakout of the under $150,000 category? Thanks.
On your price changes by different price categories above, you accidentally left out the $150,000 to $250,000 category. Also, is there a breakout of the under $150,000 category? Thanks.
For the sake of time, I lumped a couple of categories together where the increases were very close to the same.
Saying real estate is in a 'strong upward pricing trend' in such an anemic market is like calling someone on life support 'a rapid improvement from near death.' That report is sure showing a bunch of dubious record lows made recently.
Saying real estate is in a 'strong upward pricing trend' in such an anemic market is like calling someone on life support 'a rapid improvement from near death.' That report is sure showing a bunch of dubious record lows made recently.
I looked at the last few posts and I didn't see where anyone said "real estate is in a 'strong upward pricing trend'.
Here's what's happened for the past 30 months.
$115,000.... April 2009
$110,000.... Jan 2011
$115,000.... Oct 2011
Phoenix Metro has been essentially flat, (peaks and valleys before and after the tax incentive) for around 30 months.
However, from Jan 2011 to Oct 2011 the Phoenix Metro area median price has increased 4.5%.
Allow me to tell you a story. My next door neighbor in Surprise LOVES his home. He spent $440K in 2006 and it is worth around $180K. He also has a VERY nice pool and might I say a real nice neighbor (that would be me). It is a 2500 sq ft. home in a beautiful neighborhood. He recently did a short and is re-renting back from the new owner. In the end, his payment (now in the form of rent) dropped big time.
His story is like multi-thousand of others; they walked from their pride-and-joy because it was a business decision. While this cycle is winding down, there are many thousands more to go. I personally paid around $50 a sq foot and every sub that steps in my home thinks I got a steal (I think so too). The investor who bought my neighbor homes obviously thinks he is pretty smart as well. It looks like I will be renting it out for $20K a year furnished for about 16 weeks and I use it when it isn't rented. In fact I am in AZ as we speak.
So let's say the Phoenix RE expert located in Montana is right and stupid me missed the bottom by 10%?? Let's say I really messed up and all of his Trulia articles are correct and my place goes down 20% over the next few years. Do you really think I am going to get hurt?? A 20% of a small number isn't as big of a deal as 20% of my neighbors $440K price tag. But my risks are heavily mitigated by this stuff called rent. Independent of all of that, if it goes down to ZERO I still have one heck-of-a-nice-spot that I don't plan on selling that brings in a few bucks a year.
Now back to my neighbor.... They are patiently waiting to "serve" their 5 years of bad credit. While more than a few people have a sour taste in their mouth with home ownership, people will forget really fast (think 911). So if you are following my logic, there are multi-thousands Valley "renters" that want to be home owners. Since THOUSANDS of shorts already happened 2-3 years ago, I expect the people who bailed to be buyers in a couple more years. As the years go on, more and more gainfully employed "renters" will become buyers.
Therefore I agree with the RE expert from Montana. It's going to be "years" before the Phoenix market to appreciate. Meanwhile, I am enjoying my place while I am bringing in revenue. So while Oldrader is convinced he understands the Phoenix market more than I, I like to think I have a keen understanding of what is going on. I am assuming the US economy will be poor for 3+ years.
So while Oldtrader is sitting on his next egg making 0.5% interest, I am enjoying my new toy and making money. When the RE market turns for the better, I will already have made rent revenue that is added to the appreciation in the value.
I bought in January 2011 when the "experts" like ARMLS said "it's going down". Nope. In my hood it went up. My message is be careful who you listen to. I'd welcome for others to shoot holes in my logic to educate me how I messed up. I don't get it right all of the time but I understand risk management very well and short of an economic meltdown, I am feeling pretty smart about now. If there is a meltdown, Oldtraders next egg is worth zero unless he bought gold that has it's own risks.
Last edited by MN-Born-n-Raised; 11-11-2011 at 10:43 PM..
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My next door neighbor in Surprise LOVES his home. He spent $440K in 2006 and it is worth around $180K. He also has a VERY nice pool and might I say a real nice neighbor (that would be me).
It is a 2500 sq ft. home in a beautiful neighborhood. He recently did a short and is re-renting back from the new owner. In the end, his payment (now in the form of rent) dropped big time. 
Independent of all of that, if it goes down to ZERO I still have one heck-of-a-nice-spot that I don't plan on selling that brings in a few bucks a year.
I'd welcome for others to shoot holes in my logic to educate me how I messed up. I don't get it right all of the time but I understand risk management very well and short of an economic meltdown, I am feeling pretty smart about now. If there is a meltdown, Oldtraders next egg is worth zero unless he bought gold that has it's own risks.
