This is me from this morning’s Arizona Republic (permanent link). I wrote this on Monday, and since then the end of the month errors in the MLS have been corrected, so the percentages in the fourth paragraph have been revised to reflect the changes.
Price downturn less than scary
Here’s a question that cannot be far from every homeowner’s mind: How low will home prices go?
Despite all the media hype, values haven’t gone down very much. For the types of homes of greatest interest to West Valley homeowners, our recent appreciation boom continued through December 2005. Since then, values have gone down only marginally.
What’s the damage so far?
For newer, three-bedroom homes, we’re down 10.27 percent from the peak. Year over year, prices are down 8.72 percent.
Here’s the good news: Looking at two-year results on these homes, values are up 29.37 percent. Over three years, prices are up 59 percent.
(All these figures come from our Market Basket of Homes, which is available online at www.bloodhoundrealty.com/MarketBasket.php.)
But the burning question is, have we found the bottom of the market?
That’s a complicated question.
Doomsayers insist that housing prices will plummet or at least undergo a regression to mean appreciation.
What this means is that if West Valley homes “should have” appreciated by 6 percent a year, we will have to give back the gains of recent years, either by a quick drop in values or a long stagnation.
On the other hand, inventories of Market Basket homes are down precipitously from earlier this year. Sales are fairly high, compared with November 2003. Builders are clearing their excess inventory at a rapid clip. With a decent spring selling season, we could be through the worst of this downturn.
However, inventories are still very high. So, if you try to sell now, you will be in fierce competition with other sellers.
It’s probably wise to resist the urge to tap that equity in your home. Interest rates are very low, so you might refinance to get a better loan, to eliminate a second mortgage or to reduce higher-interest debt.
It remains to be seen if we’re out of the woods. But, so far, the woods haven’t been all that scary.
Technorati Tags: arizona, arizona real estate, phoenix, phoenix real estate, real estate marketing
mike says:
But the burning question is, have we found the bottom of the market?
That’s a complicated question.
Honestly, I don’t see what’s complicated about it.
Almost without exception, every month and quarter brings additional data that point to a continued, protracted decline, both in the Phoenix are and nationally.
Have you seen any sign that next spring will be any better than right now? That the market will flatten or turn upward? Please, share, because I haven’t.
In spite of what many sellers, builders and realtors would like to believe, it seems obvious to me that the worst is not behind us, it’s in front of us.
To address one other point:
You mention that the two and three year growth data are still very good (for now), but that’s irrelevant to a potential home buyer.
Put yourself in the buyer’s shoes … what matters more: 1) people who bought two and three years ago now have houses that are worth more, or 2) people who bought during the last year lost equity, in some cases, 10% or more?
December 8, 2006 — 8:41 am
Kaiser Sose says:
I would say there is less than a 1% chance that the market has bottomed. Remember the NASDAQ took 15 months from its peak to reach its lows and you can sell stocks in a matter of seconds. Real estate takes weeks to months to sell, so this correction will likely take 2 or 3 years, at least.
December 8, 2006 — 9:02 am
John L. Wake says:
The realty reality is that prices MAY very well be bottoming out in Arizona.
Listen to the story that the numbers are tell you.
Sure, home appreciation may be below average the next few years or next several years but there just isn’t any data suggesting a price crash.
Yes, there are theoretical scenarios that could lead to a price crash but the current data does not support those scenarios.
Believing in a price crash is an act of faith, not fact.
December 10, 2006 — 9:26 pm
Joe says:
Funny thing about basic math, Greg – percent declines don’t have to be big in order to be scary. In your post you imply that an ~9 percent decline is pittance compared to a 59% increase over 3 years (never mind that the 9 percent decrease was for one year).
When something increases by 100%, you only need a 50% decline to get back to where you were.
December 14, 2006 — 12:09 pm