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Friday, June 23, 2017

State of the U.S. Market

Carlie Back Phoenix Arizona Realtor Keller WilliamsEvery year in February I attend the Keller Williams Annual Real Estate conference  and look forward to the Vision Speech, by Gary Keller, CEO of Keller Williams (which recently became the largest real estate company in the North America).   Each year Keller takes a look at where we are, where we have been and where we are heading.  The important numbers to consider that drive the real estate market are home prices, amount of inventory available, mortgage interest rates and affordability rates.  The health of the real estate market in our country is driven by these numbers.  For the year ending 2012, home prices are up, the supply of homes (inventory) is down and interest rates and affordability are at historic lows.

Home-sale transactions were up 9.2 percent in 2012. In 2011 there were 4.26 million transactions and in 2012 they were up to 4.65 million.  The last time the numbers of transactions were this high was during the boom years of 2006 and 2007.  The median sales price of a home is up, but it is still far below what the normal historical average would have been if we had experienced normal appreciation. Median home prices are up 6.3 percent to $176,600.  If prices followed at a four percent appreciation rate each year, the median price today would be $231,683.  This implies prices may still be 23.8 percent undervalued, based on the trend line provided by the National Association of Realtors.

 

As you can see, the median sales price today is still well below what an average trajectory would have been: $177,000 compared to $231,000.  Although prices are up, it is still a great time to buy a home.  Appreciation will increase due to tightening inventory and a large decrease in the amount of distressed homes for sale (short sales and bank owned/foreclosed homes).

 

In December 2012, the median sales price for a home was up 11.5 percent compared to the same time last year.  This increase in median sales price reflects 10 consecutive months of growth. The last time we experienced 10 consecutive months of increased home values was between August 2005 and May of 2006.  The sales price of a home reached a high of $188,800 in 2012, which was the highest it has been since September of 2008.

The average inventory/supply of homes available for sale is down 28 percent.  This brings us back to somewhat of a balanced market.  A balanced market for home inventory is when there is a four-month supply of homes available at the current rate of sales, i.e., if no new homes were put onto the market it would take four months for the market to absorb the inventory available.  A supply of less than four months indicates a seller’s market and more than four months indicates a buyer’s market.  The United States is currently at 4.4 months and moving towards a seller’s market.  Should buyers continue to buy in a seller’s market?  When you look at the chart of where we are in terms of home prices, it is still a great time to buy even though it is moving towards a seller’s market.  Gary Keller suggests that real estate is never a bad investment when it is bought to hold for a reasonable amount of time.  He says if it is purchased with a 6- to 10-year holding time, it’s long enough for a market to recover and ride through any cycle.

The number of new home permits pulled is an indication of the future supply of new homes that will be available for sale.  After a sharp decline after September of 2005, the number of building permits has finally started to go up.  In September of 2005, 2,263 permits were issued; this dropped to a low of 513 in March of 2009 and hit 900 in November of 2012.  Nate Nathan of Nathan and Associates has been selling land to homebuilders and developers for 36 years in the Valley.  He recently stated that he has sold 14,000 lots in the last eight months alone (which represents a billion dollars worth of real estate sales during these eight months). Nathan stated that a prime acre of land selling for $35,000 in 2010 would sell for more than $200,000 in today’s market.  He has lived through five real estate shifts and says that this is the busiest he has ever been.  Locally, one local South Mountain new home subdivision reported selling seven homes in the month of January and the base price of these homes was in the mid $400,000 range.

The four steps to a housing recovery are:  1) stabilization of home prices; 2) stabilization of the banking/lending industry; 3) job growth and 4) stimulation of the economy.  Arizona has seen price and banking stabilization and job growth is up three percent in the last year, which is almost twice the national rate. Our market is recovering and it continues to be a great time to buy as home prices look to only increase in the foreseeable future. It is also a great time for seller who has been standing on the sidelines.  Distressed properties are disappearing from the market, pushing values up and the competition from other sellers is low.   Add the fact that interest rates are at an historic low and it makes sense for both buyers and seller to act in the current real estate market.

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