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Thursday, July 06, 2006

The Real Estate Bubble Has Not Burst in Arizona

Yes, real estate inventories are up and sales are down from last year.  Many people are worried about home values as they keep hearing that the bubble is bursting in the Valley.  I know it is difficult to understand just what is going on with the market, especially with the media constantly focusing on the "bursting bubble" story.  So is Arizona's real estate market as bad as it sounds?  Here's some information about Valley real estate trends to help put things in perspective (source: the Arizona Real Estate Center at ASU's Polytechnic Campus):

Year      # of Real Estate Sales from Jan. 1 - May 31
2006                     30,830
2005                     46,485
2004                     36,555
2003                     27,000

Anyone that was in the Arizona real estate industry in 2003 will remember that it was a pretty decent year.  And 2004 was a really good year.  Then 2005 was just crazy.  So by looking at the numbers above, you can see that relatively speaking, 2006 has been a pretty decent real estate year so far.  It could certainly be worse.  Sure, compared to last year it seems really slow, and it is slow compared to last year.  Perhaps some of us in the real estate industry became spoiled with clients falling onto our laps, and now things seem much harder.  But the numbers don't lie and the bubble hasn't burst.

While prices and interest rates are definitely up from last year, the Valley is still a relatively inexpensive place to live when compared to other major U.S. metropolitan areas, with approximately 60% of all Valley homes priced under $300,000.

Median Valley Home Price
Jan. 2005           $194,000
Dec. 2005          $260,000
Apr. 2006           $264,900
May 2006           $265,000

Average 30-year mortgage rate
May 2005           5.5%
May 2006           6.2%

Recorded Sales Prices for Valley Homes Sold in May 2006
$125,000 - $199,000                 14%   
$200,000 - $299,000                 44%
$300,000 or more                     39%                

The numbers below tell us that median income is not keeping up with the median home price.  This is reflected in the trend towards smaller homes.  Along with single family homes, the median condo and townhouse square footage also decreased in May 2006 when compared to last year.

Median square footage - single family home
May 2005               1655
May 2006               1625

The increased number of houses that are currently on the market can be explained by a combination of factors:

• There are less buyers due to higher prices and higher interest rates
• Many homes are priced too high for current demand (sellers have not yet realized they will have to give up part of their recent appreciation by lowering their price if they want to sell)
• Some people who bought in the past few years using adjustable rate mortgages or other creative financing can no longer afford their payments and are forced to sell (this will likely get worse before it gets better and you will start seeing more foreclosures and maybe even HUD homes again in the near future)
• A number of investors/speculators are now selling
• Some people are selling only to take advantage of the high values by trying to sell for a ridiculously high price

But what the newspaper doesn't tell you everyday is that even with more homes for sale and longer days on market, home prices are still increasing in most Valley cities!

Cities where median home prices INCREASED from April 2006 to May 2006:

• Phoenix
• Scottsdale
• Mesa
• Peoria
• Chandler
• Tempe
• Surprise

Cities where median home prices DECREASED from April 2006 to May 2006:

• Gilbert
• El Mirage
• Goodyear

Cities where median home prices were UNCHANGED from April 2006 to May 2006:

• Glendale
• Avondale

So obviously, higher interest rates (but still really low historically) and increased home prices due to the recent housing boom have slowed the real estate market substantially from last year.  However, it should also be noted that last year was a record real estate year, so "slower than last year" should be expected and is definitely nothing to freak out about...Arizona real estate is still a great investment, especially if you are going to live in it!

Written By: Shannon Hubbard Realtor®-Investor Great American Realty, Inc. Cell: (480) 695-6672 Email me

Posted by Shannon Hubbard, AZ Realtor & Computer Guru on July 6, 2006 | Permalink

Comments

I agree it has not burst and has come down a little in Goodyear. One thing I have noticed is it appears if you keep lowering your price, it may still not sell. It also appears if you have several similar houses for sell and 2 of them keeping lowering their prices (maybe even significantly) they still may not sell. One of the other similar homes priced $10K. $20K, or more may sell. Why? I don't know I assume it's personal taste or a gut feeling the buyer gets about the house. But I'm no expert, just what appears to be happening to me.

Posted by: dave | Jul 12, 2006 10:54:10 PM

Thanks for the comment Dave. Sorry to hear your house is slow in selling. Sometimes it is hard to say why some homes sell over others. It can be the home's features or condition compared to the competing homes. It can also be the price, although in your case that doesn't sound like the issue. While an overpriced home usually will not sell in today's market, you also want to be careful about continuously lowering your price when several other similar homes are also for sale. This can lead to a war of the prices which is bad for all the sellers involved and can lower property value for the entire neighborhood.

I would suggest taking an objective look at your home and be sure your are highlighting the home's best features. Make sure the home is clean and decluttered to make the rooms appear as big as possible. Also, be sure the home smells good. You can cut up an apple into fourths, sprinkle some cinnamon on the pieces and stick the apples in the oven to bake slowly about 30 minutes prior to a showing or open house (don't burn them!). This will give your house a fresh-baked apple pie smell which makes anybody feel at home!

Bathrooms and kitchens are areas that buyers look at very carefully, so be sure they are spotless and remove your personal items from the kitchen and bathroom counters prior to showing. This not only makes the counter space appear larger, it takes the focus away from your personal items which may detract positive attention from your home.

You also have to be sure you are making your home available for viewing, both by real estate agents and prospective buyers on THEIR schedule, not yours! If all else fails, you may want to offer a bonus to the buyer's real estate agent, or offer to pay part of the buyer's closing costs. Financial incentives to the buyer and buyer's agent are more effective than you might think. Paying part or all of the buyer's closing costs is better than lowering the sales price because it is like cash to the buyers rather than a slightly lower loan amount that really doesn't lower their monthly payment much.

The bottom line is that somebody has to feel "at home" in your house or they won't want it. It needs to feel warm and inviting, with neutral decor. Your price has to be right and you have to get buyers to come view your house.

Hope this information will help. I wish you the best in selling your home and thank you for reading BlogArizona.com!

Posted by: Shannon Hubbard | Jul 17, 2006 11:34:49 AM

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