In Part 1 of my “Riding the Rollercoaster” post from last week, I hope I made it clear what a normal market looks like, why it’s important to remember that the market is a function of supply and demand, and why price is a trailing factor running two months behind the market.
A person’s natural question when they learn these things is “Oh, is this another bubble?”
Now, we’re going to show you why we don’t think it’s a bubble.
We think we are normalizing.
Don’t Burst My Bubble
Here’s evidence that we’re not in a bubble. Below is a graph of distressed sales in percentages for Maricopa County.
- The grey background is all the sales from the Multi Listing Sales Data.
- “Lender owned” is in red. See how from 2010 through 2012 it’s going down, down, down. This red line is a percentage of sales, relative to the orange and green lines. Add up each point on a different colored line and you get 100% of sales.
- “Short sale” is in orange. See how it’s been fluttering pretty steadily up and down since 2001 and then in Dec 2012, it drops, drops?
- “HUD” in blue has always been around 3% or so since 2001. Really consistent, regardless of recession activity.
- “Traditional Sale” is in green. Just a nice, even climb, upward.
So as two of these have been declining—Lender Owned, since 2010; Short Sales, since Mid-2012—and with HUD Sales always at regular levels, only Traditional Sales are going up.
On average, over the long term were getting back to the point where a certain percentage is always going to be foreclosures. Before this pre-recession bubble, nobody knew what a short sale was. Agents didn’t know what to do with them; they didn’t even know how to process them. The vast majority of agents never had to deal with them before.
Appreciation by Transaction Type
This next chart shows the monthly average sales price per square foot. At the far left of the blue line is December 2009 when we were at $123.70 per square foot. So even though we have more properties coming on the market, which we know from the previous chart and its evidence of increasing Traditional Sales,
It’s not like you’re seeing this radical push up in price, says Tina Tamboer-Glatfelter (Get Your PHX Team/Cromford Report)
What Tina means by this is that you have more things on the market that are normal. If this were a bubble you’d look at all the properties and you’d see them all go up in price. Here, you’re seeing more come on the market, but they’re still not up in price. They’re at the same price per square foot.
Maricopa County Median Home Sales Prices
The faint blue dashed line is the long-term trend line. Back in January 2001, at the far left, the median home sales price for Maricopa County was $139,500. The dashed long-term trend line continues upward to the right. If we had a forever normal market, you’ll always see this nice long slide upward. At my last market analysis gathering on March 21, Tina showed us what happened in the bubble and why.
Look at the spike up on the left of the Matterhorn shape. Why did it go up like this? You had 100% financing, people were getting cash back from their mortgages, and you have all these schemes.
And then there was that one day when somebody couldn’t sell their house for more than they thought they would. And then their neighbor, who had all this extra money taken out of their house, suddenly found that their house wasn’t worth anything, and then there was Wall Street, which didn’t help, and then it all started to tumble apart.
So now track your eyes at the tipping point of that mountain to the right, where in 2007 you had foreclosures, people couldn’t sell houses, nobody could get financing to buy up the houses that were sitting there, and you had unemployment. So that’s when we hit that lowest, lowest point in January 2009. The lift in the line between the bottom of January 2009 and that first little peak is when people were trying to get that first time home buyer’s tax credit. Then it dropped again. That’s the best effect we could do with that tax credit.
Then the lowest median sales price that we had was $123,150 in March 2011. Right now, April 2013, we’re at $180,000. You can see that on the far right of the graph. See how we’ve had a 23% increase in the median home sale prices since March 2011?
The Skinny.
If we were in pace with that long-term dashed trend line of a normally rising market, we’d be at the $200,000 mark. But because we’re at the $180,000 mark, this means that we still have some time here. The point is that we’re still $20,000 under a normal median sales price.
We’re not at a bubble yet.
But the real kicker is this: …and I’m going to show you that very thing next week.
In the meantime, if you want to sell or buy, please give me a call (602) 456-9388 or find me at ken@getyourphx.com
