Phoenix hasn't hit Bottom yet

Implications: Belfiore Real Estate Consulting data suggests the optmism created with the release of today's government data is not warranted.  The data is not refelctive of conditions in the Phoenix metro area.

Analysis:

Today’s national new home sales and sales pricing data release by the federal government will spur several optimistic news reports over the next few days. Belfiore Real Estate Consulting research, however, suggests the optimism will be premature. In Phoenix, November was a difficult month for homebuilders, as sales and pricing continued to decrease. In a recent survey of market analysts and residential appraisers in major U.S. markets, we found builders continue to struggle in other markets, as well. Currently, we are collecting data for our January publication; initial reports suggest continued weakness in the Phoenix housing market.

At the end of November, Belfiore Real Estate Consulting surveyed more than 200 metro Phoenix new home sales offices and found inventory was still increasing. The average new home community had nearly 10 speculative new homes under construction, of which 6 were complete (or nearly complete). Inventory had increased for the third consecutive month.

Metro Phoenix pricing was down in November- an average of 15% from January 2006 (the decrease had been 13% through the end of September). This data includes “stated” incentives- information you won’t find in the government data published during the next few days. Same-store prices are down even further; in Submarkets on the outskirts, prices were down by as much as 26%. Notice that net pricing data is based on “stated” incentives- what builder representatives are willing to share when the information is requested. “True” incentives are likely higher, builders will agree. As buyers progress through the escrow period, they may negotiate additional incentives, incentives that are not reported to analysts.

Informal conversations with builder clients confirm our belief that market conditions continue to decline. While builders want to be positive and initially tout the positives in current conditions, the data they report reflects similar market challenges to previous months. Cancelations are still a big problem, contributing to the growing speculative inventories these builders are carrying. We maintain that as long as supply continues to increase, pricing will decrease and cancelations will remain a challenge.

Some builders are taking an aggressive approach to reduce inventories. In submarkets with limited overall supply, this approach is paying off with relatively stable prices. However, in the most active submarkets, where one or two builder’s sound strategies are part of a bigger marketplace (where numerous other builders lack such strategy), pricing is still being driven down.

We remain optimistic that market conditions will stabilize in mid- 2007; strong population and job growth are expected. As more builders take action to reduce inventories, prices should stabilize. For now, though, the market remains in flux.