The Housing Crisis is Over? Not in Phoenix

Implications: Mr. Moulle-Berteaux seems to lack is an in-the-streets perspective.The housing market will shrink and prices will decline further before the Phoenix metro housing market hits bottom.

Analysis: Let it be known that Mr. Moulle-Berteaux was the first to write it: the housing crisis is over!  Allow me to dispel the rumor… the housing crisis is not over- at least here in the Phoenix metro area.    

Mr. Moulle-Berteaux suggests we not “forget that the housing bust is nearly three years old”, that the drop in home sales (“63% from peak levels”), the drop in residential construction (“close to 15-year lows”) and affordability (“house prices have fallen 10%-15%, while incomes have kept growing”) are reasons why we have hit the bottom.  His analysis seemingly boils down to two sentences: “The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold?  The flip but true answer: because they always do.”  Ironically, later in his editorial, Mr. Moulle-Berteaux spews the following about thoughts of those that believe housing prices will fall further: “this simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.”  

Housing prices have come down significantly.  New home offering prices in the Phoenix have come down a whopping 37% (Belfiore Real Estate Consulting) since the beginning of 2006.  During the last 6 months, new home offering price declines have been among the most significant recorded since the market hit peak.  Even in North Scottsdale, the top performing Phoenix metro new home market in 2007, inventory home prices have declined more since the end of last year than they had since the beginning of the downturn (7.8% decline from late December 2007 to April 2008, Belfiore Real Estate Consulting data).   

Resale prices have come down about 17.5% (Arizona Regional Multiple Listing Service).  Houses, as Mr. Moulle-Berteaux points out, have become more affordable.  Permit issuances are down 71% (DataQuick Information Systems).  Mr. Moulle-Berteaux seems to have all of the easily attainable data at his fingertips.  

What Mr. Moulle-Berteaux seems to lack is an in-the-streets perspective.  If he was here in Phoenix, we could take him out to sales offices to hear how much traffic is down (in many communities traffic is down 50% to 75%, Belfiore Real Estate Consulting data).  We could bring him along to a few builder meetings, where the builders might share that they are on the brink of extinction, paying money when they close homes rather than receiving money.  Mr. Moulle-Berteaux could field a phone call or two here in the office; he could hear how one of the most aggressively priced builders in the Valley sold an average of 2.0 homes per community in March but only 0.1 per community in April (historically one of the top traffic and sales months).  If Mr. Moulle-Berteaux spent a few days with us he would have a better understanding of how buyers were feeling and what obstacles remain to purchasing a home.  

The housing market will shrink and prices will decline further before the Phoenix metro housing market hits bottom.  Foreclosures are increasing; builders are struggling to stay in business; buyers are nervous about their jobs, savings (or lack thereof), and their home values; and banks are tightening underwriting standards.  Fewer people- not more- are shopping for homes this month.  

Recent price declines, we believe, signal a last ditch attempt by several small and mid-size builders to stimulate sales.  Some of these builders will sink during the next 3 to 6 months, clearing the way for remaining builders to stabilize prices.  The “bottom”, we believe, is 9 to 12 months away.  

Although we clearly disagree with Mr. Moulle-Berteaux’s analysis, we encourage you to pull up the article and forward a copy to as many friends as possible.  Some good “news” may encourage a few people to go out and buy a new house, something many of us hope would happen on a large scale sooner rather than later.