the 2010 Recovery has been Postponed

Viewpoint, 11/25/2009

The 2010 Recovery has been Postponed.

Common wisdom these days says the housing market has pretty much bottomed out, and we can expect to move into a recovery mode during 2010. After all, it’s been 3-4 years of a downward spiral – enough already, right?

Six months ago I was on board that train as well; today I’m hard pressed to say we’ll see the real recovery start in 2010. (And believe me, it pains me to say so, because the day the market “recovers” is the day my life gets easier, so nobody wants a recovery more than me!)

First of all, let’s take a look at where we are today compared with where we’ve been over the last decade. Below is a chart showing the “Cumulative Days On Market” for all SFR homes sold in Maricopa County through ARMLS since 1/1/2000. Basically, how long do homes stay on the market, or in other words, how fast do they sell?

(click on any chart to enlarge)

Discard the bubble-driven short times in 2005, and discard the bubble-bursted long times in 2007 – 2008. Let’s compare today with 2001 and 2002 (back when things were “normal”). Today we’re at about 90 Days on Market, compared with 50 – 60 Days on Market earlier in the decade. That’s 50% – 80% worse than “normal”, which means we still have a long way to go.

Heather & I have written many times this year about the market being different in different price ranges, so maybe the overall view isn’t the best barometer. After all, we experienced first hand this year (with our buyer-clients and seller-clients) new listings getting multiple offers above list price as soon as they hit the market! I went ahead & pulled the same information broken out by various price ranges, in $150,000 brackets. Let’s see if the lower prices paint a different picture from the higher prices..

Yes, the numbers are smaller on the lower-priced homes, but the pattern looks exactly the same across all price ranges. Each price range independently shows us today having significantly longer marketing times than “normal”.

Supply and Demand

The only way this will change is if we have a smaller supply (less foreclosures for sale) or a larger demand.

Supply side

The chart below shows the number of new distressed listings hitting the market each month. (re-print of this chart from last Viewpoint newsletter).

Distressed listings include any type of bank-involvement, including short sales and pre-foreclosures. The actual foreclosure, bank-owned, REO listings make up about 40% – 50% of this total.

From our experience, it can be over a year from the time a home owner first explores a short sale until the bank actually completes the foreclosure process and gets the home on the market as bank-owned.

We also know, from our own experiences, that very few of the short sale listings actually get sold and closed before going into foreclosure.

This means that about half, give or take, of the distressed listings will hit the market again sometime in the next year or so as a bank-owned REO listing. So even if the economy in general, and the employment numbers in specific, get back on track, we’ve still got a pipeline full of foreclosures heading our way.

All this tells me there won’t be a dramatic reduction in the supply side.

Demand side

As for demand, 2009 saw a buying frenzy among investors (seeking positive cash flow) and first-time buyers (seeking the $8,000 tax credit). Many pundits are saying the tax credit artificially accelerated first-time buyers’ buying decisions, and next year we’ll have a lull because buyers who are naturally ready to buy will have already bought.

Personally, we helped many buyers take advantage of the $8,000 tax credit. However, NOT ONE of them bought a house solely due to the credit. In fact, we have a few who decided the timing wasn’t right, and they’d rather wait than force a bad decision.

However, I don’t see any reason why demand from first-time buyers is going to increase. At best it will bump along at a similar rate. At worst the pundits are right and demand will fall sharply.

I think the same holds true for investors; those who wanted (and were able) to take advantage of 2009 prices already made their move. Some are being more cautious waiting to see how the pending problems in commercial real estate are going to impact the residential market. There will still be good deals in 2010, and there will still be investors buying homes. But I can’t support the argument that investors are going to drive demand enough to drastically change the Supply and Demand balance.

All this tells me there won’t be a dramatic increase in the demand side either.

Unemployment Numbers

Nationally, we topped 10% unemployment last month, and many economists expect it to get 1%-2% worse before stabilizing in 2010.

I’m going to write more about employment in future Viewpoints, but for now we’ll just touch on it a little bit. In a simplified sense, we saw a huge loss of jobs in 2009, with the unemployment rate rising from 6.6% to 10.2% in the last 12 months. And while 2010 won’t see those jobs come back, we won’t repeat the job-loss carnage of 2009.

Water Cooler Sound-bite. (Can you boil all this down to a sound-bite I can quote to my friends?)

”The market starts recovering in earnest when bank-owned REOs stop hitting in waves. REOs will stop hitting in waves about a year after employment stabilizes. Most experts are predicting unemployment to stabilize in 2nd half 2010. Therefore, the local real estate market could begin to recover, in earnest, in 2nd half 2011.”

Good news here is we should see an end to the people starting down the road of Losing Job/Income, then Exploring Short Sale, then Losing Home, then New Bank-Owned REO Vacant Listing.

Bad news is we won’t see a change in demand next year, while many people who started down the unenviable road will complete their journey and lose their home. (believe me, I’m stating facts and my opinions, although it tears me up emotionally.)

There are enough silver linings to not be completely bearish, and we’ll explore some of them in future Viewpoints. However, silver linings aside, it’s time to take off our rose colored glasses and look at 2010 for what it will be…

Your thinking about Turkey as he presses the send button Realtor,

Happy Thanksgiving Everybody!

Chris Butterworth

Chris & Heather, The Phoenix Agents at Thompson’s Realty

http://thephoenixagents.com

623-570-9940

Chris Butterworth and Heather Barr are The Phoenix Agents at Thompson’s Realty. The Phoenix Agents are Realtors in the Greater Phoenix area, who have built a loyal following over the years by offering superior service levels coupled with a low-pressure approach. You can visit http://ThePhoenixAgents.com online to learn more about Chris, Heather, and the Phoenix-area real estate market. If you have real estate questions or needs, please contact us anytime; we’d love to hear from you.

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