Phoenix Real Estate: Supply is down, so why aren’t home prices rising?

Old Republic Title Company hosted a big event yesterday, where Mike Orr of the Cromford Report gave a presentation. I’d planned attend the event until a Canadian buyer asked me to write a contract right before they headed home.

Good news is that, my wonderful contacts at ORTC, emailed me the presentation last night. The full presentation was much longer, but the following charts were especially helpful.

This section of the presentation:

“Supply is way down. So why aren’t prices rising?”

Was answered:

“It typically takes 12-18 months for prices to respond to a big change in the supply/demand balance.”

The following charts show Mike’s logic.

First, "Days Inventory” is defined as the number of active listings divided by the average daily sales over the last year.

Next, he shared the 10+ year history of Days Inventory, also including those properties that are noted as Active with Contingency. These are, for the most part, short sales that the seller has accepted the offer, and all parties are waiting for the bank short sale agreements to be negotiated and accepted.

The “normal” market in Phoenix real estate ended in early 2003.

The “bubble” lasted almost 3 years, ending in early 2006.

Mike called the period of early 2006 through mid-2007 as “running on fumes”, while home pricing remained stable.

Late 2007 marked the beginning of the pricing free fall.

And then mid-2009, we started seeing signs of stabilization.

Taking shorts sales into account, Days Inventory is still running at a lower level than our normal markets of the last decade.

And when you look at the true number of homes available for sale, excluding those with contingencies, you see that the situation is even more striking.

I’ve heard Mike say this before, and he noted it in his presentation slides. Basically, “The longer it take before prices respond, the larger the response is likely to be.”

I still get regular requests to help buyers find a “good deal”, and I know exactly what they mean. The reality is that with housing inventories running as such low levels, finding a house that matches their needs and wants, is really the bigger challenge.

I hope that sellers will be encouraged by this historical perspective. I know I am.