2011 was definitely a turning point for the local real estate market.

Home prices are now on the upturn in greater Phoenix area, known as the Phoenix-Scottsdale-Mesa MSA (Metropolitan Statistical Area).

Last year locally, the median real estate price for existing single family homes dropped 10.2% from 4th quarter 2010 to 4th quarter 2011, making the Phoenix-Scottsdale-Mesa area 29th on the list of largest price declines in the U.S.

But then, look at what happened to local home prices in the 4th quarter of 2011, and you will see a huge improvement.

The Phoenix-Scottsdale-Mesa MSA is #4 on the list of  markets with price increases when comparing the 3rd quarter of 2011 to the 4th quarter of 2011.  Median home prices for existing single family homes increased 4.5% in the last 3 months of 2011.

Pretty amazing, but if you talk to any working Realtor, you’ll hear the same story. Lots of buyers and not enough homes on the market to satisfy the demand.

• Scottsdale Real Estate: Cash Buyers and Lack of Inventory Are Driving Home Prices Up
• Full Price Offer in 20 Minutes: Is a Seller’s Market Heading our Way?
• Phoenix Real Estate Market Update – Prices are up & inventory is still falling
• NO! The sky is not falling in Phoenix real estate

Interest rates in Scottsdale are truly remarkable this month.

Jay Thompson, aka “The Phoenix Real Estate Guy”, published an update to his interest rate chart a couple days ago showing interest rates at 4%, the lowest rates in the 40 years tracked here by FreddieMac.

Personally I can share that the last two contracts I received for listings now under contract had “not to exceed rates” quoted at 4.25% and 4.375%. One was an FHA loan, and the other was conventional.

Really quite amazing and one of the reasons that buyers are still out looking for homes and writing contracts during the last two weeks of December. This is typically a pretty quiet time of the year for real estate in Scottsdale, but not this year.

And as I shared last week, Phoenix area real estate agents are very optimistic about the coming months. And if you’d like to get a better handle on what’s going in the world of home finance nationally, I recommend The Mortgage Reports by Dan Green.

The consensus from my Mastermind meeting yesterday was that 2012 is going to be a strong year in real estate, and the lenders present didn’t really see much of an increase in interest rates, until after the election. Another agent mentioned that he’d listed a record number of homes in December. With the low interest rates, minimal home inventory, and voracious home buyer demand, I do believe that the first half of 2012 will be quite remarkable.

All we need are more homes to sell.

So, if you’ve been thinking about listing your house, and need a market update, just call or email.  It’s a complimentary service, and will give you info you need to decide whether now is a good time for you to sell.

• In every price range, sales prices in $/SF are now higher than a year ago.
• Inventory is still falling below $200,000 and constraining sales volumes.
• Above $200,000, supply is rising and demand remains relatively weak.
• After a noticeable weak patch during the summer, prices have regained strength.
• Lender‐owned inventory is falling fast, especially at the lower price levels.
• Short sales are overtaking foreclosures as the primary mechanism to resolve mortgage debt problems.

The fact that home prices (per square foot) is improving in all price ranges is great news, especially in the slower November market.

However, the challenges that are constricting the market in the lower end, with falling inventories, make it difficult for buyers are who seriously looking to find the homes they are looking for.  I have more than a handful clients who are in this situation. They have cash or financing lined up, but the house selection is minimal in many price ranges. They increase their geographical search area and their upper limits to the price ranges and still do not have a lot of choices.

As we approach the end of the year, I believe we are all looking forward to a robust spring, where more sellers are ready to sell, and buyers find what they are looking for.

Read the full report here: The Cromford Report – Monthly Market Review – Nov 28, 2011

Past Phoenix Market Reports:

• Greater Phoenix Real Estate Update for Single Family Homes–October 2011
• Greater Phoenix Home Sales Pricing Trending Upward
• Scottsdale Real Estate: “Shadow inventory” on the decline

In the chart above, you can see that percent of home sales in Greater Phoenix is shifting.  Sales are down in homes price $100,000 and less, while increasing in price ranges of $150,000-200,000 and $250,000-300,000.  Even the $300,000-350,000 prices range is showing a bit of improvement.

You can see that this positive trend also shows up in the Price per Square Foot Comparison. More so, in the price ranges from $400,000 and above.

Both of the trends are definitely worth keeping an eye on.

The summary of the report goes on to say:

Overall, October STAT is best summed up as “holding the line.” While there were positive indicators, like increases in the median and average list prices, a one day decline in DOM and slight decreases in foreclosures pending; other metrics took steps, although minimal, in a backwards direction: decline in median and average sales prices, increase in new and total inventory, decline in total sales and an increase in MSI. The promise of recovery, fueled last month by the whimsical uptick in all four pricing metrics (median and average listing and sales prices), was not dashed in October, just not fulfilled.

If you’d like a full copy of ARMLS Stat Report, please email your request at dru@drubloomfield.com and I’ll send you a .pdf copy quickly.

More on local real estate market trends:

• Greater Phoenix Real Estate Update for Single Family Homes–October 2011
• Scottsdale home buyers looking for foreclosures
• Scottsdale Real Estate: Now that Short Sales are “in”, where are they?

Market Headlines

• A big contrast exists between the market under $200,000 and the market above that figure
• Enthusiastic buying below $100,000 is causing significant price rises as inventory becomes tight.
• Above $200,000 the market continues to deteriorate slightly.
• Above $400,000 there is potential for further price weakness unless demand improves.
• The overall average for sales pricing is now on an upward trend.
• REO inventory is falling fast, especially at the lower price levels.

1. Homes under $100,000

Summary: Supply getting tight and now constraining the market. Prices are rising and are now 2% higher than last year.

The sales count in this price range dipped 5% between September and October but is still over 40% higher than October 2010. Pending sales are down by nearly 8%compared with last month and are 28% higher than last year. The sales volume is now limited by the low supply. In fact this is the only price range where supply fell last month, down 4.6% and now 49% below this time last year.

2. Homes Between $100,000 and $200,000

Summary: Supply edges up and demand weakens. However pricing is very stable and now trending slightly higher.

Supply increased by 2.1% over the past month but is still down 2.6% compared with 3 months ago and 47% compared with this time last year. Lender owned active listings are down by 70% over the last 12 months while short sale listings are down 42% and normal listings are down 39%.

3. Homes Between $200,000 and $400,000

Summary: Supply is higher and demand is fading. Nevertheless, pricing remains stable at the moment.

The supply of single family homes priced between $200,000 and $400,000 increased by 4.2% between September 26 and October 26 and is now up 6% over the last three months. However it is down 30.4% over the last year. Over the last month REO supply fell by 1.3%, short sales and pre-foreclosures fell by 4.8% and normal listings was where all the growth came, increasing by 9.8%.

4. Homes Between $400,000 and $800,000

Summary: Supply is up and demand is down. Sales prices dropped in September but now appear to have stabilized.

Single family homes between $400,000 and $800,000 have seen active listings grow 8% over the last month and 12% over the last 3 months. This is still down 24% compared with this time last year, but this is just one of many signals that the dynamics of this price range are starting to deteriorate. The sales volume weakened again in October, with monthly sales down 7% compared with September and also down 7% compared with October 2010. Pending sales fell by 5.1% over the last month and are now a remarkable 22% below last year.

5. Homes over $800,000

Summary: The luxury market remains weak. Supply is growing while demand is muted.

We have a mixed picture this month for the luxury market. The monthly sales rate was 18% higher than last year but pending sales are down 17% compared with last October and 19.5% lower than three months ago. Demand has still not recovered from the steep drop off which coincided with the debt limit crisis and the stock market decline in July. Supply is on the rise, up 7.2% over the last month although still 25% below last year.

If you’d like the full report, email me at dru@drubloomfield.com and I’ll email you back the full report in PDF format.

Prior reports:

• Phoenix Real Estate: Supply is down, so why aren’t home prices rising?
• Greater Phoenix Home Sales Pricing Trending Upward
• Greater Phoenix Short Sale Update: Less than 6 months supply

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.

More on our local real estate market:

• Greater Phoenix Home Sales Pricing Trending Upward
• Historical Look at Scottsdale’s Median Home Sales Price (2001-2011)
• Scottsdale Real Estate Update: A Historical Look at Supply and Demand

Market Headlines

• The market is very strong below $100,000 and in good shape up to $200,000.
• Above $200,000 the market continues to deteriorate slightly.
• Average sales price per sq. ft. is rising for homes under $200,000 and stable up to $400,000.
• Above $400,000 there is potential for further price weakness unless demand improves.
• The overall average and median sales pricing is now on an upward trend.
• Foreclosure activity is declining and REO inventory is falling fast, especially at the lower price levels.

Overview

The demand for homes between $50,000 and $150,000 is particularly strong as investors chase homes to add to their rental portfolio. Demand from owner occupiers remains relatively weak. The supply from foreclosures has fallen and short sales are becoming a more important part of the picture.

Homes over $400,000 are suffering from lower demand that balances the relatively low supply. Buying interest in homes over $3,000,000 is dramatically down compared with the spring.

A clear and significant upward trend has developed in prices of homes below $200,000, particularly those owned by lenders. In contrast pricing for homes over $400,000 are trending lower. Because of the high sales volumes at the low end this sector is starting to win the struggle and push overall pricing higher.

At this time the period from second half of August to the first half of September represents a low point in pricing from which we are now climbing out. Unless we get a major change in the market this slight upward trend looks likely to continue.

Foreclosures

Despite a small bump up in August as Bank of America release a large batch of notices, new notices of foreclosure continue to be filed at the lowest levels we have seen since 2007 and trustee sales are well down from the peak in March and declining. We have fewer homes in foreclosure than at any time since the middle of 2008. There is no evidence that this trend is going to change direction, though it is likely to be less pronounced during the last three months of 2011 than it was during the first nine.

For the complete report, by price range, read:

The Cromford Report™ – Monthly Market Review – Sep 28, 2011