However, any home buyer will tell you, it’s a battle out there. Multiple offers are common in the lower price ranges,  and with the deadline of the $8,000 tax credit coming up quickly, last-minute shoppers are finding that a full-price offer is often not enough.

You see in the chart above that overall Phoenix has been experiencing a seller’s market since May of this year.  You can also see that the steep incline has been tapering off over the last couple of months.

When you look at the next chart showing Months Supply by Price Range, you will see that this year’s trend continues:  The lower the price of the home, the lower the housing inventory.

We are seeing just a bit of change though.  The Seller’s Market that we were experiencing this summer is cooling off in the $250-350K range.

• Homes priced up to $250K have less than five month’s supply.  Seller’s have the upper hand here.  Multiple offers are common.
• Between $250,000 and $400,000, we are seeing a balanced market.
• Over $400K, Buyer still have a lot of negotiating power, depending on how the Seller has priced the home.

If you’d like to go back and see where the market was earlier this year, these two posts will help:

Buyers Market? Sellers Market? Depends. – August 2009 view

Why is Scottsdale real estate market behind the curve? – June 2009 view

With the tax credit possibly coming to an end, the slight changes you are seeing here could continue, even more significantly.  I think most would agree that any movement towards a more balanced market would be a welcome reprieve after the roller coaster ride of the past several years.

If you are looking for a home priced under $350,000, know that you are not alone, and the pickings are thin.  Multiple offers and competing with cash buyers are just two of the challenges, particularly with foreclosures.   The good news is that I’m seeing more listings from primary home owners who are motivated to sell their homes and are pricing them to compete with the bank.  And when these well cared for and lived-in homes are priced aggressively, they do sell in very short periods of time.

We are no longer in a real estate market where a buyer can assume that they will find the house of their dreams in their price range, located in just the perfect area.  Not when there’s less than a 3-4 month supply of homes in these most affordable price ranges.   It’s tough.  Home buyers quickly get an extreme appreciation of just how competitive the market is right now.

For those looking in the price range of $350-500K, the market is considered “balanced”.  About the right number of homes, when balanced with the number of home buyers.

Once you start looking above the $500K range, and especially above $800K, you can see that there is a glut of inventory. Home sellers in this price range have more staying power, and unless they are truly motivated, have not reduced their prices to what the few luxury home buyers are willing to pay.  This is where I think we will see the biggest price changes in the next 12-18 months.  At least that’s my hope. Seven years of inventory is unheard of, yet that is where the market over $3M sits.

If you are a home buyer, before you do anything, get your financing in order.  So much has changed, and even well-qualified buyers are jumping through hoops to provide all the documentation that is needed now.  Then, roll up your sleeves and get ready to move quickly.  That is what it takes! Time really is of the essence.

And, if you are home seller, with a home that should be priced $350K or less, know that you have some power in the home sale negotiation again.  Clean it up, price it well, and make it easy to show!

The Cromford Report has defined Contract Ratio as follows:

Contract Ratio indicates how "hot" a market it. It specifically measures the number of active sales contracts under negotiation relative to the supply of active listings. It is defined as 100 x (Pending Listings + Active Listings with Contingent Offer) / Active Listings Without a Contingent Offer. The higher the number the greater the buying activity relative to supply.

If this number rises then it is a sign of growing contract activity and a positive signal for sellers. Conversely a falling number is a sign of a weakening market – either supply of active listings is increasing or contract activity is slowing, or both. In a balanced market the value of the Contract Ratio is about 30. When it lies below 20 the market can be considered "slow" or a "buyer’s market". Above 40 can be considered a "seller’s market" and when it moves above 100 we regard this as evidence of a "buying frenzy".

As you can see, in this chart, the Seller’s market ended in November 2005, and the Phoenix area has re-entered this realm as of March 2009.  Decreased inventory and increased investor and first-time buyer demand is fuelling this surge.

• More than 7 months of inventory (listed homes for sale) is a buyers’ market.
• Five to seven months is a balanced market.
• Five months or less is a seller’s market.

From the looks of this chart (data courtesy of the Arizona Regional MLS), we have entered a balanced market.  In reality, the lower end of the market is behaving more like a seller’s market, and the upper end is still very much a buyer’s market.

Will be interesting to see how the next couple of months play out.