How’s Business?

This is the first question I get asked by those who know me and those who discover I am a Realtor®. What they really want to know is what is the state of the housing market and how much is my house worth? Certain segments of the market are performing very well and others are still going to take a while for recovery.

A normalized market is widely considered to occur when there is a six month supply of houses on the market. Here in Tucson we can find segments of the market where there is less than that today. Single Family Residences priced under $175,000 are one example. Sales statistics from last month indicate a five month supply. Some of the main factors for this phenomenon are the first time home buyer tax credit, the increase in closings of short sales and lender-owned properties and sellers removing their property from the market, either deciding to stay put until pricing comes back up or renting out there property.

Many first time home buyers have decided to enter the market to take advantage of the tax credit which can be as much as $8000, which when combined with mortgage rates at historical lows, makes this the most affordable time to buy that they are likely to see. Look for banks to bring foreclosed properties to market in increasing numbers in an attempt to clear them from their books before the tax credit expires at the end of November later this year. I would expect foreclosure inventory to peak sometime around August.

We also see geographical segments which have less than a six month supply. East of Wilmot, from Irvington to Speedway has just over five months supply. The area bounded by I-19, I-10 and Sahuarita road has just over four months supply. Same for zip code 85741 in Marana.

I am not so naïve as to declare these segments a seller’s market, but we are definitely seeing some indicators. Multiple offers are leading to properties selling above the list price. Many houses which are priced at or below market are sold within the first week. Pent up buying demand and an educated buying public ensure that well priced quality listings move rapidly.

What about properties priced above $175,000 and in different locations?

When we look at those properties which can be purchased with an FHA loan, ($316,250 loan in Pima County) we see just over eight months supply. Above that price, supply is at 28 months. Interest rates on jumbo loans are not at historical lows. While Conventional, VA and FHA loans can be found under 5% with no points, Jumbo loans can be well over 7% with one point or more. The secondary market for those loans has dried up considerably. As a result, the originators either have to carry the loan themselves, or write it at an interest rate where they can sell it. Additionally, in the higher price ranges, sellers generally are able to hang on to a property longer and are less likely to resort to fire sale tactics. And while foreclosures have started to creep into the higher priced inventory, they have not made nearly the impact on the market as at lower levels.

To date this year 19% of the 2902 houses closed under $350,000 were foreclosures. In the range between $350,000 and $1M, 7% of the 384 closings were foreclosures. There have only been 26 sales over $1 million, none of them lender owned. The main issues driving pricing down in the middle and upper ranges are the overall economic condition and the evaporation of feeder markets both geographically and economically. In order to purchase these homes, a buyer often will have to sell their existing house. If they live in another geographic area, that market is most likely in much worse condition than here.

All things considered, Tucson is in extremely good shape compared to other markets. Take Phoenix for example. While they are seeing the same amount of months supply in the lower price ranges, overall they have 15 months supply versus our 10 months. While the median price in Tucson has dropped 29% over the last two years, in Phoenix it has plummeted more than 50%. Investor groups have descended on Phoenix and similar markets to take advantage of what they believe are undervalued properties.

So, how’s Business?

For me, it’s been good. For you, it depends on your situation. It’s a great time to move up. And it’s a great time for a first time home buyer. If you want to sell your $3 million villa… not so much.