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May 2006 BloodhoundRealty.com
Market-Basket of Homes: Values down 2.91%

Home values were down 2.91% in the May 2006 BloodhoundRealty.com Market-Basket of Homes. Average sales prices were down $7,708, from 264,856 in April to 257,148 in May. Values are down $12,727 from the December 2005 high of $269,875. Market-Basket homes spent an average of 70 days on market, down six days from April.

As has been the case in recent months, most Market-Basket homes are selling at or above list price. A few deeply-discounted properties pulled down the average, and average discounting netted out to 1.31%, down from 1.57% in March.

A total of 211 Market-Basket homes were sold in May, up from 184 in April. Inventories of available homes continue to climb. There are now 1,474 homes available for sale in the Market-Basket, which would imply an absorption rate of seven months. A six-month absorption rate is considered normal.

"Nobody wants to see values go down," says BloodhoundRealty.com's Greg Swann, "but that fact is that prices are holding fairly steady. Even now, values on Market-Basket homes are up 10.48% over May of last year, and 60.5% over May of 2004. Most people are still sitting pretty."

Based on the idea of the Consumer Price Index market-basket of goods and services, the Market-Basket of Homes uses average sales prices for a small subset of all Valley home sales to get a clearer idea of what is happening in the middle of the bell curve. The alternative method, striking a median among all closed transactions, introduces too many extraneous factors to provide a reliable indicator of what is happening to prices for those homes that are most avidly desired by the greatest number of people. To that end, the Market-Basket of Homes looks at sales prices for MLS-listed suburban homes from 1300sf to 1900sf built in 1998 or later, the homes that drive the resale market.

The BloodhoundRealty.com Market-Basket of Homes is updated monthly and is always available at http://www.BloodhoundRealty.com/MarketBasket.pdf

Where are the buyers?

One of our clients wrote in email, "Where are the buyers?"

Actually, they're there. Houses are selling, prices are holding, desperation discounting seems to be very minimal. We have to lean on buyers to do the math, since the media imply that there's a fire sale going on. If the buyer wants to come in at, say, $15,000 under the market value of the home, we have them work out the arithmetic: If the monthly mortgage payment is $1,500, even allowing for opportunity costs and all other costs, your offer won't be profitable to the seller for months. Why would they take it now?

There are two factors at work:

1. We're slowing down from freeway speeds to side-street speeds, as it were, so things seem slower than they really are. On the buyer's side of the transaction, things are fairly normal.

2. There is a glut of inventory, with approximately 42,000 active listings. A normal market is around 25,000 listings. Where a year ago there might have been a total of 2 or more ready buyers for every available home, by now there are at least 3 homes available for every buyer who will close a transaction in the next 60 days.

Consider these statistics:

Number of Homes Sold

March 2003   6471
          2004   8678
          2005   9959
          2006   7469

April    2003   7429
          2004   8889
          2005   9567
          2006   6755

May   2003   7428
          2004   8932
          2005   9853
          2006   7582

These are the totals of MLS-listed homes sold in those months. By March 2004, we were already into the recent real estate boom, so the figures for 2003 and 2006 are most apposite for understanding what is going on with buyers. The bottom line: We're pretty normal from the buyer's side.

From the seller's side, things are very different. The May 2003 absorption rate--the rate at which the currently available inventory would be absorbed by current buyers--was 3.36 months, where the May 2006 absorption rate is 5.38 months. Very close to the same number of buyers, but there are a lot more sellers.

Note that nationally the NAR regards a 6 month absorption rate as being a balanced market. The Phoenix area normally beats the national market for both absorption and appreciation, but even as badly as we're doing right now, we're still doing pretty well by comparison.

Contact: Greg Swann, BloodhoundRealty.com, 602-740-7531