Housing Values in 2011

According to the National Association of Homebuilders, generally the most optimistic prognosticators around, homeowners can expect to see little, if any, increase in home values in 2011. In fact, Lawrence Yun, the group’s chief economist, predicts that it will take another two years just to clear the foreclosures and short sales on the market.

Still, he says that five years from now, when home values have recovered and mortgage interest rates likely are higher, people will look back to 2010 and say ‘I should have bought a home back then’. Clearly, not many Americans are thinking like that today.

Annual existing-home sales are expected to reach 4.8 million this year and Yun predicts existing-home sales will rise to 5.1 million in 2011, assuming that job creation continues to improve.

Yun also indicated that, although there are some indications that prices have stabilized (Editor’s note: our experience is more that the rate of decline has slowed), consumer confidence continues to be a problem. There are many people who still believe that prices will continue to fall and it’s uncertain how long it will take to restore confidence levels.

Interestingly, consumers typically have demonstrated increased confidence after elections, he said. However, with the country so philosophically divided, we might actually find that there’ll be legislative gridlock rather than orderly progress.

The worst scenario for the real-estate market, he said, would be if the economy were to begin to experience deflation as a result of that gridlock. That would lead to a “why buy now, I’ll buy one year from now, attitude” and cause the markets to spiral down dramatically.

The key motivator on the “buy now” side should be that mortgage interest rates have likely hit bottom already. In fact, Yun forecasts that the 30-year fixed-rate mortgage will average 4.9% by the end of next year. Not bad, but not as extraordinary a situation as we have now.

Owning May Now Be Cheaper than Renting

It’s actually a little frightening to consider but rising rents and falling property values are combining the change the rent vs. buy equation for thousands of potential homeowners.  In a sense, the world's turned upside down.

The statistical support for this contention actually comes from nationwide numbers published by Trulia.com which indicate that rents in the third quarter were up 2.6 percent over a year ago and that occupancy rates climbed sharply, to 93.9 percent (fueled in part by those displaced by the foreclosure crisis).

At the same time the median price of an existing home has continued to drop (homes in MMR have lost over 8% of their value this year and, as bad as that may seems we actually outperformed the market) and most observers expect them to continue to fall as high levels of foreclosures flood many markets and demand slackens.

The result is that many prospective buyers in more are finding that it is actually cheaper to buy than rent. The Trulia.com web site calculated the comparative costs of owning versus renting in the nation's top 50 markets and found that in 18 of those markets it is much less expensive to buy than rent. And, both Phoenix and Mesa ranked in the top five of the markets identified.  

As disconcerting as the numbers might be, it does point out the fact that there’s opportunity out there for those with the courage and foresight to take advantage of it.

Predicting the Future

For the most part, statistics are actually more useful in looking back at what’s happened as opposed to predicting what might occur. Unfortunately, that means that we’re virtually guaranteed to miss shifts in market conditions as they occur as well as the opportunity to profit from them.

Fortunately, the Arizona Regional Multiple Listing System has begun offering a new tool that actually does give us at least a reasonable glimpse of what’s to come. It’s called the ARMLS Pending Price Index™ and it uses the pending sales in the MLS system to forecast forecasts Average Sales Price and Median Sales Price in succeeding months.

There are, of course, several cautionary points to make. The first is that these are valley-wide numbers and that I expect that both Scottsdale and MMR will outperform the general market (certainly, their prices will be higher J).  

Next there is the hopefully obvious fact that the index is not a guarantee of what's to come and that the predictive value of the numbers declines as the index moves further out into the future. As with all forecasts, its real value lies providing a glimpse into the future to assist in "molding expectations and planning reactions to those expectations".

The latest version of the index (see chart above) suggests that the Median Sales Price in November will increase to $127,000, only to fall in December to $110,000, and then rally to $115,000 in January.

At the same time, the Average Sales Price for November is also predicted to increase to $171,400 only to fall significantly in December to $153,300, and then rally in January to $159,100.

Unfortunately, it seems that the short bursts of optimism experienced in the earlier part of the year have given way to some more regressive trends. However, as the index indicates, there is optimism for the first quarter of 2011.

Activity by Ownership Status

The sample for McDowell Mountain Ranch is really too small to make any serious observations as to trends but, by comparison to the valley as a whole, the statistics suggest it is a much more stable market.
For example, most of the activity inventory is still comprised of normal, non-distressed properties and the component that's actually lender owned is just a small sliver of what's available.  By contrast, the valleywide charts indicate that at least 30% of the avaialble inventory is lender owned and that almost 70% of the sales involve either lender owned properties involve short sale transactions.