The Economics Behind Arizona’s Housing Market
By Jeff Buettner
It is no surprise that the housing market has been horrible the past 3-4 years. Recently, the media has been reporting that we are headed for an upswing. I have watched and read several opinions that the worst is over. My question is, can we really come to that conclusion so soon?
The study of economics tells us that we can use the basic principle supply and demand to come to our own conclusion. With a high supply of homes, number of active listings on the market, and a low demand, number of buyers looking to purchase, we will see a drop in market value. When the situation is reversed, the supply is lowered and the demand has increased, we will see home prices increase.
So why is the media reporting that we will see an upward trend and things are looking up? Recently we have seen a few changes. For one, our supply, which has been made up of mostly bank owned properties and short sale listings, has seen a decrease. There just aren’t quite as many homes going into foreclosure as we use to see. Secondly, we have seen a rise in the movement of supply. Simply put, more people, right now, are buying homes. Is it because more investors feel we have hit bottom and are ready to invest? Do first time home buyers feel the same way? Or is it the homeowners who went through a foreclosure or short sale 4 years ago, can now purchase again? Most people think it is a culmination of all three and more.
The lowering of our supply and the increase in demand are all good things. That is why the media is reporting good things. The question I keep asking myself is, will this upswing continue? Is it here to stay? There are a couple of unknowns that keep the mystery a mystery. We know that the banks have foreclosed on an insane number of properties over the years. Anyone who has looked at the numbers also know they aren’t putting all of them on the market right away. Inevitably, there are homes that the bank owns that are just sitting there vacant. We in the real estate industry call this the dreaded shadow market. No one knows exactly when or how many of these properties will hit market. This could easily put a kink in our future supply predictions.
As for future buyer’s, things aren’t all peaches and cream there either. The requirements needed to obtain a loan have really tightened up. A lot of people think now is a great time to buy but the issue is, not everyone who wants to buy, can. If there is only a small portion of individuals who can get qualified to purchase a home and a majority of them buy now, in 2011, who is going to purchase down the road?
For the record, I am not saying now is a bad time to buy or even that tomorrow will be better. Ultimately, there are a lot of things to consider and more than a few unknowns to think about. Don’t look at your local news as the end all, be all of opinions on where we are headed. Look at the facts for yourself and make your own educated decision.
Thanks for reading.
- Jeff Buettner is a local Realtor, blogger, avid coffee drinker and chess player. With more than 4 years in the real estate industry, Jeff can be contacted through his personal site about Arizona short sales and foreclosure at http://realestatewizkid.com.
August 30, 2011
