What is a Normal Real Estate Market?

What is a Normal Real Estate Market?

Last Thursday I attended the Economic Outlook 2007 conference at the Arizona Biltmore. There was a wealth of information provided. I was most interested in the views of Elliott D. Pollack on the future of the Phoenix economy and RL Brown’s opinion of the future of the Phoenix housing market.

While I could write volumes on all of the information, it all boiled down to the real estate market in Phoenix is normal. Yep, normal. OK, maybe the definition of normal is a little broad but basically the 2003-2005 years were abnormal. An anomaly.

The general consensus is the builders over-built, interest rates rose, housing prices increased creating a ‘perfect storm’. Between in increase in prices and the increase in interest rates, affordability went down leaving fewer qualified buyers. The builders over built (approximately 20,000 units over) because the speculators were buying homes faster then they could be built. Builders also increased prices because supply and demand led them to believe they could. At a certain point, it had to stop.

Today we find the Phoenix market saturated with inventory. Builders are offering insane incentives to unload the home they over built. Sellers of existing properties are still over pricing their homes because they cannot adjust to a normal appreciation rate. REALTORS are abundant and clamoring for clients.

What does it all mean? Yes, days on market are significantly longer then that of 2003-2005. Yes, there is a back log of inventory available (currently about 7 months). Yes, it is harder for the average person to afford a home. However, there are still over 130,000 people a year moving to the Valley. These people need homes. We just need to adjust our thinking. Adjust our way of doing business. Learn to appreciate how great the market was and accept the reality of what the market is now.