Market Update / Outlook 2007

As the December stats from the Tucson Association of Realtors came out there were no big surprises. The numbers showed the usual slow down in sales that are cyclical - Folks dont care too much for buying and selling homes between Thanksgiving and Christmas. When the January numbers come out we will see a spike in homes sold and contracts pending.

So far so good - but where is the market headed in the year to come?

The December inventory clocked in at 8500 homes. Based on the current population of Pima county (1 mill) a healthy level of inventory would be no more than 6000. Excess is in other words 2500, then add some new construction homes not included in the 8500 and a rough estimate of the true oversupply is neighboring 3000. (For most of 2007 builders wont be dumping more inventory on the market).

In Pima county we have 2.5 person occupying each housing unit, with an immigration to the county of 2200 new residents pr. month 880 units will be needed. The easy math would then conclude that 3000 homes of oversupply / 880 monthly demand for units would bring balance to the market in 3.4 month. That is not so - affordability has become an issue. A decent portion of the demand will be satisfied by rentals, some of them expired 06 listings, and some from new apartment complexes eagerly awaiting a solid increase of tenants who are simply priced out of the Tucson Real Estate market.

To put it plainly: The unprecedented residential Real Estate party of 2005 will carry its "hangover" a little longer than the numbers might show. In 2007 the median price will, once adjustet for inflation, show a 2-3% drop. The balance in the market will return by midt to late summer, but then the slower fall season sets in, temporarily subduing the emerging good signs.

By early spring 2008 the market will be in better shape. With Arizona beeing the fastest growing state (06) we should once again begin to see an appreciating market, although at historically and sustainable levels at 5-7%. But things have sobered up: Subprime & Zero down mortgages will be carefully evaluated by lenders, who are still recovering from a record year of foreclosures while the general public once again will view their homes as "roof over the head" rather than ATM machines.

In 2007 we will see a return of the bone dry level headed investor - no more rampant speculation will drive up prices. Buying Single family homes to flip or rent will only be profitable for the very few. Hot investment will be in commercial Real Estate (catching up with the residential boom) and multiple units, catering to those priced out of the market. Investor activity will also focus on defaulted notes and foreclosures; while profiting & cleaning up after the 05 frenzy.

2007 will go down in the history books as one of the few times home prices took a breather in Arizona. Expect great buying opertunities during most of 2007. For sellers, homes must be prices according to the current market, not the 2005, 2006 or some imaginary market - or they wont sell. Marketing and presentation of the home will be crucial with competiton from several homes in each subdivision.