Tucson Real Estate

Tucsons Real Estate climate getting sunnier

2008-08-13T12:24:00.000-07:00

July sales stats from the Tucson Association of Realtors just came out. This is what our president of the MLS had to say (abreviated & edited):

"July was a very good month - Our listing inventory dropped below the 8,000 mark for active listings, not seen since March of 2006. New listings are also down by 19.86%.This is just another sign that we are continuing to see a market improvement. July has historically been a slower month with sales decreasing from June. Last year the drop was 21.72%. This year the decrease was only 9.53%. There is virtually no change in the median sales price, it appears to have stabilized currently at $199,900"

To read the entire narrative as well as see all the stats & graphs: http://www.tucsonrealtors.org/tar-v2/stats_july.pdf

As we know, Real Estate is local. If we want to get a sense of where the Real Estate market in a geographic area is headed, we know to look for the employment figures as a key indicator.

So how are we doing in Tucson ?
Pretty good - the roof is not caving in and we are well below the latest July figures for the entire U.S. that averages 5.7% unemployment - see below link for Tucson stats.
http://www.workforce.az.gov/admin/uploadedPublications/2053_tucue.pdf

Too see how the different sectors in Tucson are performing:
http://www.workforce.az.gov/admin/uploadedPublications/1173_TUCgraphs.pdf
Notice how "Natural Resources and Mining" are forecast to add jobs in the double digit % - fairly well paid jobs.

Conclusion: The Tucson Real Estate market is undergoing a slow recovery. The job market has slightly cooled but the numbers are well within the envelope, since 2000. Our economy is not relying on auto manufacturing or finance services. Instead We are first and foremost a place to where boomers retire - besides our predominant industries are well centered in research and development within aerospace, medical and other high tech venues. Add to that an established Airforce base employing upwards of 12.000 on a federal payroll as well as a major university, currently with the highest number of enrollments ever: https://admissions.arizona.edu/profiles/2011/default.aspx

Expect some slowdown in the Real Estate market as the slower fall/winter season kicks in. Prices may fall a couple of percent, but this is no longer something to wait for as "well below market" deals are abundant.

All the best - Tom Nielsen

Real Estate Briefing: Tendency Upward.

2008-06-11T16:28:00.000-07:00

Before a flight in bad weather, the pilot will carefully analyse various weather briefs and aerodrome forecasts. Hidden in all the lingo between "vertical visibility" and "broken clouds" will be some very important words: "Tendency upward" or "Tendency downward".

There is no doubt - the recovery and re-balancing of the Tucson market is in motion:

Change from May 2007 - 2008

1) Median price is down 10% - Homes are getting cheaper.
2) Pending contracts are up 25% - So, people are buying them.
3) Inventory is down 12% - As a result fewer homes are for sale.

Now, everything is not fine and dandy, the total sales activity is still down and the time to sell a home is currently 77 days on average vs. 62 a year ago. But the key numbers are on the right track, whereas a year ago all parameters were, Tendency Downward.

The bottom has not yet been reached, and there are some serious jokers in the game including an unfolding recession and the constrained credit markets affecting Real Estate all across the country.

Tucson however - fares pretty well for being part of the sunbelt boom. Foreclosure rates, a vital measure of health in a real estate marked, - are only up 16% year over year vs. 100-300% in many CA, FL and NV markeds. Meanwhile we continue to draw snowbirds & retirees from Canada to New England, some of them originally headed for the the gulf states, but unwilling to pay exorbitant flood insurances. California is pricey at best, so the logical choice for many remains Arizona & New Mexico where low housing cost paired with abundant sunshine and recreation awaits.

BUYER:
Although the median price in the Tucson market will continue a controlled descent for another 5-10%...there are currently plenty of individual properties selling far below market value. It should no longer be a "Waiting for prices to fall game", but instead a "find the right property at a bargain price game"

SELLER:
The sea rises and sinks all boats - you may sell for less than "yesterday" but you will be a thrilled buyer for your next home with so many great deals out. The key is realistic pricing and exceptional presentation.

Your Tendency Upward analyst, Tom Nielsen

A New direction

2008-03-26T14:38:00.000-07:00

Prices are finally begining to come down in the Tucson Real Estate market. During 2007 the first real "Hangover" year after the boom, prices kept holding ground while inventory kept climbing. The new direction we see now are prices declining along with inventory as buyers are beginning to realize the noticeable cheaper prices in Tucson (approx. 12% down from the peak of late 2005/ early 2006).

The snake in paradise holding back what seems to be the beginning of a classic Real Estate recovery is a constrained creditmarked amidst the double whammy of an unfolding recession. A sizeable portion of "yesterdays" buyers can no longer qualify for a mortgage.

Foreclosures, although not the heavy hitter in the* Tucson market will continue to put some upward pressure on inventory levels and vice versa on prices. The majority of Adjustable Rate Mortgages were issued during 2004 and 2005, with rates typically locked for 3-5 years (including an option to pay interest only), - as the ARM's come due during '08 and '09 we will continue to be impacted. Keep in mind that Real Estate is local - even within city limits - areas like the southwest and some areas in the northwest along I-10 experienced more boom than the rest of Tucson. It was here land was available and builders poured out homes to the eager consumption of speculators - many now headed for foreclosure.

* The Tucson foreclosure rate is down as number 46th when compared to the 100 largest real estate markest in the nation:
http://money.cnn.com/2008/02/12/real_estate/realtytrac/index.htm?postversion=2008021306

By the end of 2008 we should have had the worst of the foreclosure wave pass. The credit markeds will not be fully recovered but much of the panic and uncertainty will be flushed out of the system. By the end of 2008 we will also know more about the recession and the extent of it, as the american people will know who the next president will be. All in all there will be more certainty and confidence paving the way for a slow recovery.

Expect home prices in Tucson to continue a controlled descent to the tune of an additional 5-10%, hitting the bottom late 2008 or early 2009, from then on a slow motion recovery not fully engaged until 2010.

For a sobering take on the housing market I highly recommend John Mauldins newsletter on the housing market: http://www.frontlinethoughts.com/gateway.asp

All the best, Tom Nielsen

2008 - what to expect ?

2007-12-27T17:51:00.000-08:00

Most recent sales stats from the Tucson Association of Realtors shows that The market is moving along without any drama. In fact the key numbers are almost identical looking back 12 month indicating that the downward trend beginning late 2005 has finally plateaued:

-910 New Contracts opening escrow compare with 891 in November 2006.
-Active Listing inventory of 9,234 is slightly fewer than the 9,238 in November 2006.
-New Listings coming on the market of 2,224 were also fewer than the 2,380 in November 2006.

The Median price in Tucson has dropped 2.3% in the past year - much better than most other retirement and resort destinations such as Las Vegas (-10.7), Phoenix (-10.6), Miami (-12.4) and San Diego (-11.4) - Source: Money.cnn.com

The reason Tucson fares much better is due to the fact that we didn't join the housing boom until late in the game, 2005 vs. 2003 for some of the most overheated cities. Tucson simply flew under the radar as investors with cashed out 401K's initially flocked to Miami and Las vegas.

Other reasons why we wont see plummeting prices include:

1) Lots of baby boomers out there are looking for reasonable priced retirement homes without spending horrendous amount on property insurance (hurricanes, earthquakes) or property taxes (AZ ranks the 15th least taxed state)

2) Lots of sunshine and a healthy dry desert climate combined with Natural beauty and wilderness in abundance.

3) AZ is the 2nd fastest growing state in the nation. (2.8% increase during 2007)

An interesting trend we currently see in Tucson are Canadians buying up vacation homes at what seems like bargain prices to them as their dollar has gained relative strength to ours. All things considered, the Real Estate climate in Tucson will resemble that of a January day at these latitudes: Neither too hot or too cool. If you are in the market to buy a home the waiting game should be over - finding the right home at the right price will at this point be time better spend than simply waiting for significant price drops and not taking action.

DRIVING IN THE FOG

2007-10-02T20:23:00.000-07:00

Have you watched any financial news lately? - Real Estate representatives will argue that we are through a correction and the worst is behind, with expectations for steady improvements during 2008. Most Economist will on the other hand expect we are in for a long painful recovery with prices still to fall 10-15%. However, both will agree that Real Estate is local. This is key to understanding the Tucson market. We'll get back to that later.

But first lets gauge the big picture. Things don't look well by most standards: Consumption that are the main driver of the U.S economy has for the last 5-6 years been on steroids fueled by an environment of easy credit and cheap money creating unparallelled appreciation in most asset classes, particular housing. One cannot underestimate the effect financially and psychologically when upwards of 200 million folks throughout 5 years see significant increases of the Real Estate they hold title too AND act upon it by cashing out for consumption. This has spurred a strong growing U.S economy, albeit largely funded by consumer debt.

Since homes were a significant source of cash generation and since this trend has plateaued and are set to reverse - the economy will slow in quarters ahead like the rings from a stone in the water. This is however not the biggest problem - just part of a natural housing /economic cycle.

The more tricky part is the nearly frozen up credit markets and the lack of confidence in the entire credit system. As you may be aware big investment banks sold U.S sub prime mortgages domestically and to the rest of the world repackaged through financial alchemy into prime debt with a much higher credit rating than there was cover for. Surely the sub prime market is a relatively small part of the entire "loan balance sheet", but the confidence in the credit markets has been severely battered. Eventually these issues will be resolved through regulation for transparency and some major law suits, but expect more problems and turmoil during the first half of 2008 when the bulk of adjustable mortgages will reset and the foreclosure situation get worse - dragging more banks, not to mention homeowners through the mud.

The Tucson real Estate market has so far shown remarkable resilience. It is clear by now that Tucson is not as hard hit as Miami, Las Vegas and Phoenix - also we did not appreciate as much. (the higher you fly the deeper you fall). It is important to understand that Tucson is a resort town, a place to where people retire, meaning we have a steady influx of people wanting to buy property here. The reason they'll keep coming besides intristic values such as weather & beauty, are cheap property taxes, and relatively inexpensive housing compared to other resort/retirement destinations.

I predict the Tucson Real Estate market will continue to limb along at a somewhat sleepy pace, not far off from the pre boom years. During the next 12 month the news will be on the gloomy side but prices wont plummet, sales will slow further and during that time prices will drop up to 5%, once adjustet for inflation. In the big 10 year picture, the time to buy will be during this slowdown. Homes in Tucson will resume a solid appreciation and in 10 years, people at a cocktail party will say: "..oh year we were lucky and bought during the slowdown back in 07/08"

JUNE MARKET UPDATE

2007-07-15T11:25:00.000-07:00

Latest sales stats from the Tucson Association of Realtors showed some good signs for the month of June: Inventory dropping, median price up over 12 month and days on the market in check. Such figures would be expected for the "hot" month of June during a normal cycle - but what makes it interesting is that comparing to the June of '06 we seem a little better off. For instance did the inventory in 06 continuously climb during spring/summer, whereas we this year have seen a solid drop in listings from 10.3K - 8.6K (APR-JUN)

Median price stands 1.77% higher than in June '06 - and days on the market currently 64. Although 64 is well above the 46 in June 06, we must look at the tendency. 06 began with 44 days on the market in January and ended with 46 in June. Same figures in 07 have shown a decline from 68-64.

So where are we at ? - possible to a slow recovery, where prices stay check once adjusted for inflated, meanwhile inventory will slowly work its way down to a balanced level (5-6K). With the slower fall season on the horizon, temporarily subduing the emerging good signs, expect 08 to be the first year since the roaring 05, where the recovery will be in full motion.

Looking to buy: Fall/winter of 2007 will be prime time.
Looking to sell: Spring/summer of 2008 will be better if you can wait.

Factors to watch: Interest rates + Tucson net immigration and local economy.

Enjoy the summer !!

Consensus on flat prices and longer recovery

2007-06-07T10:51:00.000-07:00

The Arizona Republic reports that Arizona's lagging housing market likely won't recover until next year and will continue to hinder job growth until it rebounds. "Most buyers, I think, now realize that housing prices are not declining, they've simply leveled off," said Marshall Vest, director of the Economic and Business Research Center at the University of Arizona's Eller College of Management. "Houses are still selling, they've just come off of those peaks that were driven by the mania that ripped the market there for a while," added Vest, who gave his midyear economic report on Wednesday to business leaders in Tucson. Vest's comments were underscored by Dennis Hoffman, a Valley economist who said the amount of money changing hands in real estate sales has dropped about 18 percent, to $6.9 billion, from the first quarter of 2006 to the first quarter of 2007. Hoffman is a professor of economics at the W.P. Carey School of Business at Arizona State University. Sales of existing homes have stabilized and there is about 10 months worth of housing inventory, Vest said. Normally, inventory is about four to five months' worth. Sellers are cutting prices to move homes, but that process needs to continue a while longer before the market can rebuild, he added. "We'll clearly see a recovery, but it's not going to go as quickly or surely as high as it did," Vest added.

NOTE from Thomas Nielsen: "Recent articles I've posted on the AZ economy including the above excerpt supports the notion that 1) Prices in AZ/Tucson are likely to stay flat. 2) The recovery will take longer than initially expected.

http://www.azcentral.com/business/articles/0607biz-vest0607.html

Arizona and West poised to beat national job numbers

2007-06-06T10:02:00.000-07:00

Arizona and West poised to beat national job numbers, from the Business Journal of Phoenix, reports that while the national economy is expected to remain sluggish through the rest of the year with a projected 1.3 percent employment gain, projections for the West, including Arizona, are much stronger. Arizona is expected to see a 3.5 percent gain in wage and salary employment for the year, behind only Nevada which is expected to gain 4.3 percent. The information came from the latest Western Blue Chip Economic Forecast put out by the W.P. Carey School of Business at ASU. The Blue Chip Forecast also looks at 2008 with Arizona jobs expected to grow 3.4 percent. As long as we keep gaining population and jobs, our market will be fine.

http://phoenix.bizjournals.com/phoenix/stories/2007/06/04/daily17.html?t=printable

Tucson Market outlook May 2007

2007-05-20T13:11:00.000-07:00

April statistics from the Tucson Association of Realtors came out last week - nothing new under the burning Tucson sun. In fact, since the peak of the boom (summer 05) medium prices for Tucson Real Estate has remained flat, except for the seasonal cycle, which goes something like this:

Home Prices start climbing during spring until midsummer, then slowly backs down Aug-Oct. In Oct & Nov we have the first wave of snowbirds coming in, which is often reflected as a slight price increase during Nov. From Thanksgiving until Late Jan the market stays flat until the 2nd wave of snowbirds stirs up prices again beginning Feb/Mar. Price fluctuations during the cycle are typically within 2-3%. Thus local investors does their "shopping" during fall & early winter.

With a record high inventory, the Tucson Real Estate market is out of balance - interestingly prices are holding up and most homes sell within 3% of asking! Instead the correction is seen in the number of homes sold, where the 12 month count is down roughly 20%. This indicates that buyers are essentially OK with the Tucson Price Level, but only open their wallet to the best of properties in their "class". Those properties not selling often becomes rentals as Tucson boast a solid tenant base.

With a healthy 3.25% net immigration and favorable job growth projections it is very likely that the Tucson price level will remain flat for 1-2 years while sales volume slowly increases, thus bringing inventory to balanced levels - either Mid 08 or spring 09. Once in balance we should begin to see market appreciations similar to the pre boom years - a healthy 5-7% pr. year.

All Real Estate is local...

2007-05-03T08:22:00.000-07:00

Arizonas economy remains on positive track, outpacing national growth. The Business Journal of Phoenix reports that increased production is helping Arizona maintain a stronger growth level than the national economy, despite the deflated housing market. According to the latest 'Arizona Business Conditions Index' released yesterday by ASU, the overall index rose to 60.1 in April, up from 56.2 in March. Any reading over 50 indicates that the local economy is growing, while a reading below 50 suggests a slowdown.

The question is not when & if Arizonas Real Estate market will recover, but instead how soon.
All Real Estate markets thrive on local conditions such as net immigration, job creation and the overall health of the business community.

http://phoenix.bizjournals.com/phoenix/stories/2007/04/30/daily18.html?t=printable

Tucson market outlook APR 2007

2007-04-13T09:39:00.000-07:00

Before looking at the Tucson Market, lets go national for a moment and get the headlines.

The National Association of Realtors (NAR) just came out with their latest market report. For the first time in 40 years they predict a yearly decline in median price fot the U.S residential resale market of 0.7%. With NAR reports always being more or less upbeat in the role of cheerleading its 1.2 million members, this is a rare forecast.

2007 is also set to be a record year of foreclosure. The non-profit organisation "Center for Responsible Lending" estimates that 20% of sub-prime mortgages originated in the last 2 years will end in foreclosure, which will put up to 2.2 million people at risk of losing their home. The global investment bank, Lehman Brothers goes even further with a projetion that 30% of all 2006 subprime loans will default. This will have an effect - ranging from "bad" to "not so bad after all".

1) Lenders will through tightening standards for approval exclude a noticeable chunk of the U.S homebuyers, thus decreasing demand for homes.

2) As homes are forclosed on they go back on the market adding to the already record high levels of inventories.

With less demand and more inventory homeprices are set to retreat, but how it will happen is the question: Will it be a long term model where prices goes flat or slightly drop while being hollowed by inflation or a shorterm solution where prices drops markedly 10-15% ?

...Any good news ?

Yes - as with any hangover after a party (or real estate frenzy) things will get back to normal!

How About The Tucson Market ?
Marts stats form the Tucson Association of Realtors (TAR) just came out. The headline being that of "nor rain neither shine" - inventory and days on the market is slowly ticking up but still comparative of the pre-boom years, 2003 and earlier. Median price is up 2.11% year over year(adjustet for inflation this is more like -0.5%) . Considering that Tucson was in the nations top ten of home appreciation during '05 (38%) things are certainly better than they should be considering the old adage of the higher you fly the deeper.....

All real Estate markets are local - ultimately it is local job growth and immigration that plots the course. What keeps Tucson airborne is Arizonas ranking as the fastest growing state. We are in the sunbelt, but away from hurricanes and skyhigh flood insurances - and babyboomers are coming our way as are the people to service them. Add to that an expanding high tech sector in optics, IT-tech and Aerosopace.

Selling in Tucson ?
Homes that are priced right, typically 8-12% less than what they may have fetched at the peak should sell easily. If you are not willing to, or cannot adjust the price to the 07 market, it may be an idea to either rent out (tenant base is increasing) or wait out the storm and sell in a 1.5 to 2 years.

Buying in Tucson ?
You never had so much to choose from! - there are many many great deals, but do not expect to get away with 20-30K lowballs. The vast majority of Homes in Tucson sells within 5% of asking - keeping in mind that only those priced right to begin with stands a chance. There is no need to wait around for a significant price drop - with net immigration at more than 25.000 new residents a year (3.25%), prices in Tucson are most likely to stay flat +/- 2%. Expect balance to return to the market beginning mid 2008.

Market Update / Outlook 2007

2007-01-20T07:50:00.000-08:00

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.

Market update

2006-11-03T14:02:00.000-08:00

OK - WHATS GOING ON !

Realtors & Investors alike are eagerly waiting for the October real Estate sales stats to come out. When the September stats came out, news were good and bad.

Bad news first: Median sale price for a Tucson home fell for the first time in more than a decade over the last 12 month (sep05-sep06) by roughly 4%.

Good news: Inventory which has been climbing to record levels finally started to drop (9401, AUG to 9201, SEP)

I believe Inventory will keep dropping at a slow rate for the next 6-8 month, the same will median price - expect another 3-4% drop. From mid 07 things should be balanced out, and prices will continue flat as the slower fall/winther season sets in. By spring 08 we should once be back in appreciation mode, although at Tucson historic (and sustainable) levels: 5-7%.

As the stats come out month after month I will adjust the forecast if need be.

Buyers and Investors ! - Keep in mind that the long term forecast for Phoenix & Tucson metro ares are staggering so now is the time to go bargain hunting during this temporary housing trough.

Check out this posting from respected U of A Economist Marshall Vest:

Forecast for Arizona in 2036: A Top 5 State?
Marshall J. Vest
9/1/2006

During the next 30 years, Arizona will add another 8.5 million residents to the 6 million-plus who already call Arizona home. That will boost Arizona’s population to more than today’s Illinois, the fifth largest state. Arizona’s growth is multi-faceted and unique, comparable only to Florida and Nevada; all three are long-standing high-growth states. The challenge to plan for and accommodate the tremendous growth yet to come has never been greater. It is in this sense that Arizona likely will continue to be “overpopulated,” and its economy and infrastructure “underdeveloped.”