NAR Sees Cooling Trend

Here is an exerpt from a fourth quarter 2005 report from a National Assocation of Realtors economist focused on the Phoenix area.

While it is from December 2005 figures, it illustrates rather well what happened ( and is still happening) to the Phoenix market since we left the "boom days" of earlier in 2005.

Richard


Trends
But What Does a Slowing Market Mean?
Ken Fears, Economist

Newspaper pundits have been harkening a bubble in the housing market for years. For the first time the markets are actually starting to show signs of slowing. Sharp increases in prices in 2005 and a fifty basis point increase in the 30-year fixed rate mortgage in the fourth quarter of 2005 eroded affordability conditions leading to this cooling.

But the data indicates that it is just that; the market is cooling based on fundamental
factors. Days on the market have increased in roughly half of the metropolitan areas that NAR® Research monitors.

With affordability declining demand will shrink and homes will sit on the market longer. Compounding the problem, the stock of homes for sale will begin to build up. Consequently downward price pressure will develop forcing sellers to make concessions, causing a decline in the ratio of sale price to list price, in order to meet buyer’s ability to finance their purchase.

However, are we there yet? There are several reasons that may explain an increase in the concession. First, Realtors® may be listing prices high in an attempt to boost up the sale price by listing well above comparable sales prices and accepting a slightly lower selling price that is still above the current comparables.

Secondly, the market may be changing and Realtors® who are used to a certain quarterly increase can no longer use this guide for pricing. For example, a year ago when pricing a home a Realtor® may have taken a recent selling price and asked 3% more assuming prices where continuing to rise, but with demand flattening, only the recent selling price is realized, creating a 3% concession from the inaccurate list price.

Finally, if the market is truly oversaturated and has been stagnant for a protracted period, the only way to move homes may be to accept prices below recent realized sale prices…this last scenario is one in which there is a true concession.