What is Happening to Home Prices?

Great information from Kevin Kaplan!

What is Happening to Home Prices?

Posted on June 16, 2011 by Kevin Kaplan

We've all seen the news. "Home prices slide", "Risk of a double dip in home prices" etc. But is it worth a few minutes to better understand what is happening to home prices here in Arizona? I do, so here we go.

The Product Mix
First of all, real estate is a very localized affair and needs to be evaluated as such. So while we see articles on the national housing market, let's take a closer look in our backyard here in Arizona.

Pricing in its simplest form is a function of supply and demand (remember those college economics classes? I am lucky enough to hold a degree in Economics….). But what many people seem to overlook in housing is that you also need to understand the type of product being sold, and what impact that has on overall pricing metrics.

We did some analysis on MLS data to determine the product mix of residential homes being sold in Tucson and in Phoenix for the time period January-May 2011. Specifically we wanted to know the mix of distressed (REO and short sale transactions) and non-distressed closed sales. Here are the results:

Tucson – 43% REO (Bank owned) sales, 9% short sales and 48% non-distressed sales
Phoenix – 42% REO (Bank owned) sales, 20% short sale and 38% non-distressed sales
52% of closed sales in Tucson and 62% in Phoenix were distressed.

Impact of Distressed Sales on Pricing
So now that we know more than half of residential properties sold were distressed, let's take a look at the impact that has to pricing.

We see a stark difference in pricing from distressed to non-distressed homes.
The product mix is driving down the overall home price sales. As this distressed inventory gets absorbed (which is happening now at a good clip) the product mix will start to shift back to more non-distressed sales, which means we may have a more instant uptick in home sales prices – just because of the product mix.

Another reason to work with an educated Long Realty agent who can help you understand local housing dynamics.

For a copy of our latest Housing Report to see market trends in your area, visit our website