Over the past weekend, I’ve been reading and listening to a lot of economic and real estate market forecasts. Certainly, things are changing for the better, but my view is we should not get carried away with that notion. There are, as of this morning, still 22-months’ worth of single-family-homes for sale on the market in Flagstaff. That’s 648 single-family-homes on the market with only 29 sales in the last 30 days, and it's a big jump in the Flagstaff home absorption rate since the end of March. (Of course, a more accurate reading of that will come at the end of the month, when most closings are scheduled.)

Common sense tells us that prices need to come down to clear out this inventory. Wishful thinking tells us that the hot weather in Phoenix will bring buyers escaping the heat. It was just as hot in Phoenix last year and that theory didn’t work. Instead of relying on the weather to predict the Flagstaff real estate market, we need to look at the economy, as depressing as that may be. Still, there are signs of hope in the economy.

Home sales are, in fact, picking up in the Phoenix area. This needs to happen to stabilize home prices there. When people are comfortable with the value of their primary homes, and confident they will have a job next year, they will begin to consider buying a weekend home in Flagstaff. Construction has always been a major industry in Arizona. The inventory of homes must clear out before builders will begin to build again. The good news is that, at least in the Flagstaff area, commercial construction has not been hit as hard as residential construction, and the stimulus package will bring more construction jobs to Flagstaff and the State of Arizona this summer.

Other signs, however, are not so good. People need jobs to buy homes. In Flagstaff, we’re facing the possibility of major layoffs in the public school system – I’ve already gotten calls from teachers planning to sell their homes and move out of state if the state legislature eliminates the funding they have threatened for the school system. Sunday’s Flagstaff newspaper reported that tourism is off sharply – that’s one of Flagstaff’s major industries, which provides jobs to many of our residents.

Realtor^® Magazine’s Daily News Report last Friday encouraged us to look on the bright side, saying: “Positive signs include:

• Sales of single-family homes in March remained flat compared to January and February at $358,000, the U.S. Commerce Department reported.
• The Labor Department reported claims were down in the week ending April 11. While some argued this could just reflect the shortened Easter/Passover holiday, others took the optimistic view that some segments of the economy are stabilizing.
• New-home construction remains low because there is so much inventory—but the situation doesn’t appear to be worsening.”

On the other hand, one of the President’s chief economic advisors, Larry Summers, on Sunday said: "We've seen some more mixed statistics after a period when there was no positive statistics to be found…."But it is a long road and it is going to take time. It is going to take creating jobs again ... it is going to take supporting the financial system.” According to this view, the decline is slowing, but we’re not on the upswing yet.  This matches the unscientific survey of New York taxi drivers performed by economist Mark Zandi and reported in Time Magazine last week.

Zandi’s forecast seems to make the most sense to me, amateur economist that I am: Home prices should reach their lowest point by the end of the year. ("I feel very confident about this," says Zandi.) The fiscal-stimulus program should start to work by this summer. Unemployment will peak in the second quarter of 2010. And economic expansion should begin again in the fall of 2010.

Remembering that Flagstaff lagged the housing downturn, I believe it is likely to lag the upturn. Still, we have a certain bottom level of home prices that we can’t seem to break: It’s really hard to find a home in Flagstaff for less than $300,000. Now, it can be done, but that home is not going to be perfect and you have to be on your toes to get it.

On the other hand, we have too many homes at the higher price levels. So, if you want to sell your home before the end in 2009, or probably even in 2010, you need to find a Realtor^® who will give you solid advice about the market, even if it’s not what you want to hear. And then you need to follow that advice and not get yourself into the position of chasing the market on its continuing downward trend.

How’s that for a bright Monday morning outlook? Good for buyers! Call Team Heitland at RE/MAX Peak Properties for all your Flagstaff home purchases and sales!