Adam Smith, First Modern Economist

For the first time in five years, existing-home sales have increased for four months in a row, according to the National Association of Realtors® data released last Wednesday. Government and Wall Street housing indices to be released this coming week are also likely to show improvement in the volume of sales – though these indices run a month behind the Realtors® data.

Existing-home sales as reported from the collection of multiple-listing-services tracked by the National Association of Realtors® – including single-family, townhomes, condominiums and co-ops – rose 7.2 percent in July from as compared to June, and were 5% above the volume sold in July 2008.  The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005. So, there is good news!

Lawrence Yun, NAR’s chief economist, is encouraged.  “The housing market has decisively turned for the better.  A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales,” he said. Implicit in this comment is that prices have dropped substantially, making homes more “affordable.” Also, interest rates are substantially lower than they were just a year ago, contributing to the “affordability.”

 Because price-to-income ratios (income being from projected rents) have fallen below historical trends, there are more all-cash offers. “In some recovering markets like San Diego, Las Vegas, Phoenix, and Orlando, the demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint,” Yun said.  Below $350,000, inventory is also low in Flagstaff, but I have not seen many all-cash offers.

An NAR survey of its members showed first-time buyers purchased 30 percent of homes in July, and that distressed homes accounted for 31 percent of transactions. The First-Time Homebuyer Tax Credit, which is set to expire at the end of November, has encouraged folks to take advantage of the low prices and low interest rates. Several of my Flagstaff clients have already collected their $8000 tax credit. NAR President Charles McMillan pointed out last week that since it’s now taking longer to complete a home sale, first-time buyers who want to take advantage of the $8,000 tax credit should try to make offers by the end of September. In other words, shop now!

Total housing inventory at the end of July rose 7.3 percent to 4.09 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, which was unchanged from June because of the strong sales gain.  Raw inventory totals are 10.6 percent lower than a year ago when the number of unsold homes was at a record. This is true in Flagstaff where I’ve been tracking a drop in available homes all summer.

The national median existing-home price³ for all housing types was $178,400 in July, which is 15.1 percent lower than July 2008.  Single-family home sales increased 6.5 percent showing a median price of $178,300 in July, which is 14.6 percent below a year ago. Existing condominium and co-op sales jumped 12.5 percent in July from June. The median existing condo price was $178,800 in July, down 18.9 percent from July 2008. In the West region, which includes Arizona, volume of sales slipped 1.7 percent in July compared with June, but was up 1.8 percent from a year ago.  The median price in the West was $202,300, which is 28.0 percent below July 2008. That significant drop is likely to result in sales volume improvement in the West in coming months.

The consistent theme throughout the nation-wide data is that falling home prices have spurred home sales, just as the law of supply and demand predicts. Inventory is thinning, which will eventually drive prices up again. The unanswered question is when is “eventually?” As long as unemployment remains high and bank-owned properties are being held in inventory at record rates, “eventually” will not be here yet. Expect improvement in 2011 for Flagstaff real estate prices.

To buy or sell any Flagstaff home, call 928.714.0001.