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Douglas Trudeau , Assoc. Broker
Prudential Foothills Real Estate
64 N. Harrison Road, Suite 160
Tucson , AZ 85748
Mobile: 520-954-2209
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Housing Market Predictions

I see a lot of searches on my site looking for “Housing market predictions.” Buyers want to know what the future holds, as do sellers. The Tucson real estate market was fairly predictable up until July of 2007. Then the market changed. Not that there weren’t enough homes to choose from. Not that there weren’t enough buyers looking. The fence post market is doing better than ever. There are a lot of buyers sitting on them not willing to budge. To understand predictions, it is best to understand the history or real estate sales in Tucson.

The market changed when two big lenders went out of business. American Home Mortgage and First Magnus. The ripple effect has been like a tsunami. All those buyers, sellers, escrow officers, Realtors, and loan officers standing on the beach got swept up in the wave of fear. In the Tucson real estate market we all felt fairly safe. What had been happening in many other areas had not effected the Tucson real estate market a lot.

We knew that sub prime loans were rapidly becoming a thing of the past. We had our usual predictable home sales that may have been off by a mere 20 or 30 homes each month. Some months sales were high than predicted. Not bad for long term predictions. Sales in 2006 were no different.

July saw a drop of 122 home sales from what could be predicted. August saw a 196 decrease in sales. September was worse with a reduction of 360 home sales. Nearly a 34% decrease in the number of predicted sales. October? Who knows. So what is causing the reductions?

The market was hot - Homes were selling at unbelievable prices with some areas of Tucson seeing over 24% increase in value within a year. The norm was 6-7%. Home inventory dropped to an unhealthy level of less than four months. Multiple offers were being reviewed by sellers. It was not unusual to see home sell for thousands of dollars over the asking price. Mimicking the stock exchange the frenzy was buy, buy, buy as prices increased.
The mortgage industry debacle - ARM (adjustable rate mortgage) sub prime loans! Many lenders who loaned to buyers who had questionable qualifications with anticipation of affording higher payments found that they did not calculated far enough into the future to see how much payments would be and whether the buyer could truly afford those payments. Hence, numerous of those homes purchased by questionable buyers are now on the market for less than what the loan was granted for. There was no tracking of how many of these loans were being written. A mere allowance of 3-5% of all loans for sub prime ARM’s would have left a healthy 95-97% market of fixed loans. Hindsight is keen, foresight was blind.
Investors stopped investing in the secondary market - As loans were written investors were buying up loans on the secondary market to feed the primary market making loans to home buyers. When this pool of money stopped, so did the money for primary loans. Adding to the mortgage market debacle.
Large lenders went out of business - American Home Mortgage and First Magnus whom many smaller companies depended on had large portfolios with sub prime loans and ARM’s. Heavily dependent on the secondary market these lenders found their liquidity turn to solid ice. Hence, they went out of business, taking several smaller companies with them.
The media jumped on the band wagon - News casters, newspapers, magazines and anyone looking for someone to listen to them jumped at sensational reports that the housing market was collapsing like the piglets straw house falling to the blow hard big bad wolf. The common person, believing everything they saw and heard, fell to the herd mentality. Buyers aren’t buying like they did 90 days ago.
Lender had tightened their belts - Loans are being written every day. Lenders are asking, “Why should we be the only ones taking a risk?” Lenders are demanding more risk from the buyers. Put up more down payment. It’s easier to walk away from $500 down and a 100% loan with the seller paying closing costs. It is harder to walk away from having to put 3-5% down on a loan. Demanding higher risk from the buyer means fewer buyers. In reality, it means better buyers. The mentality of having the seller and lender take all the risk while the buyer reaps the benefits is slowly fading into the past.
Adding more homes to the market - Home owners are setting records for homes on the market. Builders have been smart and have cut back on building spec homes. Building most on demand with a few speculation homes coming from buyer defaults. It is definitely a buyers market. But, buyers are hesitant about buying. Builders are offering incredible deals. Homeowners are realizing that they are not getting offers. Prices have been slashed all around the market. More and more homes are coming on the market. Over supply with reduced demand. Some sellers are wondering why their homes won’t sell when only 6 out of every home on the market sells each month. Great for buyers, not good for sellers.

Two things need to happen before sales start increasing again. First, buyers need to feel confident that one of if not “the” biggest investments they will ever make will be a good investment. Too many buyers are not committed to the long hall. Rather than looking at living in their home for twenty or thirty years, many buyers are looking at reselling in two to five years.

Second, buyers have to be willing to take the risk. Put some money up and stay put for five or more years. When investors feel comfortable that they will see a good return on the money they invest, then the secondary market will open up again. Once the secondary market opens up the primary market can loosen the purse strings. Until then predicting the market will be like rolling the dice or gambling in Las Vegas. Predicting Tucson’s real estate market is anybodies guess at this point. Not even the pessimists can say what will be happening tomorrow. Who knows, by the time this is posted we may be seeing improvement in sale.

Of the pessimists whose blogs and articles I have read, I have yet to see one to stick their neck out and say specifically what will happen. Will sales for the next month be 500? Will it be 900? Will it be 1200? Anyone can sit back and say the sky is falling and Monday morning quarterback the previous days game. It takes great fortitude to stick your neck out and predict. Right now, I doubt anyone can predict sales for tomorrow until we see some normalcy to the market. Up until July I would have comfortably said that sales would be 1092 for October. With a predictions of 1056 for September and only seeing 696 sales, I’m not so sure anymore. The current market is definitely not normal. Until it does, my neck is off the chopping block. It is impossible to say within a reasonable percentage what will happen tomorrow. So, for those looking for predictions, they’re just not there for now. Maybe someone else can give numbers within 5%? I do know that there are a lot of home owners, home buyers, and many others who want this down turn in real estate to come to an end and get back to normal. It would be nice to read nothing but positive news.

This entry was posted on Tuesday, October 9th, 2007 at 2:23 pm and is filed under Tucson Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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