Rosey Koberlein, chief executive officer of the Long Companies, worked to destroy myths about the Tucson housing market last Thursday night.
“The data says we’re coming out of correction,” Koberlein said at a “mythbusters” event hosted at the Tucson Association of Realtors building. Look closely, and “you’ll see the market is not in the dismal condition that it’s made out to be.”
Tony Poe, home loan consultant for Long Mortgage Company, also believes “it’s a great time to be buying” a house. “There is a large inventory, sellers are willing, and interest rates are at historic lows.”
Of course, Koberlein and Poe are going to say it’s a great time to buy a house, and a decent time to sell one, too. They’re in the real estate business, after all.
Koberlein, Poe and others point to statistical indicators to fortify their positions. “There are things that could predict coming trends that often get ignored,” said Linda Moore, branch manager for the Long Companies’ River and Campbell office.
“Pended units sales,” a measurement that looks at pending but not yet closed home sales, are higher in the first quarter of 2008 compared with the 2007 quarter. Moore points to March 2008, with 1,410 “pended units sales” in the Tucson market. That’s 18.2 percent higher than March 2007’s total of 1,192 pended units sales, and suggests greater sales activity.
“Days of inventory,” a measure used by real estate professionals in evaluating the resale home market, have declined in greater Tucson.
“There is a theory in real estate that you want six months of inventory,” Koberlein explained. “At six months inventory, it’s neither a buyer’s nor a seller’s market. It’s considered ‘balanced.’”
Greater Tucson ended 2007 at 400 days of inventory. “It was not a pretty picture,” Koberlein said.
Days of inventory peaked near 500 in January, then declined to near 300 days by the end of March, according to statistics from the Tucson Association of Realtors. “Sales have increased. Things are starting to move.”
“Days of inventory” vary across the market. By ZIP code, the 85747 area of southeast Tucson is at six months inventory, making it a “balanced” market. In contrast, northeast Tucson, to include ZIP code 85749, stands at 17.1 months.
Koberlein acknowledged the circumstances that have dampened the housing market, among them a “run up in home-price valuations” that spurred urgency in both buying and selling, “poor lending practices” to people who could not afford loan conditions, and speculative buying of homes by investors expecting quick returns.
The sub-prime mortgage situation, exaggerated by “sensationalism in the media,” furthered hammered the housing market, she said. Nationally, just under 9 percent of home mortgages are “sub-prime” mortgages. Of those, just under 11 percent have entered default.
In greater Tucson, between 9 and 10 percent of mortgage loans are “sub-prime.” Of those, about 6.3 percent have entered foreclosure.
In Arizona, “the bulk of foreclosure activity” has occurred in greater Phoenix. “Look to the north,” Koberlein said. In southern Arizona, “a lot of the hysteria … really isn’t flushing out in comparison to the rest of the United States.”
Still, conditions meant more houses on the Tucson market, fewer buyers and declining prices.
“If you’re a buyer, you’ve been waiting for prices to come down,” Koberlein said. “They have.” The “average sales price” in greater Tucson as of March 2008 stood just above $250,000, similar to May 2006 prices. But, Koberlein said, “I’d be surprised in the next 60 days if it were to come down much further than what they are now.”
Koberlein cited several sources — Global Insight, which writes “housing sector activity will bottom out in mid-2008,” and Moody’s Economy, which writes “home sales are expected to hit bottom in early 2008” — as predictors of change.
“If you wait for the media to say the market is back, it’s too late,” Koberlein said. “You’ve lost out on 90 to 120 days of activity.”
“You never know the exact bottom until we’re looking back at it,” Poe agreed. “Now, the combination of low interest rates and low prices, that can be real attractive.”
Poe has his eyes on inflation, in particular the producer price index.
“When there is inflation in the marketplace, interest rates will go up,” Poe said.
Mortgage rates are based upon mortgage-backed securities, which are traded daily. When inflation outpaces interest return on bonds, bond rates rise, Poe explained. “Bonds don’t like inflation. If there’s inflation, rates have to go up to attract new investors. It’s supply and demand.
On Monday, a 30-year fixed mortgage could be secured for 6 percent annual interest. Poe closed a loan at 5-1/8 percent in January. “The market’s been so volatile, that changed pretty quickly in the next couple of days,” he said. The level of future interest rates “really depends on how inflation comes out. We’ll see what happens.”
Poe has noticed another indicator -- “major investors” securing property in the Tucson market. “That tells me we’re pretty close to the bottom if the investors are coming in with those kinds of dollars,” he said.
“Three years ago, the sellers were in charge,” Poe said. “They had multiple offers, and they weren’t going to do anything for the buyers. Now, the pendulum’s gone to the far side. Sellers are now giving closing costs, sometimes down-payment assistance, and other incentives and reductions. Things have changed. We’ll see equilibrium in the next 10 to 12 months.”