Do the Latest Market Numbers mean Recovery (Part 1)?

Time on the market statistics are an important indicator of the health of a real estate market. One of the indicators of a recovery is when the residential resale inventory falls below a six-month supply. This means, on average, homes listed for sale will accept an offer and be off the active market within that time period. But it doesn’t tell the whole story, and can be misleading as to the number of available inventory, as our current Phoenix area numbers show.

Below are the rankings of the cities in the Phoenix metropolitan area for the month of April:

This means an average home (in good condition, with minor maintenance and condition issues, in an average location and reasonably priced) is taking 14.3 months to sell in Scottsdale. Although that looks bad, in January that number was 19.4!

Why does Scottsdale lead all cities with a 14.3 month backlog? My guess is that in reality it doesn’t. Time on the market statistics only measure homes listed for sale; it doesn’t measure homes owned by sellers that they want to sell but are not currently for sale. There are literally hundreds and hundreds of foreclosed on and vacant homes in the outlying communities. This is because those areas are the hardest hit by the drop in market values and by foreclosures. If those areas have the most unsold homes, the only explanation for the short time on market numbers is that the owners of the homes have decided not to sell at the moment. Since most of those vacant homes are owned by lenders due to foreclosures, it must be that for business reasons those companies have decided to keep that inventory off the market.

Besides the broader economic news isn’t good enough to support a large reduction in unsold properties. As was just reported in the media, bankruptcies increased a staggering 91% in April over the already high rate for such filings a year ago.

– N. Mark Kramoltz © 2015