It is always nice to see the latest proclamation regarding the real estate market from a national economist.  Any national economist.  The market is "good".  The market is "bad".  Prices have moved up (or down) "X" percent.  A long time ago I used to think at least some of these people might have something to say that actually mattered.  I don't think that any more.

If you care to look back just a few short years to see just how many of these "professional lookers" predicted the huge run up in real estate prices that happened in most areas of the country you might be surprised.  It is a very very small number of economists who saw it coming.  The correct number?  Zero.  That is right.  None of them saw it coming.  After it was happening quite a few of them then started explaining it and making predictions - not unlike a weatherman who predicts it might rain, after it already is raining.

If you are interested in finding out what happened you can look at the revered Case - Shiller index.  Right there on their main page it says, "Data presented in the spreadsheets above are calculated monthly using a three-month moving average and published with a two month lag. New index levels are released at 9 am on the last Tuesday of every month."  Which means it is five months out of date on the day they publish it.  I'll (for now) skip the remarkably idiotic practice of attempting to use median prices to track short term price movement and just stick with the "out of date" issue.  Trying to use their data to predict anything would be like driving a car by only looking in the rear-view mirror.  And yet people whose job is to "see around corners" do use this data and they don't see what is coming.

Is the market "good"?  Is it "bad"?  I don't know what is happening across the nation.  I do know what is happening in the Phoenix market and suspect this may also be happening elsewhere.  Right now we have - for the first time in my 31 years in the real estate business - both a "buyer's market" and a "seller's markt" at the same time.  Five to Seven months of supply is a balanced market.  Prices are stable when inventory is in the range of five to seven months.  To calculate this (for a huge area or a smaller market segment) take the total number of houses for sale and divide by the number of houses sold in the past 30 days.  When inventory shrinks to less than about a four month supply the balance of equilibrim starts to tip and begins to become a seller's market - with, at first, gentle upward pressure on prices.  As inventory continues to dwindle (always juxtposed against the current demand)  the upward pressure on prices becomes greater.  The same is true on the way down.  The market will start to tip at about seven months supply and you have the beginning of a buyer's market.  This is not complicated.  It is supply and demand.  What causes prices of any commodity to go up or down is supply and demand.  Period.  What is written in this paragraph IS what you need to know to calulate supply and demand.  Naturally, there are other factors (interest rates, unemployment, etc.) that can effect supply and demand - but you can look for yourself and see the current supply and demand.  It isn't an "estimate".  There is an actual number of months the current supply would last if the current absorbtion rate were to continue and the inventory was not added to at all. 

I believe that Realtors who do business in the Phoenix area are blessed.  We have direct access to The Cromford Report.  The daily snapshot alone is worth the price of admission (which is currently free if you are a member of ARMLS).  Anyone reading this post - regardless of where you live - who wants to know how to correctly look at the dynamics of supply and demand so you can correctly predict what is going to happen with prices can watch this video, where Mike Orr of The Cromford Report explains it.  I've put two screen shots of Cromford data on how the Phoenix market is doing here.

As of Friday, September 4th, we have 164 day supply of inventory or 4.5 months.  This would be a seller's market.  Taking all of the houses currently for sale in the MLS (37,256) and dividing by the last 30 days of closed sales (8,239) (if you want to check the math, the little number goes into the big number and you get 4.52)  But .... take a look at that inventory broken down by price range.  At the bottom we have a red hot seller's market, we are perfectly balanced in the middle and have a severe buyer's market at the top.  I've made notations on the month's supply chart showing the supply ranging from just over a month at the bottom to over a three year supply near the top.

Is this good news, bad news or no news?  I believe it depends.  If you are wanting to buy a lower priced home and were waiting for the bottom you waited too long.  That bottom came and went.  If you are a move up buyer (selling a lower priced home and buying a higher priced home) you will get the very best of both worlds.  If you are a luxury home seller you haven't seen anything this bad in the past 25 years.

If I've made you happy with what I've written here, you're welcome.  If you are upset, sorry.  Either way, I'll have more for you later.