Signs of a Phoenix Housing Recovery Good for Homebuilders

Jun. 03, 2011 2:04 PM ETDHI, KBH, TOL, XHB21 Comments
Michael James McDonald profile picture
Michael James McDonald

In my opinion there are strong indications that the long awaited housing recovery is about to begin in the city that became the poster child for home building excess – Phoenix, Arizona. Things are changing so fast, this new outlook is really only clear to those using the most recent pricing and inventory data from services such as the Cromford Report, which updates information daily, and the latest mortgage statistics from the MBA.

Careful calculations show the once scary "Shadow Inventory" in Phoenix is no longer as large as many thought and what remains can effectively be cleared in about a year. And just as important, short term defaults haven't increased indicating the pipeline of distressed homes isn't refilling at the front end from strategic defaults, which could easily have increased after the large price drop last year.

Phoenix Home Prices Are Stable

While other areas of the country are reporting price weakness this year, Phoenix is different. As the chart from the Cromford Report indicates, after the six month price decline from June to December of last year, the median price for greater Phoenix has been flat for five months. On important reason is the shrinking inventory of homes for sale.

(Click to enlarge)

Phoenix's Shrinking Inventory

The Phoenix inventory of homes for sale has contracted 25% over the last five months until only 32,000 homes are now listed. At a monthly sales rate of just under 10,000 homes, "months of sales" last week stood at only 3.5 months - a number considered by most as low enough to indicate "recovery mode." This small and "getting smaller" inventory – composed of 55% distressed homes and 45% normal - should help produce price stability over the next 12 months as the distressed inventory is worked off.

Most people operate

This article was written by

Michael James McDonald profile picture
Michael James McDonald is a stock market forecaster, author and former Senior Vice President of Investments at what is now Morgan Stanley. He is a long-term advocate of the theory of contrary opinion and the measurement of investor sentiment when forecasting price direction.His first book, " A Strategic Guide to the Coming Roller Coaster Market" was published in June of 2000, three months before the top of the dot comm market. On its cover was written, "How a new model of the stock market predicts the end of the 18-year bull market (1982-2000) and the beginning of a new era." The "new era" was to be a long-term (roller coaster) trading range market, which did materialize between 2000 and 2009.Then, on August 31st, 2010, in a SA article titled: "The 10 Year Trading Range Is Over - The 'Final Stampede' Has Begun", he called an end to this trading range market and the beginning of another long-term bull market, which also came about. Through his company the Sentiment King, he continues to study and do what he loves - research and attempt to successfully forecast major stock trends - and help others see them too.

Recommended For You

Comments (21)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.