National housing analyst Tim Sullivan of the Sullivan Group has put together a seven-point test to track the market’s recovery. We will be following these indicators closely during 2008 to help keep your finger on the pulse of the Market:
1. Supply and Demand ratio needs to drop to a 7 month absorption rate.
This is starting to happen. Supply dropped almost 10% between November and December of 2007, from 56,000 to 52,000. The absorption rate dropped from 20 to 15 months valley wide.
2. Home sales need to stop slowing.
Resales have remained virtually constant October through December. Allowing for a normal holiday lull, a level sales history suggests an upswing. When the numbers come in for January, we will have a better idea of the changing sales rate.
3. New-home permits must fall.
Permits have been falling and may continue to fall.
4. Mortgage purchase applications increase.
Lenders continue to tighten their qualification requirements.
5. Thirty-year mortgage rates drop to 6 percent.
This is getting very close. Thirty-year fixed rate mortgage rates have steadily declined since July of 2007. The Primary Mortgage Market Survey just announced that for the week ending 01/03/08, the rate had dropped to 6.07%. from 6.17% the previous week.
6. Affordability improves
Home prices continue to drop, but would need to come down another 10% to reach a reasonable level of affordability.
7. At least one major home builder disappears
I don’t have a crystal ball on this one. The larger companies have deep pockets and can sit this one out. There is talk of mergers in the air.
Almost all the indicators would lead me to believe that a gentle turn in the direction of recovery has occurred. When we look at the dramatic drop in the number of resale listings in Maricopa County, my conclusion is that the market hit bottom around the middle of October.
How long will it take for the upswing to take us to the pre-2005 home values? That answer really depends on too many variables to tell. Stay tuned….