Well, it looks like we have come to the cliff…..and we seem poised to jump off…
The next thing to see is how deep the canyon is, and how much it will hurt when we hit the bottom.
As I surmised, the Federal Stimulus Tax Credit did its job, and gave us a temporary bump in values.
However, even the Federal Extension to Sep 30th is not enough to stem the tide…
The eternal law of Supply and Demand should prevail and prices will fall like Newton’s Apple… and they should go down for another 12-18 months.
It’s a shame, because interest rates are at a mind-boggling low…UNDER 4% for a 30 year fixed loan with good credit, and 4.75% for Investors with 25% down!!…Amazing!
The problem is, not many people out there can take advantage of these loans!
With declining values, no one can sell their home to move up or down…and banks are hesitant to loan in a market still in free fall.
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The Federal Tax Credit Hangover seems to be starting, so it seems…
As of this writing, there are only 16,640 homes under contract…a 7% drop over July.
Inventory is UP one and a half month’s supply…
Closings dropped to just above 7,100, or close to 25% from July.
And, average home prices have fallen 3% in the last 30 days.
I cannot see how these trends will slow, at least in the near future.
Sorry to be such a Bear….I hope that I am wrong.
The good news is that August/September are historically slow months, regardless of economic conditions, as people return from vacations, and the kids are starting school again…
We’ll see what September brings.
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Here are the numbers…..
Inventory – - Month Supply – - Closings – - Avg Sale Price – - LP/SP % – - Day on Market
July: 42,734 – - 6.0 – - 7,122 – - $175,273 – - 95.8- – 99
June: 41,814 – - 4.50 – - 9,297 – - $179,993 – - 96.1- – 98
May: 41,515 – - 4.56 – - 9,107 – - $176,978 – - 96.3- – 95
Apr: 42,707 – - 4.59- – 9,300 – - $170,971 – - 96.4 – - 97
Mar: 43,454 – - 4.83- – 9,002 – - $177,776 – - 96.3 – - 101
Feb: 42,923 – - 6.47- – 6,631 – - $173,654 – - 95.7 – - 99
Jan: 41,535 – - 7.15 – - 5,811 – - $175,737 – - 95.5 – - 91
Dec: 40,602 – - 5.25 – - 7,731 – - $176,822 – - 96.2 – - 93
Nov: 40,081 – - 5.31 – - 7,563 – - $174,395 – - 97.0 – - 89
Oct: 39,116 – - 4.80 – - 8,150 – - $170,315 – - 97.2 – - 90
Sep: 38,541 – - 4.85 – - 7,942 – - $174,975 – - 97.0 – - 93
Aug: 37,972 – - 4.72 – - 8,042 – - $175,441 – - 99.7 – - 100
July: 38,307 – - 4.21 – - 9,098 – - $175,400 – - 96.3 – - 111
(All Data provided by Arizona Regional MLS)
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Mr. Bernancke Speaks: As expected, no real good Economic news out of Washington. The “recovery” seems to be losing steam, as business hiring and consumers spending continue to soften, and it’s becoming apparent that we are heading into the double dip recovery. The Fed promised to purchase more Government debt. This should have a positive effect on lowering long term interest rates.
Here are the CNN and Globe and Mail articles.
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Velocity, Deflation, and the Paradox of Thrift….
The American Economy needs people to spend money in order to recover. Americans are afraid to spend money, so they are saving. This is the called the “Paradox of Thrift.”
Since people aren’t spending their money and banks are not lending money, the rate in which money changes hands is decreasing. This is called Velocity, and velocity is slowing.
With velocity slowing, as people hold onto their money waiting for housing prices and other consumer goods to fall further, and banks are not lending in order to help businesses spur growth and create jobs, we head into a period of Deflation….Now, it may seem that lower interest rates and lower prices are good , but it really isn’t good for the Government or for all of us in the long run.
This is because The Fed and the Government are terrified of Deflation. So, they continue to pump money into the system to spur growth. This trend will continue until the economy begins to recover, and the pendulum begins to swing in the other direction. However, the Fed has to watch how much money it injects into the system, because once that recovery is apparent, all that extra capital will hit the market, and we could have Inflation…When Velocity is increasing, it means demand for the money is decreasing, therefore the prices of goods increase…It’s a constant balancing act for the Fed.
Why is all this significant ? Well, a week economy means more money going out of the stock market and into bonds, and this always translates into lower interest rates.
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Oh, Canada!: The Road to Parity for the Canadian Dollar hit a pothole in the past week, dropping nearly 2 cents in 5 days. This may be reversed with The Feds weaker economy announcement today. We shall see. All indicators are, this is just a temporary setback.
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Travel Information: Only 106 degrees today, and it looks like clear skies all week.
I know some of you are already planning a visit in August and September….If anyone else is thinking of coming this Summer, please reply back to this email and I will update you with the latest list of homes to view.
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And, lastly, if you like what you have been reading the past few months, and if you know anyone who wants to be kept up to date with the Phoenix market, please forward along this article.
It is greatly appreciated.
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