There is a silver lining to the "dour" Arizona housing market and economic outlook reported yesterday by the AZ Republic.

I have to put my two cents' worth into the discussion on the Housing Market after a misleading headline appeared on the front page of the AZ Republic 12/6/07.

The headline reads: "Housing market hit harder than analysts predicted".

Last week I attended a seminar given by one of the economists quoted -- Elliot Pollack. I'm sure he wasn't thrilled that his 120-screen powerpoint presentation was boiled down to the following quote: "There is no quick fix. We have a long way to go. Boy, it's a mess."

So here are my qualifying comments:

The "hard hit housing market" refers to the fact that new home housing permits are down 30% instead of the forecast 17.7%. Certainly this will have an effect on the overall economy, but it is only one of 10 major factors. Most of the others are up due to increased exports (due to the falling dollar), and commercial and industrial projects going up all over the Valley.

But this drop is actually a good thing. The reduction in "new starts" will help reduce the supply-and-demand gap in the current housing market that has created an 18-month inventory Valley wide. (The inventory is currently at 10 months in Tempe.) As supply goes down and buyers realize the sky (homes prices) is not falling, sales will pick up. What Pollack was referring to when he said we have a long way to go is that it may not be until late 2008 that we see a turn around, and 2-3 years before we get back to normal.

Foreclosures may decline:

Another unknown factor and potential cause for concern just became a little more hopeful. Foreclosures could increase the supply side of the housing inventory, but the number of foreclosures may slow down if today's news (December 6) is correct. President Bush will be outlining a plan to freeze the interest rate hike on sub-prime and variable interest loans.

Another glimmer of hope:

For the market to get back to "normal" (pre 2004-2005 prices and conditions), the inventory of homes for sale needs to come down from the current level of 58,000 to approximately 35,000. For the last 3 months (September - November) the inventory has not increased, suggesting that, if the rate of foreclosures does not increase, we may see a steady decline in the inventory after the seasonal holiday slow down. The other important favorable indicator that will help lower the resale housing inventory is that the job and population numbers are still putting Arizona in the top 5 markets in the nation.

Stay tuned.... Weighing in on the media spin of the housing market (i.e., whatever will sell papers) may become a regular feature of my blog. Be sure to visit my website for more information about the changing market in Tempe, Arizona.

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