Yesterday I joined a few hundred of my fellow Century 21 agents at a kickoff meeting for the company’s Power Play initiative – a substantial increase in advertising dollars being directed to the Phoenix area for the sole purpose of increasing Century 21’s market share here.
One interesting Century 21-related note. According to the company’s CEO Tom Kunz, C21 has seen its market share decline over the past decade … ever since the company’s gold jacket was phased out of visual advertising. A wellspring of competition in the intervening 15 years also probably had something to do with it, but I may be finding myself looking for a gold jacket in an impossibly large size.
(Do they make beagle-sized jackets?)
Outside of the introduction of Power Play, we also listened to Jim Droz discuss the trends in the real-estate market. Jim at one point was the top-selling agent in the Century 21 system, closing approximately 300 transactions per year.
Jim said the recent decline in prices was part of a predictable boom-and-bust cycle in real estate, a cycle that repeats every 5 to 7 years. By that math, the equilibrium (or bottom) many of us feel is somewhat close at hand, still is several years away.
Discounting the predictions of NAR’s David Lereah – he is, after all, paid in some form to paint as rosy a picture as possible – I’ve seen opinions varying from a continued slide to 2001 and 2002 prices to a stabilization of the market followed by slight increases in home values.
What’s the right answer? I honestly can’t say. And I don’t believe there is one answer that fits for the Phoenix area as a whole. Some areas have held their value over the past year while others, like Surprise and Queen Creek and Anthem, have seen a precipitous drop in home values.
Is it simply over-valuation? Oversupply? The departure of the flippers from the market? The builders’ continued incentive insanity? Or is it a little of all of the above?
This morning I was reading through the numbers posted by Jay Butler, director of Arizona State University’s Arizona Real Estate Center, particularly the affordability index. In theory, an index figure of 100 would indicate an equilibrium in the housing market. Anything under that would indicate that the area’s median salary isn’t sufficient to sustain the area’s median home prices – in short, that people can’t afford to buy.
We’re under the 100 mark and have been for the past year or so. But before that? We were well above the 100 mark. One could interpret that to mean Phoenix home values at one point before the run-up were unnaturally low when compared to salary – something many of us have said for some time.
So if there is a continued decline in the market, where does the market find its balance – at the equilibrium point of 100, last reached in Q1 2005 (actually 99, but let’s not quibble over one points) – or back before the boom, when home prices were lower than the market actually was capable of sustaining?
Personally, I would think the latter is the logical choice. And if that’s the case, then it’s as many of us have been saying. The folks in the greatest jeopardy are those who bought during the run. It is these folks who we’re seeing flirting with foreclosure. It is these folks (along with some who cashed out the inflated equity in their homes during the run) who face the very real possibility of being upside-down on their properties in the short term.
For these folks the question is whether they can ride out the trough and see the upward swing on the other side. And there will be an upward swing. Maybe it’s later this year. Or maybe it’s in 2008 or 2011 … but there will be an upswing. There always is. It’s a cycle.
For the rest of us, it’s a Catch 22. You’ll sell for less now than a year or so ago but you’ll also be buying for less. On the other hand, you can wait for prices to continue to fall so you can buy for even lower but you’d be selling for even less. And if the market rebounds, you’re selling for more and paying more.
It’s almost a zero-sum situation. And if one side cancels the other, is there really ever one “right” time to buy or sell? Can you accurately time the market or, more importantly, does it even make sense to try?
I think not.