What A Difference a Year Makes – 3rd Quarter Results
Buyer’s Market Rally & Low Prices Holding Up; Sales dramatically out-performing 2008 & 2007, But, REO’s Still the Wild Card
By Roy E. Grimm, PhD. Russ Lyon Sotheby’s International Realty, Sedona
It wasn’t until January of this year that we finally hit the bottom of the market in terms of the Median Recorded Selling Price of Single Family Homes and the Sedona real estate market in general. But, it was the second half of 2008, when the recession and credit crisis struck in full force, that the wheels really started coming off. Sales figures for 2009 are pretty dull compared with the Go-go Days of 2005, but they are brilliant compared with those of dismal 2008 and, now, even grim 2007. The factor that continues to keep the market off kilter, however, is the impact of foreclosures (aka, REO’s – “Real Estate Owned” – by lenders). The current Supply & Demand elements should be dictating a surge in prices. They’re not, because REO’s form a virtual wet blanket of below-market competition that has kept price increases at bay. Now those REO’s are affecting the luxury home and land market as well.
We’ll get to that but, first, let’s look at the remarkable sales numbers for 2009 through the 3rd Quarter. They’re impressive. If we break it down by quarter, we find the 1st Quarter of this year only slightly ahead of last year. The market took off, however, in the spring of 2009. Home sales in both the 2nd and 3rd Quarters were over 50% higher than those Quarters in 2008. On the whole, home sales are 36% ahead of 2008 to date. Remarkably, they’re also 16% ahead of 2007. By mid October of this year they exceeded the whole year’s sales in 2008.
At the same time, inventory of active home listings is down roughly 30%. Clearly, thanks to low prices, demand is up significantly and supply is down. Normally that would kick in price increases to bring things into equilibrium. As mentioned, however, the omnipresence of REO’s is keeping prices in check. As has been the case since last spring, about 30% of recorded home sales have been REO’s and another 10% have been short-sales. With 40% of the market selling at distressed pricing, it’s hard to compete if you’re trying to sell a home that a bank isn’t trying to dump.
In the vacant land and luxury home markets we’re finally seeing some long awaited activity. Co-incidentally REO’s are finally starting to show up there and they’re having an impact. We’ll take an in depth look at those markets in future columns. Suffice to say for now that the sales we’ve seen in the last few months have been due in large part to major price reductions. When buyers see that and the clear value proposition, they move. Well-priced properties, even in the $2 million range, are selling. Sellers holding out for days of yore will still be holding indefinitely. Buyer’s are demanding and getting great values or they’re not buying. That’s just the way it is right now.
November 2009 Market Report
Single Family Homes
# SOLD Jan-Oct. 2004: 512
# SOLD Jan-Oct. 2005: 524
# SOLD Jan-Oct. 2006: 341
# SOLD Jan-Oct. 2007: 225
# SOLD Jan-Oct. 2008: 193
# SOLD as of 31 Oct. 2009: 282
Median Recorded Sales Price: $400,000
MRSP Bottom: Jan. 2009 $341,500
# ACTIVE (Nov. 09): 371
# PENDING (1 Jan. 09): 15
# PENDING (1 Nov. 09): 74
In May of 2003 USA Today's Weekend edition ran an article entitled, "The Ten Most Beautiful Places in America." Guess who was number one on the list?
The effects on the Sedona real estate market are not hard to guess. Since 1996 the median selling price of single family homes in the Sedona area has been going up at an average rate of over 12% a year. In 2007, though, the median went down 9%. The first time ever that we've seen a decline in that figure. Between Mid-year 2007 and Mid-year 2008,it's down another 12%. The apex of the price curve was $660,000 in the spring of 2006. And, the bottom in January 2009 was $351,500. Currently, the median price for a home in Sedona stands at roughly $400,000.
As in most paces around the country, however, the Sedona real estate market stalled in 2006 and 2007 and took a decisive swing back to being a Buyer's Market. There are four times as many homes and lots on the market now than there were in 2005 and prices have definitely and deeply softened for the time being. Buyer's do have the clear advantage now and they are beginning to return in strength to follow up on that advantage. Time to blow into town if you want to snag a bargain. The longterm prospects for prices here are astronomical.
Sedona townhomes and condominiums are popular here since a large percentage of our buyers purchase second homes and condos are ideal for that. Currently the median selling price is roughly $280,000.
Sedona vacant residential lots appreciated at an average annualized rate of 21% a year between1996 and 2006. The median price soared to over $500,000 in 2006, but that started coming back to earth in the first half of 2007. That figure currently stands at about $121,000 for now.
The General Outlook: for Real Estate in the Sedona Area
2006 shaped up to be a year in which the pendulum swung back toward the Sedona real estate buyer. That continued through 2007, 2008, and 2009. Inventories of homes and land are, as I mentioned, way up. And, they stay on the market longer. That makes for a golden, but temporary opportunity for the buyer.
Long term, though, I think that we can expect a hyperbolic market ahead for at least another couple decades based on our local market fundamentals, very limited supply and strong demand. Prices will go sky high within this decade and stay there. Right now is probably the buyer's best opportunity to get in with the expectation of phenomenal capital gains. Read more about the end of the housing crisis from the Wall Street Journal.
(This forecast was written in the Fall of 2008 & it's happened - the rebound continues.)
We are seeing some remarkable activity in the market lately that leads me to believe that we're about to see a fall surge in Sedona market even if the national market is still flopping. Since last fall we've had as many clients visit for a reconnaissance as we had back in 2005, but most decided to hold off until they felt the market had bottomed. There has been a huge backlog of buyers building - all waiting for the same thing. Guess what? With the drop in the Fed rates and mortgage rates combined with a number of other government initiatives and bail outs of the credit industry AND Sedona's long term prospects for appreciation, our sophisticated buyers are picking up the sense that we're about to turn the corner here. You heard it here first: the Sedona real estate market will BOTTOM this winter and rebound in the spring of 2009.
So what generally drives the Sedona real estate market in the long-term? Economics 101, Supply and Demand theory in action. Sedona is an island of private land surrounded by National Forest and the supply is shrinking inevitably. Demand is being pushed by the demographics of the Baby Boom. The majority of our clients these days are Boomers in their 50s. They're buying land and second homes with an eye toward retirement in a few years. The forty-year-olds are just starting to appear. This demographic phenomenon is likely to continue for another couple of decades, ultimately pushing prices to unimaginable heights as the supply of land runs out.
"Buy land. God ain't makin' anymore of it."
Will Rogers' famous quotation is especially true in the Sedona AZ real estate market.
Back in 1996, the median selling price of a Sedona residential lot was $86,250. As noted above, it's now about $121,000 - back to 1990's levels after having hit $500,000 in 2006. The current flat market is, in my opinion, merely a short-term pause in an eventual massive move up. Many local and national observers see Sedona's real estate situation as akin to Aspen's twenty or thirty years ago as we anticipate a virtual sell out of Sedona's vacant land within a decade or so, once the market recovers.
Many of our clients are buying property now as a hedge against what they know will be a dramatic run up in prices over the next few years. Some are buying second homes that they can use for vacations or rent out with long term leases or as short term vacation rentals. Others are opting to simply buy land to build on later. There is a longstanding debate over the virtues and hassles of building a home, but many people are willing to persevere to customize a home to their own tastes and there are several outstanding builders and architects in Sedona that I am happy to recommend.
It is possible, by the way, to spend well over two million dollars for a one acre lot at the Seven Canyons Resort and Club. And, you'll need another $125,000 if you want a membership in the very upscale and exclusive private Golf Club. They have recently opened a world class, Tom Weiskopf course. When they first began marketing 20 lots at a million an acre nine years ago, my thought was: "This is where Sedona is going in the future, but those prices are way premature." I was wrong. They sold most of those lots in six months. There definitely is a sense in Sedona that , in spite of the current inventory, there will be relatively little Sedona vacant land left and once we're built out, prices like those at Seven Canyons will be the norm as they are in places like Aspen, Jackson Hole, and Carmel.
At the moment, though, a luxury building site, which may be a small envelope at Casa Contenta or a little under an acre at Back O' Beyond, or one acre plus at Cathedral Rock Ranch or two acres bordering National Forest at Cross Creek Ranch start at about $250,000 and can range up to well over two million dollars. What you can expect from them are stupendous views, gated privacy, and multi-million dollar homes in the neighborhood.
In any case, there remains, for the moment, an excellent, but finite supply of land in Sedona and prices have plummeted.
Properties Outside of Sedona -The Verde Valley & Flagstaff Real Estate:
In areas such as Lake Montezuma , Oak Creek Valley , Camp Verde , Cornville, and Cottonwood , home prices are significantly lower and $200,000 (the median price of a home there) will still buy a fairly nice house. The average sales price of a single family house in the rest of the Verde Valley is less than half of that in Sedona. Of course, you sacrifice the dramatic red rock views and ambiance of Sedona, but it does make economic sense and there are some spots with dramatic settings of their own, all within twenty or thirty minutes of Sedona. Many people, understandably, prefer some of the delightfully green hidden valley spots along Oak Creek or the Verde River with their big trees and sounds of gurgling water although water-front property can also get very expensive.
In fact, a housing construction boom has taken place in the Verde Valley in recent years with so many people wanting the beauty, climate, and lifestyle here without the Sedona prices. A good example of this is the rather large, but tasteful, development called Verde Santa Fe being built around the new golf course near Cornville between Sedona and Cottonwood . From there it's about a 15 to 20 minute drive A modern southwestern style house or townhome with great views of the mountains can be purchased or built to your specifications on or near the golf course at a cost ranging from less than $200,000 to the $400,000s. Presently there is a huge over-abundance of supply there with both resales and new construction. I think they're a good value. Remember that it is just as important for you to have buyer broker representation at new home developments and with "spec house" builders as it is on home re-sales.