Tucson Housing Deflating or Recovering? Get the Real Story

August 30, 2012

We know the local market real estate data and trends, and are experiencing firsthand the reality of a housing recovery. There have even been national articles about the housing recovery from the likes of The Wall Street Journal and CNN. However the Arizona Daily Star recently ran an article "Report: Tucson's housing bubble still deflating. Prices expected to drop this year, rebound in 2013".

The Arizona Daily Star's article talks about the Fiserv Case-Shiller index, which projects homes prices to fall in Tucson 3.4 percent by the first quarter 2013 before rising in 2014. Read the entire article.

Though home prices stabilized nationally and rose in some markets in the first quarter of the year, average home prices in the Tucson metropolitan area fell 4.9 percent from 2011 and are expected to keep falling over the next year, a new report says. Tucson-area home prices are expected to fall another 3.4 percent by the first quarter of 2013 before rising the following year, according to the latest quarterly data from the Fiserv Case-Shiller Indexes, which track home price trends in more than 380 U.S. metro markets. According to Fiserv Case-Shiller projections, home prices in Tucson will see growth of 6.7 percent between the first quarters of 2013 and 2014.

There are 2 fundamental issues with this article. First, the index itself is a measure of past market performance but not a good measure of future market activity. Steve Harney, a nationally recognized real estate expert, had this to say on the topic.

"I want to begin by saying that I very much respect the Case Shiller Indices when they report on past home prices. Their data is excellent and their methodology is strong. However, the same elements that make their reporting on past values important, limit their projections going forward. Using past sales to project values moving forward doesn't take into consideration changes within the marketplace. Example: In Tucson, in my opinion, the lack of inventory in many price points will result in prices stabilizing and in some areas actually rising.

When it comes to predicting the future, no one can know for sure. Professor Shiller himself, when being interviewed on the Fiserv report, said "Nobody knows" what prices will be in the future. Looking at the simple concept of 'supply and demand', if demand in Tucson is increasing and supply is dwindling, prices should continue to appreciate in my opinion."

The article itself goes on to mention there are differences in the Fiserv indexes and the reporting of current homes sales prices. Local home sales prices have actually increased since 2011.

The indexes differ from price data tracked by Realtor groups based on sales of listed homes, which have shown price gains locally in recent months. The Fiserv indexes analyze single-family properties with two or more recorded sales and focus on the average change in home prices.

Learn more about the methodology used in the index

Data from the Tucson Association of Realtors Multiple Listing service show the average price was up 2.8 percent in March, at the end of the first quarter, compared with March 2011. The Realtors' most recent report showed the average price in June was up 4.6 percent from June 2011.

Here are the changes in property prices based on closed sales from the Tucson MLS since September 2011, the recent low water market in prices - the "bottom". Sure looks like a big increase in home prices to us.

The second issue is that the article and index do not take into consideration any supply and demand dynamics that can influence future pricing. The Tucson market is experiencing a dramatic decrease in the number of active listings for sale (supply) and an increase in the number of sales (demand). Basic supply and demand theory tells us that if supply goes down and demand goes up, that will put upward pressure on prices. Here are some key market metrics on supply and demand.

If we look at closed sales January - July 2011 as compared to January-July 2012 you will see a clear increase in buyer demand.

These statistics are based on information obtained from the TARMLS using Brokermetrics software on 8/3/2012. Information is believed to be reliable, but not guaranteed.

A balanced month's supply of inventory is from 5 to 6, Tucson currently has only 3.2 months - a seller's market. This heat map will give you an idea of how hot or cold the market is around Tucson, and the second graphic will show you by price point.

The bottom line is the headline of this article is a misrepresentation of the Tucson housing market. It is not deflating, data shows current pricing appreciation and market conditions that will continue to put upward pressure on home prices. That's the facts.