Is Tucson Housing Sickest in The Land? Or Does Tucson Just Have a Head Cold?

Recently a report was released by 24/7 Wall St  that ranked Tucson as the "sickest housing market in the US". As you can imagine, this caused us to take a close look at the article and we found some issues with the report and the methodology used.

Is Tucson terminally ill? Are we the "sickest" housing market in the nation? No. Let me explain.

Vacancy Rate is Not the Best Gauge of a Market's Health

Vacancy rate is cited in the article as one of the main metrics used to determine the ranking of "sickest housing market". Unfortunately no one uses vacancy rate to measure housing and for good reason. Nationally recognized real estate speaker Steve Harney explains:

       NO study I have seen has established vacancy rates as a useful way to determine the strength of a housing market.

Calculated Risk, a well respected financial blogger often quoted in the Wall Street Journal, said this about the Census report used by the authors of the original article:

“This report is commonly used by analysts to estimate the excess vacant supply for housing, but it doesn't appear to be useful for that purpose.”

Tom Lawler the housing economist said this about the Census’ latest vacancy report:

“[They] have consistently overstated overall US housing vacancy rates, and consistently understated the number of US households – mainly ‘missing’ millions of renter households – for over a decade.”

That is why NO ONE uses vacancy rates as a major component in determining strength of market. The authors’ methodology is flawed.

 

In addition, Tucson is a market with many "snowbirds" who only make Tucson their home a few months out of the year in vacation properties – which means we probably have a higher homeowner vacancy rate than many other cities. 

Where is the Sales Data?

            "It also means that there is comparatively little demand for the purchase of new or existing homes."

            "Since then, demand is so low that median home prices have dropped 18% in the past year and 33% since 2008.'

This report assumes that a drop in median price means there is no demand. This is a flawed assumption. Here are a few observations:

 1) Demand is not down, it is up

If the authors of the report had cared to do thorough research they would have found that the number of closed residential sales in Tucson is up in 2011 vs 2010.

From January – July 2011 Tucson saw 7,615 closed residential sales. Up 12% from 2010 with 6,789 sales in the same time period. In addition, properties under contract in 2011 YTD was 9,704, up 19% from 2010 with 8,176.

Based on July MLS data, Tucson has roughly 5 months supply of inventory. This means it would take 5 months to sell the existing, listed inventory at the current pace of closed sales. 5-6 months of inventory is widely accepted as a "balanced" supply to demand ratio.

In a report released by Inman News recently, Tucson was ranked #4 in the country as "The Ten Best Markets For Real Estate Investors".

And remember, in the first half of 2010 we were under the influence of a federal home buyer tax credit stimulus. So even without a stimulus in 2011 sales are still up. Still sounds like Tucson is the sickest market in the country? Surely it does not. Many areas of the country are experiencing lower sales rates than in 2010, but not here in Tucson.

 2)  Median price is being driven by distressed sales

Distressed sales (REOs and Short Sales) made up 52% of all residential sales January – June 2011 based on Tucson MLS data. These types of sales typically have lower sales prices, which drag down the overall median price.

Read more about the impact distressed properties have on pricing.

3)  Foreclosure Rate is Slowing

The number of Notice of Trustee Sale filings in Pima County (where Tucson is located) are slowing, in fact they are at the lowest rates in the last 40 months as reported by the Arizona Daily Star. Read the article here.

 


Unemployment? Really?

Unemployment: 7.8%

I don't see how having an unemployment rate of 7.8% in Tucson makes us the sickest housing market in the country. Last time I checked Tucson unemployment was below the national average.

 Conclusions

Of course there are light headwinds in the Tucson housing market, however the issues are not that dissimilar than other markets. The reality is that right now there is a strong and increasing buyer demand for property, especially given increased affordability. Plus Tucson and Arizona continue to be a sought after destination.

I'd say we have more of a head cold and are drinking our soup, not terminally ill. In fact, we are already feeling better.

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15 Responses to Is Tucson Housing Sickest in The Land? Or Does Tucson Just Have a Head Cold?

  1. Dear Kevin,
    Your response to the 24/7 Wall St. article is excellent.  I feel totally confortable emailing it to my clients who have knowledge and have  inquired about the article.  You have made a really good counter argument, supported by significant  statistics, to discredit the false premises that they used.  I hope you sent them a copy of your response.
    It is so irritating because  I am concerned that the inaccuracy and irresponsibility of the 24/7 Wall St. article could result in real damage to our sellers; damage in the sense of financial loss.
    Now I wish that you could simplify the positive numbers and statistics that are contained in your response and submit them to our local news papers and media and suggest very strongly that they report it in the name of "balanced" reporting. More than anything I would love to see a retractions from 24/7 Wall Street.
     
    Sincerely,
    Karen DelGhiaccio

  2. Kevin,
    A couple of more thoughts regarding the vacancy rate, not only do we have a good number of part time residents in Tucson because they are exclusively winter visitors, we also have a significant number of deployed air force personal who are overseas, and UofA students who rent only when school is in session, whether their primary residency is here or elsewhere.
    Karen DelGhiaccio

  3. Marilyn Joyce says:

    Kevin,
    Thank you for this excellent commentary.  It is very helpful in refuting that misleading article !
    Marilyn

  4. Nancy Velasco says:

    Kevin,
    Thank you so much.  Your comments are well stated, well researched and well documented. 
    Our own Dale Quinn at the Star does a much better job than WSJ at reporting the facts.  At least his articles are backed by real data and honest research.  And he does so without the 'media hype' that we're all so weary of.  Perhaps he will collaborate with you on a rebuttal of sorts or at least a follow up article in the Star.  Shame on WSJ for attempting to cast a cloud upon Tucson in a manner so totally void of relevant data.
    In this fragile economy which is overshadowed by the media's constant need to "cry wolf", the last thing my Buyers and Sellers need is angst over their decisions.  If it were really as bad as WSJ said it was I would have openly communicated that as soon as the data supported such.  I have not reviewed any data over the past six months that even remotely alerted me to a situation as the one stated by WSJ. To the contrary, all data has looked cautiously optimistic.
    Thanks again for summing it all up in a tidy package that I can share with confidence.
    Nancy Velasco 

  5. Terry Breen says:

    Hi Kevin…this is excellent.  It is a very thorough breakdown with factual data to back up your rebuttal.  I have had a surprising number of in-Tucson and out-of-Tucson folks comment to me about the WSJ article.  This blog is a great response to those concerned.  I appreciate your effort to bring this to a brighter light.
    Terry
     

  6. Sarah Ley says:

    I liked your well-researched, well written rebuttal, Kevin. Just wanted to let your readers know to please not confuse The Wall Street Journal with the carelessly reported article on 'sickly housing markets' posted on "Wall Street 24/7" last week.  The article in question was written by a division of Yahoo Finance. In my opinion "Wall Street 24/7" is no more than a blog, or subscription based website geared at selling advertising. Therefore, it can't be trusted as a reliable media source. It's a shame that the "Arizona Daily Star" printed any kind of written response to this article, but it doesn't surprise me. Sensationalism sells newspapers. 
    The Wall Street Journal (a.k.a. WSJ) would never publish such a sloppy, poorly researched, and unfounded article. The real WSJ is a highly reputable news source, along the lines of the Associate Press or Reuters, and can be relied upon for accurate, factual reporting of a global nature. 

  7. Stuart L. Pinkert says:

    The truth of the matter is that in the past few years Tucson has been listed in several nationwide publications as among the top five (5) cities in the USA to live in …based on over all quality of life. 
    While there is no question that it, like it's northerly neighbor, Phoenix, has been hit heavily in the housing market downturn, there is also little question that it will in time recover nicely and home prices will stabilize and turn back upward over the next few years.
    When you have a city that affords so many terrific features as the Old Pueblo does to its residents…both those who reside here year 'round, as well as our winter visitors…this basic factor will see and eventual evaporation of the over hanging housing inventory and a resumption of higher prices for real estate.
    As a real estate investor, Tucson is high on our firm's list of markets that we want to look at f0r long term capital appreciation. 
    Stuart
      

  8. Ed Koperski says:

    Kevin,
    Great job stating the facts and not trying to gain readership !!!

  9. Jerome King says:

    Sarah Ley hit the nail on the head, just who is Yahoo Finance and what do they really know about the nation's housing market, little less Tucson?
    Our friends in the Phoenix market, one of the worst hit during this financial crisis and Great Recession, must be slapping their foreheads in disbelief.

  10. Tom Milo, CRS says:

    Thank you Kevin for making some real sense of all this play on Tucson's Market condition.I find your detailed explanation much more realistic. Its nice to know someone has the ability to show the facts!

  11. Russ Gladden says:

    Good job Kevin. It's a shame that you–or any of us–has to spend time cleaning up after the misguided and misleadling headline grabbers, but you did it oh-so-well!

  12. Thank you Sarah for the clarification… I have always found the Wall Street Journal to be a paper of great integrity – can't say the same for  Yahoo Finance…

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  14. Tina Baba says:

     
     
    Hi Kevin,
    I wanted to say thank you for taking the time to make a response and an explanation to the article’s claims. The answers that you have provided are very helpful.
    Kind regards,
    Tina Baba

  15. lexi says:

    Very well researched and written.
     
    http://www.lexiclark.com

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