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:
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.
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.
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.
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.
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.