Predictions for the economy and housing markets in 2007
What can we expect in 2007? This question was the main topic on the agenda at the University of Arizona's annual economic forecast, presented by the Economic and Business Research Center. Marshall Vest, director of the Research Center and Gerald Swanson, a professor at the University of Arizona presented their findings on the direction of our economy and housing market.
According to Marshall Vest, the Arizona economy is actually showing better performance than was anticipated this time last year. The population in Arizona continues to grow, while the Tucson area passed one million residents in late 2006. Vest predicts that our population will continue to grow by 25,000 residents per year. The job market also look strong. According to the forecast, non farm job growth will slow in 2007 only posting a 2.4% gain, rather than the average 3.3% increase seen over the last 10 years. So, job growth won't be declining, just growing more slowly.
So, what about housing? Vest admits that housing markets in Arizona are returning to "normal" after a substantial expansion period. We've seen a decrease in the number of homes sold and a sharp increasing inventory levels here in Tucson. According to Vest, there are three main stages of a housing correction that we will experience here in Southern Arizona.
The first stage is denial, where sellers refuse to lower their prices and have unrealistic expectations based on the prices and number of homes sold last year. Buyers refuse to pay these prices, and believing prices will fall, wait on the sidelines. This causes inventory levels to rise, as we have seen over the past year.
The second state is acceptance. Sellers begin lowering prices or decide to take their home off the market. Home builders try to reduce their inventory through incentives, which puts pressure on resale prices. According to Vest, this phase typically sees price declines in the new and resale markets.
The final state is consolidation. Prices are more reasonable and buyers come off the sidelines and start making offers. This causes inventory levels to fall and the market returns to a normal level. Vest predicts that housing markets in Arizona are halfway through this process, so we are still in the acceptance stage.
Low interest rates, continued population growth and strong employment will help the market. Contrary to the gloomy reports that predict an upcoming recession, Vest does not think that normalcy in the housing market will crash the economy. The majority of households in America, and here in Southern Arizona, are unaffected by fluctuations in the housing market, since they don't have plans to move. The population in Southern Arizona continues to grow, and will continue to bring new buyers into the market who are looking for housing as shelter, not an investment.
1. DENIAL-Sellers refuse to lower prices.
Buyers refuse to pay these prices, and wait on the sidelines.
2. Acceptance-Sellers begin lowering prices.
Home builders aim to reduce inventory, pressuring resale prices.
3. Consolidation- Prices are more reasonable.
Buyers come off the sidelines.
Inventory falls
Article from Tucson Realtor Magazine winter 2006
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