The Sedona Verde Valley real estate market, which can usually rely on robust spring sales, failed to perform in the first quarter.  The first quarter of 2008 saw lackluster sales throughout the entire Verde Valley.  Even though a visible up tick in buyer traffic has been noted and commented on by agents throughout the area, only 203 properties closed escrow during the first quarter.  The last quarter of 2007 saw 234 closed sales, which represents an overall 15% drop in activity, quarter to quarter.  But it is always darkest just before dawn.

    As of April 9, there are 3093 available listings in Sedona and the Verde Valley and 169 properties under contract.  We can safely assume that roughly 80% (135) of these contracts will successfully close in this quarter, and certainly more properties will go to contract and close during this quarter. After all, we have 81 more days!  We have also seen inventory drop approx 5 % over the past few months and the first 18 days of the second quarter of 2008 already saw 43 recorded sales.  
    I am going to go out on a big limb here and say that the first quarter of 2008 just may register as the bottom of the market in the Verde Valley in terms of sales activity, provided there are no more major disruptions to the national economy.  
    Pricing is another story.  While prices have already adjusted 20-30% in some areas of the Verde Valley, foreclosures in the area continue to present stiff competition for anyone trying to sell area real estate.  Couple this with a huge tightening of lending standards, continued foreclosure inventory and lackluster economies in real estate markets where our buyers are relocating from, we have a recipe for a continuing buyers market for several more months.  
    Here is what the last few years look like by quarterly recorded sales data in the Sedona Verde Valley Multiple Listing Service:

1st quarter  2005            727 closed sales
2nd quarter 2005            966 closed sales
3rd quarter  2005            786 closed sales
4th quarter  2005            591 closed sales
1st quarter  2006            567 closed sales
2nd quarter 2006            570 closed sales
3rd quarter  2006            561 closed sales
4th quarter  2006            358 closed sales
1st quarter  2007            314 closed sales
2nd quarter 2007            406 closed sales
3rd quarter  2007            304 closed sales
4th quarter  2007            234 closed sales
1st quarter  2008            203 closed sales

    The second quarter of 2007 is when investors of mortgage securities began to become aware of the existence of "risk" in their mortgage portfolios, and subsequently lead to what the press has termed the mortgage meltdown....and it has had an enormous effect on the number of sales in our local market, and will continue to provide us with a lackluster market unless the Federal governments 400 billion dollar bailout unclogs the credit system and money starts to flow freely once again.
    What exactly happened in the "mortgage meltdown?"  It's pretty simple.  Money was flowing freely in the economy and it was very inexpensive for banks to obtain it to loan it to you and I.  Banks made loans like crazy and kept relaxing their lending standards.  The banks then packaged up hundreds of these loans together into mortgage securities and the like, and sold them to portfolio investors all over the world.  The unprecedented amount of mortgage money pumped into the economy, and the extreme ease of obtaining it, lead to a national frenzy of real estate sales, which drove prices up artificially in many locations.  When the pricing in a given market reached a point that the market could no longer bear, a cooling became inevitable in super hot markets, and the disturbance was just like a cold front plundering through Kansas on a hot summer day.....dark storm clouds slowly gathered and then sent tornadoes rippling through the financial markets of the entire world. 
    What is THE pricing point that lead to the contraction in home values?  It is generally a combination of factors depending on the market.  In some markets the average price of the average home simply exceeded what the average person could buy.  In other words, average incomes in the area no longer supported the purchase of the average house.  In other markets, the pricing point may have been a matter of average purchase price vs. average rents.  If the rent will no longer cover the house payment, smart investors look to locations where rents can and will cover the payments.  Suddenly, fewer sales will occur and prices will be lowered a little bit to entice buyers.  Homes that cannot be rented for the amount of the mortgage payment and are taking longer to sell begin to put pressure on builders and investors and those who just need to move.  Prices go down a little more.  Breaking point is reached and foreclosures begin to occur.  Banks, seeing the foreclosures, begin to tighten lending standards, again reducing the pool of available buyers.
    Investors, who bought the loans that are now foreclosing, become scared, and no longer want to buy the loans the banks are selling.  Banks, no longer able to sell the bulk of their loans, can't get new funds to loan to you and I, and they tighten their standards even further, or, close their doors.  When REALLY big banks, such as Bear Stearns begin to fall, the Federal government comes to the rescue....
    Storms only last so long.  Soon people begin to realize that the BEST conditions for buying real estate in well over 35 years exist right now.  The media follows the philosophy of ,"If it bleeds, it reads."  Here are a few facts nightly news reports typically neglect to mention.

2008 is the best year to buy a home in 35 years. 1973 was the last time mortgage rates were this low in a buyer’s market. We had rates this low in 2001 and 2002, but those were strong seller’s markets with little inventory. The last two big buyer’s markets, in the early ‘80s and early ‘90s had much higher rates. Low rates and good inventory make 2008 the best year to buy in decades! six million Americans are expected to buy a home this year. Six million people in the game make up a pretty big game. That’s a level of sales equal to the one we experienced in 1998—which was by all accounts, a pretty good year. There is still over $23 trillion of value in US housing stock. Home ownership continues to be the basis of our wealth in this country. The housing market cannot help but grow. Our country’s tremendous wealth, liquidity, entrepreneurship and population growth will continue to drive our economy. 70-100 million people will be added to our market in the next 40 years and approx one million new "households" are formed each year. Real estate is cyclical. The biggest fear in good times is that the fair weather won’t last forever—because it doesn't’t. But the reality of a cyclical real estate market also provides its brightest hope in bad times—foul weather won’t last forever either. What’s happening today is a market correction, severe in some places, but it’s not the end of the world. People are still buying and selling homes. The markets will stabilize. First-time buyers have a real advantage in today’s market. First-time buyers can buy at a reduced price without having to sell at a reduced price. Higher limits on lower cost conforming loans also help first-time buyers purchase more home for their money. Today’s ‘starter’ homes can be pretty impressive. First-time buyers lose money while they wait on the sidelines. First, renters typically pay more state and federal income taxes than homeowners with a mortgage deduction. Renters are also losing the wealth they could be accumulating as they pay down their mortgage and as their home increases in value over time (as it surely will). Lastly, renters who wait to buy will lose money if interest rates increase by the time they finally act. Higher payments from higher interest rates represent money buyers could have kept if they had bought earlier. Conversely, if they were willing to spend that amount of money earlier, they could have bought more home.

    So what the heck are you waiting for?  You cannot ask for better conditions to buy Sedona real estate or Verde Valley real estate, and we are already on track to have significantly higher sales than the last two quarters.  While this does not mean that prices will begin to skyrocket by any means, it does mean they will likely stabilize in the very near future, if they haven't already.

    So if your are in the market to purchase or sell Sedona real estate, Cottonwood real estate, Camp Verde Real Estate or a home or land in any other Verde Valley community, I invite you to call on our expertise to help you find and negotiate the best deal possible.  My husband and I have over 15 years combined experience buying, selling and investing in Verde Valley real estate and we welcome the opportunity to help you weather the storm successfully!


Sunset over the Kona Coast, Hawaii