2005 the Real Estate Market Review in Historical Perspective – What’s Ahead?

by Roy E. Grimm, PhD

The dust has finally settled. The figures on the remarkable whirlwind of the 2005 Sedona area real estate market are startling. They show new records, eclipsing even 2004′s remarkable activity. The median price of single family homes surged 26% in 2005 compared with 24% in 2004. Land, however, was the most dramatic story. 2004′s record 24% increase was vastly overshadowed by 2005′s 67% vault. Only the condominium market’s very strong 16% appreciation lagged its amazing 32% jump in 2004.

The annual selling price figures, though, do not give the full picture. The first and second halves of 2005 show remarkably different results. By mid-year the gale winds had calmed to the level of a mere zephyr. Single family home and land prices surged frenetically in the first six months of 2005 and quieted in the second six months. True to their contrarian nature of late, however, condo prices were relatively flat (up 5%) early in the year and stronger (up 16%) in the second half.

Single family home prices had shot up over 21% to $510,000 by mid-year. For July through December, though, the median selling price was $547,000 – a mere 7% increase. $530,000 is the median for the entire year of sales. $547,000 is actually a more accurate snapshot of the market toward the end of the year.

Land followed a similar, albeit more exaggerated, pattern. By mid-year, the data had shown a price run-up of nearly 60% to $359,000. July through December saw a 19% increase in the median selling price to $425,000 for the second half of the year. Again, that is $50,000 more than the median for the entire year ($375,000). A comparative market analysis, usually look at “solds’ for the past six months. It’s safe to say that using that sort of time frame gives us a more timely picture of the market.

An even shorter time frame – from January 1st through February of this year shows even more remarkable figures. Median homes prices shot up to $600,000 and vacant land is at $507,500. 2006 will probably see the homes price, particularly, settle lower as more units are sold over the course of the spring, but right now the price point is 34% higher than it was a year ago.

To make sense of all this and establish a basis for making projections, though, it is necessary look at other figures in addition to price and place the current market  in historical perspective.

For 2005, the number of home sales was slightly (578) off the record set in 2004 (598). Back in 1996 only 268 homes were sold. By 2000, though, the market had begun cracking the 500 mark. If the current pace of sales follows the annual pattern set in recent years, the total for the year projects a drop to the mid-300′s. Not good news for prospective home sellers and listing agents used to seeing nearly twice as many homes sell annually.

The slow down in sales can, in large part, be attributed to price resistance among buyers. In 1996 the median selling price of homes was only $209,000.  At least, buyers are getting more house for their money.  The median size of a Sedona home sold in 1996 was 1836 square feet. By 2005 that had grown by 300 square feet to 2136.  The median cost per square foot had gone from $114 in 1996 to $248,000 in 2005.

So what’s ahead for 2006?

We’ve often pointed out that the Sedona market has its own peculiar fundamentals, but we’re not immune from national and regional trends. Many would-be sellers here appear to have a tenuous grasp of the current realities of the marketplace and seem to be under impression that they can continue to demand top dollar for their properties. They simply cannot, if they expect to sell. We’ve seen a severe drop in the number of buyers coming to Sedona. Paradoxically, median selling prices continue to rise because those fewer buyers are the ones able to afford homes at the high end of the spectrum. Even those homes, however, are selling for much deeper discounts from list prices than in recent memory. Chalk that up to their being over-priced in the first place.

What do the statistics tell us? For the first two months of 2006, only 47 homes have sold compared with recent annual average of 73. That’s off 36%. And, the number of homes for sale here is up 55% over last spring and rising. The median “sold’ price is still up 34% over last year’s at this time; $600,000 vs. $447,000 but, again, that’s a function of the buyers focusing on the high side of the market – not a true indication of the general drift of sales. Furthermore that figure has continued to drop dramatically from what we saw earlier in the year. The one positive sign for sellers is that the number of homes presently under contract (88) is strong. That is evidence that we’re beginning to see a rebound as we get into spring.

The picture is a bit grimmer (pardon the expression) for sellers when it comes to vacant land. Although the median selling price is drifting up – currently $507,500 – so, too, are active listings and Days On Market. Of most concern for sellers is the number of sales: 20 by the end of February compared with an average of 52 in recent years. That’s 38% of “normal.’

All in all, the right now, that all spells strong opening for buyers and the need for realistic expectations for sellers in the months ahead in both the land and homes market.  The window of opportunity may not last long. After its historically weak start of the year, we are seeing a surge in homes and land under-contract.  My take on that is that we’re experiencing the beginnings of a strong rebound in sales.  It’s not likely reach the frenetic pace of last spring, but it is a sign that the Sedona market will remain true to its inevitable long-term run-up in prices as it proceeds to establishing itself as pure luxury real estate environment.

In our next newsletter, we´ll be taking a detailed look at the current state of the luxury homes and land markets. Stay tuned.

2005 At Year´s End

GREATER SEDONA MARKET UPDATE: Median prices:

Single Family Homes:
SOLD: $530,000 up 26% from $420,000 since Jan 1, 2005, (578 sales vs. 598 in 2004), DOM: 66.
ACTIVE: 244 (vs.175 in May); Median List Price: $750,000; DOM: 102 [up from 77 at the end of the 3rd Quarter].

Condo/Townhomes:
SOLD: Median: $323,000 up 17% from $277,000 since Jan 1 (108 sales vs. 128 in 2004), DOM: 30.
ACTIVE: 23; Median List Price: $359,000; DOM: 63.

Vacant Residential Land:
SOLD: Median: $375,000 up 67% from $225,000 since Jan 1; (332 sales vs. 428 in 2004), DOM: 82.
ACTIVE: 190 (vs.106 in May); Median List Price: $499,450; DOM: 92 [up from 70 at the end of the 3rd Quarter].

As of 28 Feb 2006

GREATER SEDONA MARKET UPDATE: Current Median prices:

Single Family Homes:
SOLD: 47 (since 1 Jan 2006); Median: $600,000; DOM: 64
ACTIVE: 269 (vs.175 in May 2005); Median List Price: $729,000; DOM: 90 (vs. 77 in Oct., 2005).
Pending/Under Contract: 88

Condo/Townhomes:
SOLD: 15; Median: $333,200; DOM: 71.
ACTIVE: 33; Median List Price: $360,000; DOM: 51.

Vacant Residential Land:
SOLD: 20; Median: $507,500; DOM: 119.
ACTIVE: 229 (vs.106 in May, 2005); Median List Price: $499,900; DOM: 103 (vs. 70 in Oct., 2005)
Pending/Under Contract: 35