Clay emails:

What I do not understand is how we get around the inventory and sales. Supply and demand are as real as gravity itself John; as you are an economist you know this. This all but guarantees that prices will go down. This would completely contradict a rosy forecasts for the Phoenix market. This is one of the places I am stuck. We have entered summer and sales are only going to slow from here on out. Spring was our best chance to turn this thing around and it did not happen.

I’m stunned as well. How can the median home price increase as it has recently when inventory is skyrocketing! See my June 16 post. Obviously, we don’t understand something that is going on here.

We may indeed see prices decline seasonally between here and December. The economy, I believe, is much too strong right now to make large declines in the median home price likely.

Of course some day we will have another economic slowdown or full blown recession. If it hit tomorrow, a lot of people would lose their jobs and it would be a perfect storm for sinking home prices.

The economy, however, is strong right now which gives the market time to adjust before the next economic slowdown or recession. In particular, the inventory of homes for sale needs to come down.

The inventory, of course, may not adjust before the next downturn. That inventory line is amazingly steep with no signs of leveling off yet.

It looks like the market, however, will have many months available to digest the current huge overhang of supply of homes for sale before the next economic slowdown comes in and hits the demand side of the equation.

In particular, if new home builders get their inventory under control within a year or two, the market can dodge a bullet.

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