Arizona Real Estate and Community News

June 6, 2022

Market Update

Market Summary June 2022

Here are the basics - the ARMLS numbers for June 1, 2022 compared with June 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 9,439 versus 4,917 last year - up 92.0% - and up 41.1% from 6,688 last month 
  • Active Listings (including UCB & CCBS): 12,801 versus 9,361 last year - up 36.7% - and up 25.6% compared with 10,191 last month
  • Pending Listings: 6,887 versus 7,873 last year - down 12.5% - and down 6.8% from 7,386 last month 
  • Under Contract Listings (including Pending, CCBS & UCB): 10,249 versus 12,317 last year - down 16.7% - and down 5.9% from 10,880 last month 
  • Monthly Sales: 8,729 versus 9,663 last year - down 9.7% - and down 6.1% from 9,295 last month
  • Monthly Average Sales Price per Sq. Ft.: $303.55 versus $248.81 last year - up 22.0% - and up 0.4% from $302.43 last month 
  • Monthly Median Sales Price: $475,000 versus $390,000 last year - up 21.8% - and up 1.9% from $466,000 last month

Supply has risen dramatically over the last month. Excluding UCB and CCBS listings, we see active listings up 42% in a single month and up 92% compared to this time last year.

Almost everyone expected demand to fall because of the sharp increase in mortgage interest rates, and demand has behaved as expected - sales are down almost 10% compared with May 2021 and listings under contract are down almost 17% compared with June 1, 2021. Demand numbers tend to be less volatile than supply numbers. Lower demand means active listings stay active longer and if the arrival of new listings remains constant, supply starts to build up. This has happened as expected, but what was not generally anticipated was a significant increase in the rate of arrival of new listings. 

As of June 1, the rate of arrival of new listings is up more than 14% compared to the same time last year. It is also up 40% compared with June 1, 2020, but that is an unfair comparison because the housing market was being disrupted by the COVID-19 pandemic. If we compare with 2019 then new listings are arriving 13% faster. I think it is fair to say we are getting significantly more new listings each week than we are used to. Because demand is falling, these extra new listings accelerate the supply growth. The number of active listings without a contract exceeded 10,000 today (June 3) for the first in 2 years. At 10,000, the number of active listings is well below normal right now, but if it keeps increasing at the current monthly rate, we would be looking at more than 26,000 active listings without a contract within 3 months. This means that by the beginning of September we would not be a seller's market, unless we also saw a recovery in demand.

The big unknown is whether this increase in new listings is a short-term blip or the start of a much more important trend. The increase is only 5 weeks old, but at the moment it is getting stronger each week.

The increase in supply is not confined to homes for sale. There are 2,316 active rental listings, up from 1,382 this time last year, an increase of 68%. In addition, coming soon listings are up 20% compared to June 1, 2021.

Closing prices continue to move higher, but at a slower rate than last month. List prices for active listings have started to weaken, as sellers start to realize they need to moderate their ambitions. Some may not realize this and their homes will probably stay on the market for a long time before reality bites and they realize a price cut is in order. We expect to see a large increase in the number of price cuts for active listings over the coming months.

During May, the buy-to-rent operators remained very active. Institutional buyers purchased 770 homes in Maricopa County alone, representing almost 9% of sales and nearly 15% of sales below the median sales price of $475,000. If these institutions were to suppress their appetite, demand would fall further and supply increase faster. At the moment it is not clear whether the rising supply will cause them to increase their acquisitions or tamp them down. The danger we see from institutional players is that their decisions can have a more sudden effect on numbers than those of ordinary home buyers.

 

It is very rare for the Greater Phoenix housing market to change as fast as it has done over the past month. In fact, this represents the most dynamic period we have ever recorded since 2000. This rate of change only adds to the uncertainty of where we are headed. It suggests that extreme caution is in order.

MLS Supply Up 113% Over Last Year
Median Days Prior to Contract Rising

For Buyers:
Market conditions continue to get better for buyers undeterred by rising mortgage rates.  Over the last 10 weeks, there has been a surge of new listings in every price point over $400K, pushing the supply level up 113% over this time last year. The surge in new listings is not happening under $400K, however rising interest rates have caused demand in this price range to decline. As a result, supply is rising on the low-end due to buyers pulling back, not excessive new listings. 

In a nutshell, when sellers have to compete, buyers win. What they win at this stage is their sanity and some normalcy in the home buying process. By normalcy, typical contract requirements such as appraisal and inspection contingencies remain in place. There may be multiple properties available that fit a buyer’s needs, instead of only one with multiple offers already submitted. The median number of days prior to contract is now 11, up 4 days from last month, which provides more breathing room for scheduling showings.

For some buyers, this moment is bittersweet because it comes with higher mortgage rates. However, interest rates typically do not stay high, or low, forever. The Mortgage Bankers Association expects mortgage rates to decline to 4.4% by 2024. How does that play out for someone who buys a home today? Let’s look.

Current rates at 5.2% place the estimated principal and interest payment for a $425,000 loan at approximately $2,335 per month. Fast forward to the future, the remaining mortgage balance after just 2 years of payments would be $413,000. Hypothetically, if interest rates are 4.4% by this point, a refinance of the remaining balance would lower the payment to $2,068, saving $267 per month.

If a potential home buyer instead decides to wait 2 years for the interest rates to decline to 4.4% before purchasing, assuming home prices stay exactly the same, their PI payment on a $425,000 loan would be $2,128, only saving $207.  

The problem with waiting for the perfect time to purchase a home is that most people don’t realize the timing is perfect at the time it’s actually perfect. For this reason, planning to hold property long term is the best way to mitigate short term risk and take advantage of refinance opportunities as they come, continually building equity regardless of what the market is doing. 

For Sellers: 
As competing supply continues to rise sharply, certain sales measures are expected to start changing rapidly.  One of the most dramatic measures is the percentage of closings over list price and the median dollar amount over asking price. April 2022 saw 58% of sales close over asking price with a median of $20,000 over. So far, closings in June show 51% closing over asking price with a median of $15,000 over. Even in weaker seller markets, excellent properties well priced receive multiple offers and sell over asking price. The difference is that they typically only make up about 15% of sales with a median of $3,000 over. So the market isn’t back to normal yet, but it’s rapidly moving in that direction.
Price reductions are now up 258% in 10 weeks, but just over the past 5 weeks the days on market prior to contract has started to rise as well. Over the next 4 weeks, expect the number of closings over asking price to drop sharply along with the dollar amount and expect to be reintroduced to buyer contingencies, price negotiations, paying for home warranties and eventually closing cost assistance. These aspects will return to the marketplace before sale prices ultimately respond. This isn’t a buyer market, but for some it feels like it is compared to just 2-3 months ago.


Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

Information provided courtesy The Cromford Report.

 

 

Posted in Market Updates
June 6, 2022

June 2022 Market Update

Market Summary June 2022

Here are the basics - the ARMLS numbers for June 1, 2022 compared with June 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 9,439 versus 4,917 last year - up 92.0% - and up 41.1% from 6,688 last month 
  • Active Listings (including UCB & CCBS): 12,801 versus 9,361 last year - up 36.7% - and up 25.6% compared with 10,191 last month
  • Pending Listings: 6,887 versus 7,873 last year - down 12.5% - and down 6.8% from 7,386 last month 
  • Under Contract Listings (including Pending, CCBS & UCB): 10,249 versus 12,317 last year - down 16.7% - and down 5.9% from 10,880 last month 
  • Monthly Sales: 8,729 versus 9,663 last year - down 9.7% - and down 6.1% from 9,295 last month
  • Monthly Average Sales Price per Sq. Ft.: $303.55 versus $248.81 last year - up 22.0% - and up 0.4% from $302.43 last month 
  • Monthly Median Sales Price: $475,000 versus $390,000 last year - up 21.8% - and up 1.9% from $466,000 last month

Supply has risen dramatically over the last month. Excluding UCB and CCBS listings, we see active listings up 42% in a single month and up 92% compared to this time last year.

Almost everyone expected demand to fall because of the sharp increase in mortgage interest rates, and demand has behaved as expected - sales are down almost 10% compared with May 2021 and listings under contract are down almost 17% compared with June 1, 2021. Demand numbers tend to be less volatile than supply numbers. Lower demand means active listings stay active longer and if the arrival of new listings remains constant, supply starts to build up. This has happened as expected, but what was not generally anticipated was a significant increase in the rate of arrival of new listings. 

As of June 1, the rate of arrival of new listings is up more than 14% compared to the same time last year. It is also up 40% compared with June 1, 2020, but that is an unfair comparison because the housing market was being disrupted by the COVID-19 pandemic. If we compare with 2019 then new listings are arriving 13% faster. I think it is fair to say we are getting significantly more new listings each week than we are used to. Because demand is falling, these extra new listings accelerate the supply growth. The number of active listings without a contract exceeded 10,000 today (June 3) for the first in 2 years. At 10,000, the number of active listings is well below normal right now, but if it keeps increasing at the current monthly rate, we would be looking at more than 26,000 active listings without a contract within 3 months. This means that by the beginning of September we would not be a seller's market, unless we also saw a recovery in demand.

The big unknown is whether this increase in new listings is a short-term blip or the start of a much more important trend. The increase is only 5 weeks old, but at the moment it is getting stronger each week.

The increase in supply is not confined to homes for sale. There are 2,316 active rental listings, up from 1,382 this time last year, an increase of 68%. In addition, coming soon listings are up 20% compared to June 1, 2021.

Closing prices continue to move higher, but at a slower rate than last month. List prices for active listings have started to weaken, as sellers start to realize they need to moderate their ambitions. Some may not realize this and their homes will probably stay on the market for a long time before reality bites and they realize a price cut is in order. We expect to see a large increase in the number of price cuts for active listings over the coming months.

During May, the buy-to-rent operators remained very active. Institutional buyers purchased 770 homes in Maricopa County alone, representing almost 9% of sales and nearly 15% of sales below the median sales price of $475,000. If these institutions were to suppress their appetite, demand would fall further and supply increase faster. At the moment it is not clear whether the rising supply will cause them to increase their acquisitions or tamp them down. The danger we see from institutional players is that their decisions can have a more sudden effect on numbers than those of ordinary home buyers.

It is very rare for the Greater Phoenix housing market to change as fast as it has done over the past month. In fact, this represents the most dynamic period we have ever recorded since 2000. This rate of change only adds to the uncertainty of where we are headed. It suggests that extreme caution is in order.

 

MLS Supply Up 113% Over Last Year
Median Days Prior to Contract Rising

For Buyers:
Market conditions continue to get better for buyers undeterred by rising mortgage rates.  Over the last 10 weeks, there has been a surge of new listings in every price point over $400K, pushing the supply level up 113% over this time last year. The surge in new listings is not happening under $400K, however rising interest rates have caused demand in this price range to decline. As a result, supply is rising on the low-end due to buyers pulling back, not excessive new listings. 

In a nutshell, when sellers have to compete, buyers win. What they win at this stage is their sanity and some normalcy in the home buying process. By normalcy, typical contract requirements such as appraisal and inspection contingencies remain in place. There may be multiple properties available that fit a buyer’s needs, instead of only one with multiple offers already submitted. The median number of days prior to contract is now 11, up 4 days from last month, which provides more breathing room for scheduling showings.

For some buyers, this moment is bittersweet because it comes with higher mortgage rates. However, interest rates typically do not stay high, or low, forever. The Mortgage Bankers Association expects mortgage rates to decline to 4.4% by 2024. How does that play out for someone who buys a home today? Let’s look.

Current rates at 5.2% place the estimated principal and interest payment for a $425,000 loan at approximately $2,335 per month. Fast forward to the future, the remaining mortgage balance after just 2 years of payments would be $413,000. Hypothetically, if interest rates are 4.4% by this point, a refinance of the remaining balance would lower the payment to $2,068, saving $267 per month.

If a potential home buyer instead decides to wait 2 years for the interest rates to decline to 4.4% before purchasing, assuming home prices stay exactly the same, their PI payment on a $425,000 loan would be $2,128, only saving $207.  

The problem with waiting for the perfect time to purchase a home is that most people don’t realize the timing is perfect at the time it’s actually perfect. For this reason, planning to hold property long term is the best way to mitigate short term risk and take advantage of refinance opportunities as they come, continually building equity regardless of what the market is doing. 

For Sellers: 
As competing supply continues to rise sharply, certain sales measures are expected to start changing rapidly.  One of the most dramatic measures is the percentage of closings over list price and the median dollar amount over asking price. April 2022 saw 58% of sales close over asking price with a median of $20,000 over. So far, closings in June show 51% closing over asking price with a median of $15,000 over. Even in weaker seller markets, excellent properties well priced receive multiple offers and sell over asking price. The difference is that they typically only make up about 15% of sales with a median of $3,000 over. So the market isn’t back to normal yet, but it’s rapidly moving in that direction.
Price reductions are now up 258% in 10 weeks, but just over the past 5 weeks the days on market prior to contract has started to rise as well. Over the next 4 weeks, expect the number of closings over asking price to drop sharply along with the dollar amount and expect to be reintroduced to buyer contingencies, price negotiations, paying for home warranties and eventually closing cost assistance. These aspects will return to the marketplace before sale prices ultimately respond. This isn’t a buyer market, but for some it feels like it is compared to just 2-3 months ago.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

Information provided courtesy The Cromford Report.

 

Posted in Market Updates
May 28, 2022

May Daily Commentary

The below information is the Daily Commentary provided by The Cromford Report.

 

May 26 - Here is our latest table of Cromford® Market Index values for the single-family markets in the 17 largest cities

The decline in CMI values is still accelerating with an average monthly change of -28% compared with -24% last week. The pace at which the market is cooling off is both astonishing and widespread. Least affected are the active adult areas such as Sun City, Sun City West and Sun Lakes, none of which are big enough to appear in the above table.

The largest declines over the past month have been seen in Avondale, Gilbert, Queen Creek, Cave Creek and Chandler. The smallest declines can be found in Paradise Valley and Fountain Hills but even here the fall is a massive -21%.

Only 7 cities are still over 300. There were 15 a month ago.

Buckeye is interesting in that demand has actually improved over the past month. However supply continues to build quickly and overwhelms that effect.

In absolute terms 166 to 400 are all seller's market CMI numbers, so we are not yet close to the point where buyer's have an advantage. However buyers' disadvantage in negotiations has dropped dramatically. This is because there is much less competition from other buyers. Many of these have dropped out due to the eye-popping increase in mortgage rates. There are also many more homes to choose from compared with a couple of months ago.

Cash buyers remain active, but these are a much smaller part of the total demand and cannot compensate for the loss of financed buyers.

 

 

May 23 - Every leading indicator is pointing to a sharp slowdown in the Greater Phoenix housing market. Supply has increased very quickly over the last 2 months while demand is much weaker than it was in March.

Prices are much slower to react to a change in the market, especially closed sale prices. However prices for homes under contract react 1 to 2 months earlier than closed prices. Even sooner than that we would expect to see weakness in asking prices. This is now starting to appear as sellers gradually lose confidence. Some sellers will be in denial for many months yet, and will risk over-pricing their home in current market conditions. Others will be more reactive and make sure their asking pricing is competitive.

Here is a chart showing daily average price per square foot for 4 measures:

  1. List prices for active listings as of May 23
  2. List prices for listings under contract as of May 23
  3. List prices for closed listings during the last month (Apr 23 - May 22)
  4. Sale prices for closed listings during the last month (Apr 23 - May 22)

We can see that the average $/SF for active listings (the blue line) has not managed to break through $365 and is now showing signs of retreating below $360. The maximum was $364.81 achieved on April 27. This is probably going to be the top.

The green line is for listings under contract and has not yet shown any weakness. However, it is not showing much willingness to move above the current level of $313 to $314. This is probably close to the top, though we are by no means certain of this.

The closed prices are still blissfully unaware of the change in market conditions. The sale price per sq. ft. remains higher (at around $305) than the list price (around $300). However if the green line starts to drift lower we would expect the red and brown lines to do the same. Eventually the red line will drop below the brown line in a signal that market has returned to normal.

The remarkable speed of the change in the market is reflected in the fact that the Cromford® Market Index has dropped over 100 points in the last month.

May 21 - The Greater Phoenix market continues to provide plenty of reasons to be worried. Another domino is wobbling and looks like it might be getting ready to fall - the listing success rate. Below is the weekly chart for all areas & types.

At the moment we are just under 90%, a very strong number. However, if we look at the last 5 weeks, a clear weakening trend has started. A similar trend developed in 2005 between June and July. By the end of 2005 we were down to just 63% - meaning that 1 in 3 homes listed failed to sell. We cannot say this will happen in 2022. But if it were going to happen, the first signs of the success rate problem would look like just the chart above.

A similar downward trend started during the summer last year, but frenetic buying by investors, particularly large investors, pulled the nose of the airplane back up and we ended 2021 with a strong success rate of just over 90%. This does not look as likely in 2022. It would be advisable to watch this chart like a hawk. 2005 was a year full of red flags waving. 2006 was a full scale bubble burst. People now talk of the 2008 crash, but that was only when Wall Street woke up and entered a full-on panic. The real estate market was in dire straits as early as the middle of 2006 and 2007 was truly dreadful.

The problem that we faced in 2006 was compounded by all the foreclosures that piled up in 2007. This was largely because so many homeowners had little or no equity in 2006 so by 2007 they had negative equity and no reason to avoid foreclosure. At the moment, we have a more positive situation with a much higher percentage of homeowners having significant equity. They should be motivated to protect rather than abandon that equity. That gives us a reason to be less worried, but extreme vigilance is the order of the day. Those who refinanced and took a little too much cash out over the last 2 years are more exposed than most.

May 19 - Here is our latest table of Cromford® Market Index values for the single-family markets in the 17 largest cities

(Added by Troy to help you understand this chart) Cromford Market Index Definition: is a value that provides a short term forecast for the demand for resale homes in the market. It is derived from the trends in pending and sold listings compared with historical data over the previous four years. Values above 100 indicate more demand than usual, while values below 100 indicate less demand than usual. A value of 100 indicates the demand is close to normal.)

Our primary leading indicator, the Cromford® Market Index, is telling that us that the cooling trend is getting even more powerful. Every city has seen its CMI decline by at least 15% and the average for these 17 cities is a fall of 24%, compared with an average of 20.5% last week. At some point we would expect the nose-dive to decelerate and reach an equilibrium, but we seem to be a long way from that point at the moment. The first signal we are waiting for is for the average monthly change (-24%) to be lower than the prior week.

Worst affected are Queen Creek (-36%), Gilbert (-34%), Avondale (-30%) and Cave Creek (-30%).

It remains easy to sell a home at the moment but if this cooling trend stays in place, selling will start to get much more difficult by August.

We note that only one city (Fountain Hills) is still over 400. One month ago there were only 6 cities below 400. What a difference one month can make.

 

May 17 - Supply continues to increase at a fast rate across most market segments. The effect is most noticeable in the price ranges from $500,000 to $2,000,000.

For Greater Phoenix, single-family detached non-distressed listings without a contract:

    • Active listings priced between $500K and $600K have risen from 477 to 1,049 in the last 2 months (120%)
    • Active listings priced between $600K and $800K have risen from 546 to 1,111 in the last 2 months (103%)
    • Active listings priced between $800K and $1M have risen from 259 to 519 in the last 2 months (100%)
    • Active listings priced between $1M and $1.5M have risen from 209 to 468 in the last 2 months (124%)
    • Active listings priced between $1.5M and $2M have risen from 91 to 194 in the last 2 months (113%)

The rise in supply is quite modest for homes priced over $3 million or under $500,000. It is also hardly showing up in mobile and manufactured homes. It is quite obvious in the condo / townhouse sector.

 

May 15 - For years buyers have been crying out for more supply. Their wish is finally coming true. In the last 7 days we saw more than 3,000 listings added to the ARMLS residential database for the first time since 2010.

With demand dropping below normal, this torrent of new listings is growing our active inventory at the fastest rate since 2005. If you can afford the new interest rates (or are buying with cash), there are suddenly a lot more homes to choose from.

Look out for a list price cuts as sellers start to realize they have to be more realistic if they wish to compete. Asking for concessions is no longer a joke.

Sales price weakness is still a few months away, but asking prices are starting to look a little wobbly.

 

May 14 - It is time to look at another of the dominoes that have fallen over - the contract ratio. The contract ratio compares the number of listings under contract with the number of active listings without a contract. It is a classic case of comparing demand with supply. This ratio has plummeted over the past 4 weeks because demand has weakened while supply has increased sharply.

This tells us that the previously crazy hot market has turned into just a hot market. But it also tells us that if the cooling trend continues at a similar rate, we could be in a warm market within a month and a normal market in just 2 months. The former is very likely, the second is more speculative and anyone who tells you they know what the market will be doing in 3 months is kidding themselves.

Here is the contract ratio chart for single-family homes in Phoenix:

The fall from 250 four weeks ago to 145 this week is even more dramatic than the sudden drop we saw at the start of the COVID-19 pandemic. The drop in 2020 was quickly recovered and within two months we were back higher than we started. The current decline appears to have more staying power and momentum - and we can see that a drop back to 2018 levels is likely by the end of May.

You can check out the other major and secondary cities here. If you want to investigate more complex segments of the market the Tableau chart is here.

2014 was the last time we had a market that was fairly "normal" so use that line for reference.

May 12 - Here is our latest table of Cromford® Market Index values for the single-family markets in the 17 largest cities

From a seller's perspective, this is dismal table. Your negotiation power is dissipating at a rapid rate. All 17 cities are cooling quickly and their CMI is dropping 10% or more over the past month. 9 cities have fallen by 20% or more over the last month and one (Queen Creek) by as much as 30%.

The average change was -20.5% compared with -18.1%.

Supply is growing in almost all areas thanks to a plentiful and growing flow of new listings, while homes are going under contract at a slower rate than we have seen for a long time.

It will take several months of this trend continuing to reach a balanced market, but this no longer looks like such a far-fetched idea.

 

May 9 - The Cromford® Market Index was the first indicator to sound the alarm about the current market direction. However we can now see several other early indicators fall like a sequence of dominoes toppling over.

The first we would like to highlight is days of inventory - 365 times the number of active listings divided by the annual sales rate. Here is the weekly chart

While all the numbers are low in absolute terms, the 2022 line is shooting skywards like a missile. This tells us that supply is increasing very quickly relative to demand.

At 24 days, inventory remains very low at the moment, but we have seen in the past (specifically in 2005) that 24 in April can grow to 82 by year end and over 200 the following summer. I am NOT saying this is going to happen in 2022 and 2023, but I am saying this trend needs to be watched very closely. A balanced market will have about 120 to 135 days of inventory and if we get more than 150 days we will be in a buyer's market, one where prices will tend to fall rather than rise.

My advice is to keep watching days of inventory like a hawk and react appropriately.

 

May 1 - Supply has been arriving in greater quantities over the past few weeks, This applies to both rental and for-sale listings.

The most dramatic rises are in rentals. There were 2,550 new rental listings created in the last 4 weeks, which is up 45% from the same 4 weeks of 2021. For 2022 year-to-date we have seen 26% more new listings (10,072 versus 7,995).

Residential for-sale listings added over the last 28 days number 10,476, up from 10,387 in the same period of 2021, a 0.9% increase. Year to date we have seen 40,198, down from 40,580 last year.

The problem for the market is that this extra supply is coming just as demand is dropping fast.

The for-sale active listing count (excluding UCB and CCBS) across all areas & types has jumped 27% in just 4 weeks. This is even faster than we experienced in April 2005. That's a scary percentage, even though the absolute numbers remain small. If this growth rate persists through May and June, the market will be very different by July.

 

April 24 - Red flag warning. The housing market is changing more rapidly with rising supply and falling demand. While it remains far above normal for now, the Cromford® Market Index is dropping fast.

Here is an image extracted from the weekly CMI chart:

We can clearly see that the CMI is accelerating downwards. Although it remains above 400, representing a very hot market, the downward trend is so powerful it appears possible that it will drop below 300 within a matter a weeks rather than months. It is not possible to predict the CMI, as it is designed to be the very earliest indicator of market changes. We do not know when this decline will bottom out.

Last year we saw a similar but less intense fall during June. However, investors and iBuyers filled the gap left by the fading owner-occupier demand and kept inventory at low levels. The CMI bottomed out well above 340 and staged a second rally.

April is supposed to be one of the best months for the market, but new contract signings are significantly lower than last year. This means active listings are staying active longer and inventory is starting to build in most (but not all) segments. At the moment the number of homes for sale remains very far below normal, but we have seen before how it can increase sharply if more sellers emerge just as demand is declining.

There are a sequence of market indicators that fall like dominoes when a major change occurs in the market. The CMI is specifically designed to be the first of those dominoes. We will be reporting on the state of those confirming indicators over the course of the next few weeks and we advise subscribers to pay close attention. Do not pay attention to prices. They will continue to rise for many months, since they are trailing indicators of market conditions.

 

 

Please let me know if you or someone you know is looking to Buy or Sell.

Troy Holland

480-773-5792

Posted in Market Updates
May 4, 2022

May 2022 Market Update

Market Summary May 2022

 

Here are the basics - the ARMLS numbers for May 1, 2022 compared with May 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 6,688 versus 5,080 last year - up 31.7% - and up 32.4% from 5,051 last month
  • Active Listings (including UCB & CCBS): 10,161 versus 9,438 last year - up 8.0% - and up 17.6% compared with 8,663 last month
  • Pending Listings: 7,386 versus 7,829 last year - down 5.7% - and down 7.8% from 8,008 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 10,889 versus 12,187 last year - down 10.7% - and down 6.3% from 11,620 last month
  • Monthly Sales: 9,270 versus 10,200 last year - down 9.1% - and down 8.6% from 10,144 last month
  • Monthly Average Sales Price per Sq. Ft.: $302.64 versus $243.36 last year - up 24.4% - and up 4.1% from $290.75 last month
  • Monthly Median Sales Price: $466,000 versus $373,000 last year - up 24.9% - and up 2.3% from $456,000 last month

Between late October and mid March we saw a downward trend in supply. However this has completely changed direction over the past 6 weeks and active listing counts are rising very strongly. They are up more than 32% in a single month, one of the most dramatic shifts in direction we have ever seen. If this trend continues for several months the market dynamics will change significantly.

The large increase in supply is caused by a combination of factors. First, we are seeing more new listings arrive, possibly because people who have made large unrealized profits cash out while the going is good. Secondly, we are seeing a significant drop in demand as a sudden jump in interest rates and eye-watering prices discourage new owner-occupiers from entering the market. We note that listings under contract are down more than 6% since last month. Closed sales are also down more than 9% from April 2021. Demand is weak and getting weaker.

The overall effect is a major cooling event, turning a hot housing market into one that still favors sellers (for now) but is looking increasingly dangerous with each passing day. It only favors sellers because the supply is still very low compared with a normal market. But if supply continues to increase, as looks very likely at this point, we could quickly find ourselves with as many sellers as buyers. The market does not turn on a dime, but it can certainly change dramatically over a handful of months, as it did between August and November 2005. The charts today suggest we are now entering a very different phase of the market cycle.

Make no mistake - closed prices will continue to rise for some time - they are a trailing indicator and will only stop rising long after the market has cooled down. But it does not take too much imagination to envisage a situation where they overshoot. Right now we have just seen the average $/SF rise 4.1% in a single month. But this reflects the huge imbalance between supply and demand that existed two months ago. That imbalance is much smaller today and is shrinking noticeably with every passing day.

We are entering a much more uncertain period and great caution is advisable. The mid-range market between April 2021 and April 2022 has been largely driven by enthusiastic investors. If their enthusiasm dissipates and turns to fear we could see far more rapid change than we have become used to.

 

MLS Supply Up 45% in 6 Weeks
Rising Interest Rates Dropping Demand Quickly

For Buyers:
It’s the moment you’ve been waiting for, less competition and more supply in Greater Phoenix! Active supply is up 40% from this time last year, but all that gain has been achieved over the last 6 weeks with an increase of 45%. This is an enormous change from April’s report where supply was only up 16% over last year and still below the count reported on January 1st. As of this report, the supply count is 7,157, still 72% below normal for this time of year but rising quickly.

The annual change in inventory is impressive, but it’s the short-term growth that is sending shock waves throughout the market. Inventory listed between $400K-$500K is up 35% in just 3 weeks. Counts in all segments between $500K-$1M are up 99% in 6 weeks and the count from $1M-$1.5M is up 54%, also within 6 weeks. Not all price ranges are rising in inventory. Properties listed below $400K are still flying off the shelves and declining in supply.

The increase in inventory may seem like an early Christmas miracle, but it’s not coming from a massive flood of new listings hitting the market. Visualize supply counts as the level of water in a bathtub, with new listings coming through the faucet and accepted contracts going down the drain. The water level can rise if there are more new listings coming through the faucet, or if there are fewer accepted contract flowing down the drain. In this case, new listings are at normal levels and not excessive, but fast rising mortgage rates have reduced the number of accepted contracts and closed the drain. This is what is causing inventory in the “bathtub” to increase dramatically.

While recent interest rates are disappointing for many buyers, causing some to drop out and wait, history has shown us that they rarely stay high, or low, forever. While it’s near impossible to predict when interest rates may begin to decline, if we look over the last decade when interest rates have risen by 1% or more within a year, it has taken anywhere from 1 to 3 years for them to return to their original starting point. Even when rates increased by a whopping 5% over 14 months from 1980-1981, it only took 1.5yrs to drop back to where they started. Future expected interest rate drops over the next few years along with moderate home price appreciation and monthly principal reductions may provide today’s buyers the opportunity to lower their payments by hundreds of dollars down the road.

For Sellers:
The market is in the early stage of shifting out of an insane seller market and into a mere frenzy seller market. Before we know it, it could be a regular old hot seller market where properties still appreciate but take multiple weeks to sell, buyers don’t waive their appraisal contingency, and sellers happily pay for home warranties. But before all of that happens, it starts with one simple act from a seller, a list price reduction.

As inventory has risen at a fast pace over the past 6 weeks, so have the number of weekly price reductions as sellers compete for fewer buyers. Listings between $400K-$500K have seen a 103% increase, with the median price drop at $13,000. Price drops in $500K-$800K range increased 157%, with median drops between $16,000 and $20,000. Drops in the $800K-1.5M range increased 125%, with a median drop between $25,000 to $50,000.

So far, price reductions have proven effective in keeping the median days prior to contract around 7 days. However, as inventory continues to rise in the coming weeks, price reductions may not be enough to keep some properties from lingering longer in active status, creating more choice for buyers and strengthening their bargaining power.

While the market is still strongly in favor of sellers, it is changing rapidly. For those sellers waiting to sell close the peak of price, this may be the time to list. Prices are still projected to continue rising, but at a slower pace over the next few months.


Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

Information provided courtesy The Cromford Report.

 

Posted in Market Updates
April 7, 2022

April 2022 Market Update

Market Summary April 2022

Market Summary for the Beginning of April 2022

Here are the basics - the ARMLS numbers for April 1, 2022 compared with April 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 5,051 versus 4,088 last year - up 23.6% - and up 10.1% from 4,588 last month
  • Active Listings (including UCB & CCBS): 8,663 versus 8,699 last year - up 0.9% - and up 4.3% compared with 8,305 last month
  • Pending Listings: 8,008 versus 7,964 last year - up 0.6% - but down 3.9% from 8,333 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 11,620 versus 12,575 last year - down 7.6% - and down 3.6% from 12,050 last month
  • Monthly Sales: 10,123 versus 10,398 last year - down 2.6% - but up 26.6% from 7,998 last month
  • Monthly Average Sales Price per Sq. Ft.: $290.87 versus $231.72 last year - up 25.5% - and up 2.3% from $284.71 last month
  • Monthly Median Sales Price: $456,000 versus $358,250 last year - up 27.3% - and up 2.5% from $445,000 last month

The downward trend in supply that started in late October has reversed during March and we are now seeing what appears to be a significant rising trend. However, this is not due to more incoming new listings. It is due to fewer active listings going under contract. Ordinary owner-occupier home buyers are hitting real trouble.

Closed listings remained healthy during March, but were down 2.6% from last year. However the massive rise in prices since March 2021 means that March 2022 holds the record for the highest monthly dollar volume ever seen - $5.816 billion.

This might lead you to think that demand remains very strong, but you would be wrong. The falling number of listings under contract show a negative story - down almost 8% from this time last year and even down 3.6% compared to the beginning of March. As we said - fewer active listings are going under contract

The very significant rise in mortgage interest rates over the past few months is keeping many sellers out of the market - they do not want to let go of their cheap fixed rate loans. However it is also taking the wind from the sails of the normal owner occupiers, especially the first-time home buyer. Not only are they suffering sticker-shock from the asking prices of the homes they would like to buy, and crazy competition from cash buyers, the higher interest rates mean their monthly mortgage payment has increased alarmingly. In some cases it has increased so much it is no longer deemed to be affordable by their lender and their loan application is denied.

In this way an expensive market reduces demand and prices start to climb less steeply. At least they would do if it were not for the investor demand. Many investors are flush with cash and to them residential real-estate looks like a safe haven. A hedge against inflation, revenue producing (unlike many stocks, cryptocurrency, commodities and gold) and very tangible - it looks extremely attractive when coupled with rapidly rising rents.

The problem is that rents are not rising any more. Based on closed leases on ARMLS, average rents peaked last August and have been gently falling since then. The leading indicator, average asking prices, has fallen more significantly. So many new rental properties of all kinds have been created - we may be running a bit short of prospective tenants sometime soon. How will investor sentiment change when tenants get scarce?

Meanwhile home prices are still rising at amazing speed. The average $/SF has risen 8.9% in the first 3 months of the year and is likely to continue rising until June at least. The median sales price is up from $425,000 to $456,000 in 3 months and looks likely to break $470,000 by the end of the second quarter. The third quarter is always a slower period and it is likely we will get some respite from the rising prices between June and September. What happens in the fourth quarter will largely depend on how long investors retain their current euphoria in the face of increasing risks. Is their investment safe as houses?

 

57% of Sales are Over Asking Price
Median Sale Price Up 27% to $457,000

For Buyers:
Supply is still the top concern for buyers these days and we continue to look to new construction to add new homes and ease the pressure on price. The top areas for new single family home sales are the West Valley, with 44% market share, and Pinal County, with 27% market share. The Southeast Valley comes in 3rd with 17%. If you’re looking to the West Valley for a new home, your best bets are Laveen, just east of the new 202 freeway loop, and cities just west of the 303 freeway such as Peoria, Surprise, Waddell, Goodyear and Buckeye. In the Southeast Valley, new home subdivisions are concentrated in East Mesa, Queen Creek, South Gilbert and South Chandler. In Pinal County, Casa Grande and Maricopa have the most new home sales.

As of February 2022, the median cost of a new home closed was $447,000 overall with a median size of 2,197 sq. ft. That was just under the resale median of $450,000 in the same month, which had a median size of 1,783 sq. ft. In the West Valley, the new home median is $443,000 with 2,237 sq. ft. In the Southeast Valley that median is $579,000 and 2,456 sq. ft., and in Pinal County it is $385,000 with 1,888 sq. ft.

New home developers continue to struggle with a labor shortage and supply chain issues. It’s not uncommon for builders to estimate 14-16 months before completion of a home. Because prices have been rising sharply, this means that by the time a home is built, the costs to complete it have gone up and it’s already worth significantly more than the negotiated purchase price. For this reason, some builders are including escalation clauses in their contracts that allow them to raise the price prior to close of escrow to accommodate the higher costs to build and closer reflect the current market value. In addition to escalation clauses, a handful of builders are including restrictions on when a homeowner can sell or rent the home after close. It’s important to read builder contracts closely and ensure you understand every section before moving forward.

For Sellers:
The market continues to heavily favor sellers. Supply is still 76% below normal for this time of year and demand is 6% above normal. However, demand is declining in response to recent increases in interest rates. Just 30 days ago, demand was 12% above normal, and 30 days prior to that it was 21% above normal. Buyers across the nation are in the best financial shape seen in decades with an average credit score of 714 last year, according to Experian, and Maricopa County has the lowest percentage of consumers with credit scores below 660 in at least 22 years. However, in just a few short months, the average interest rate increased from 3.1% in December to 4.7% by April. This resulted in a $500 increase in the estimated payment on a 1,500-2,000 sq. ft. home, pushing the cost to buy significantly higher than the cost to rent in Greater Phoenix.

This does not mean the market is at its peak, or at the precipice of a price decline. The only response we are seeing at this time is a sharp increase in supply between $500K-$1M over the past 2 weeks, a price range that happens to have less interest from investors and 2nd home owners and a higher market share of owner-occupants. Despite this increase in supply, the median days on market prior to contract is still only 7 days, and there aren’t any bold movements in price reductions or seller concessions. Until we see an upward shift in price reductions and seller concessions, we will not see a flattening out or decline in sale prices.

Currently, April closings to date have seen 57% of closings over asking price and a 22% appreciation rate compared to April 2021 thus far. While it’s reasonable to expect price appreciation to slow down at some point, there is little evidence at this stage to show prices declining in the near future.


Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

Information provided courtesy The Cromford Report.

 

Posted in Market Updates
March 6, 2022

March 2022 Market Update

 

Market Summary for the Beginning of March 2022

Here are the basics - the ARMLS numbers for March 1, 2022 compared with March 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 4,588 versus 4,491 last year - up 2.2% - but down 5.9% from 4,876 last month
  • Active Listings (including UCB & CCBS): 8,305 versus 9,094 last year - down 8.7% - and down 0.9% compared with 8,380 last month
  • Pending Listings: 8,333 versus 8,027 last year - up 3.8% - and up 6.9% from 7,798 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 12,050 versus 12,630 last year - down 4.6% - but up 6.6% from 11,302 last month
  • Monthly Sales: 8,000 versus 8,035 last year - down 0.4% - but up 12.7% from 7,096 last month
  • Monthly Average Sales Price per Sq. Ft.: $284.55 versus $231.11 last year - up 23.1% - and up 3.6% from $274.70 last month
  • Monthly Median Sales Price: $445,000 versus $349,000 last year - up 27.5% - and up 2.7% from $433,500 last month

The downward trend in supply that started in late October continued throughout February, but slowed down. We have slightly more inventory than we had this time last year, as long as we exclude UCB and CCBS listings. We have fewer active listings in total, but UCB counts have fallen by almost 20% compared to a year ago.

Demand is slightly below last year but given the sharp increase in interest rates, it is holding up pretty well. The market is cooler than a year ago, but not by much. The contract ratio stands at 263, down from 281 this time last year, but still abnormally high. In a normal market, this would be somewhere between 30 and 60.

Prices are rising at colossal speed. The average $/SF has risen 6.2% in the first 2 months of the year and are likely to continue rising until May at least. The median sales price is up from $425,000 to $445,000 in 2 months and looks likely to break $470,000 by the end of the second quarter. The third quarter is always a slower period and we may get some respite from the rising prices between June and September.

The only real sign of any slowdown is in the rental market which has seen a significant rise in new listings compared to the first 2 months of last year. The average rent for listings closed through ARMLS has stayed around $1.35 per sq. ft. per month since July 2021 and currently has little upward momentum. We have suggested several times that when a cooling off comes it will be seen in the rental sector far earlier than the purchase sector. If rents start to stagnate then investors cannot afford to pay ever higher prices to purchase those buildings without seeing their cash flows depressed. The number of building permits for multi-family properties suggests we may be over-building for the rental demand even though we are still under-building in the single-family segment.

There are plenty of observers suggesting the market is due for a downturn, but the market is not giving off any data to support that opinion. Supply remains extremely low with no sign of significant new supply of homes to buy. Demand is down a little but seems to be extremely resilient and although it is lower than last year, it remains very strong by historic standards. A change may happen, and you know we will report it if it is there to be seen. Right now there is no change to report.

Housing Market is Just as Tough for Buyers over $1M
Median Sale Price up 2.4% Over Last Month

For Buyers:
Affordability has been dominating the headlines as of late, however few have been documenting the plight of buyers in the luxury market over $1M. Typically, the higher in price one can go, the more they’d expect to see less buyer competition, more choice and more negotiating advantage.  Not so.
In more expensive areas such as the Central Phoenix/Camelback Corridor, Paradise Valley, Scottsdale, Fountain Hills and Carefree/Cave Creek, supply of homes is still not sufficient for the demand. This is true even for buyers with budgets from $1M to $3M where 31% of sales close over asking price and many buyers need to prepare to offer $50,000 or more over market value.

In Paradise Valley, on February 5th there were 85 active listings in the Arizona Regional MLS and 85 in escrow.  From 2015-2019, supply ranged from 370-450 active listings in February and 53-93 under contract.  So while demand is within range, the fact that there are so few properties to choose from means that competition remains tight. The median time prior to an accepted contract was 13 days and prices rose 34% in the past year; impressive for a city where the median sale price is currently $2.79M.

In the Central/Camelback Corridor of Phoenix, typically there would be 140-200 active listings over $1M and 19-52 under contract .  However, on February 5th there were only 55 active and a whopping 88 under contract. The median time on the market prior to contract was 10 days and property values have risen 28% per square foot since last year.

Similar stories can be heard throughout the luxury market.  Scottsdale would typically see 800-1,000 listings over $1M with 80-240 under contract in February.  On February 5th there were 274 active and 365 under contract.  Buyers have a median of 7 days before a listing over $1M is under contract and 34% of sales closed over list price.

For Sellers:
The median sales price went up another 2.4% over the past month, which is impressive considering the average mortgage rate increased from 3.11% in December to 3.55% by the end of January, according to Freddie Mac. Buyers who have been waiting for prices to stop accelerating, possibly even flatten out or decline, have been disappointed for at least 18 months in a row as home values appear to defy the affordability limits of the population. Despite prices continuing to rise, there is still an expectation that rising interest rates will eventually influence demand, and thus prices, sometime this year.

Frankly, that’s not an unreasonable expectation under normal circumstances. However, the housing market is far from normal right now. Over the course of 30 days, demand has gone from 23% above normal to 19% above normal, so there has been some shifting in demand that can be attributed to mortgage rates and their effect on affordability.  But demand is still very high, and supply moved from 72% below normal to 75% below normal during the same time frame. This drop in supply mitigated any relief the drop in demand would have had on rising prices.

When the total number of homes in an area is insufficient for the number of people living there, the interest rate has less impact on rising home values. There are fewer homes for sellers to move to, so they choose not to place their home on the market at all.  Even if demand falls due to mortgage rate increases, if it remains above normal while supply remains below normal then property values will continue to rise.

Unless the supply of MLS homes for sale achieves a range of 16,000-24,000 listings, prices will continue to rise before demand drops low enough to stop them.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

Information provided courtesy The Cromford Report.

 

Posted in Market Updates
Feb. 4, 2022

February 2022 Market Update

Market Summary February 2022

Here are the basics - the ARMLS numbers for February 1, 2022 compared with February 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 4,876 versus 5,180 last year - down 5.9% - and down 15.6% from 5,776 last month 
  • Active Listings (including UCB & CCBS): 8,380 versus 9,727 last year - down 13.8% - and down 2.9% compared with 8,630 last month
  • Pending Listings: 7,798 versus 7,070 last year - up 10.3% - and up 22.6% from 6,359 last month 
  • Under Contract Listings (including Pending, CCBS & UCB): 11,302 versus 11,617 last year - down 2.7% - but up 20.8% from 9,353 last month 
  • Monthly Sales: 7,114 versus 7,354 last year - down 3.3% - and down 23.3% from 9,271 last month
  • Monthly Average Sales Price per Sq. Ft.: $274.45 versus $217.47 last year - up 26.2% - and up 2.5% from $267.87 last month 
  • Monthly Median Sales Price: $433,500 versus $339,000 last year - up 27.9% - and up 2.0% from $425,000 last month

The downward trend in supply that started in late October continued throughout January, taking us to another record low - the lowest number of active listings at the end of January we have ever recorded. Last year's 5,181 struck as extremely low at the time, but we have 6% less in 2022. However, most of the missing supply is at the high end of the market. Most cheaper areas have more supply than this time last year.

Demand looks very strong when you look at pending listings, up more than 10% compared with this time last year.But active listings in UCB and CCBS status have collapsed compared to a year ago - 3,504 down 22.9% from 4,547. It seems agents have become far less interested in using the UCB status instead of the more traditional pending status for listings with contracts. This may also be related to changes in the types of sellers, with iBuyers selling off the large inventory they built up during the last 9 months.

January closings were down about 3% compared to last year, and using the Cromford® Demand Index we see that although it remains high, it is starting to weaken. This is probably a result of buyer weariness with the prices going up another 2% to 2.5% during January. The median is up $94,500 over the past 12 months, an increase of almost 28%.

The outlook for February is for prices to keep rising and demand to weaken slightly. It is not certain whether demand will weaken enough to cause supply to rise or if we will continue to struggle with desperately low numbers of active listings. Only a very steep rise in supply will work if we are to see prices stabilize, never mind start coming back down.

 

For Buyers:
As the cost of purchasing a home increases in Greater Phoenix, the question of whether to rent or buy becomes harder to answer for some buyers.  The overall median cost of a home is currently $425,000, and for a typical 1,500-2,000 square foot home, the median cost is $420,000.  The estimated payment, assuming 10% down and including principal, interest, taxes and insurance, is $2,123.  The median monthly rental rate for the same size range, recorded through the Arizona Regional MLS, was $2,195 in the 4th quarter of 2021; just $72 per month more.
 
Some buyers might question the advantage of purchasing a home in order to save $72 per month. However, the financial advantage of owning vs. renting is typically realized for those who own their home for at least 3-5 years.

Let’s assume, hypothetically, that a buyer purchased a home today for $420,000 with a $42,000 down payment (10%).  Over the next 5 years, their home’s value fluctuates up and down and in the end doesn’t appreciate. That may sound horrifying, however during this time the loan principle has been paid down to $336,000. The homeowner’s equity has doubled from $42,000 to $84,000 without their home appreciating a dime, and with 20% equity they no longer have to pay private mortgage insurance. Their payment declines $200.  Still a win.

Now let’s assume, hypothetically again, that while our homeowner is paying down their loan, the home value fluctuates up, down and sideways, but still averages a 6% appreciation rate over 5 years (close to the current rate of inflation).  The home would be then be worth $562,000, an increase of $142,000. 

After 5 years, this hypothetical homeowner went from $42,000 to $226,000 in equity, and their monthly cost was nearly the same as what they would have paid in rent anyway. For this reason, even when the monthly payment required to buy is close to that to rent, buying still wins in the long game.

For Sellers:
Despite rumors of the U.S. housing market cooling off, Greater Phoenix has moved farther into a seller’s market over the past month. Growing disparity between supply and demand in our market means there is little evidence to suggest price appreciation will slow in the first quarter. After a strong summer, new listings slowed down in the 4th quarter of 2021, while the number of accepted contracts remained high. The result is 2022 starting off with another historically low supply level, and listings under contract, while 7.6% below 2021, still strong with the 2nd highest count since 2014.

It’s an accepted opinion among local analysts that income levels in Greater Phoenix cannot sustain another year of 28% annual appreciation, especially if interest rates continue to increase. However, seeing there is little relief from home builders adding more supply to the equation, it’s reasonable to expect the market to respond with a softening of demand. This trend started to reveal itself in the 2nd Quarter of 2021 in a subtle manner.

Since 2014, buyers purchasing their primary residence have made up 70%-76% of total residential purchases in Maricopa and Pinal County. In Q2 2021, that percentage dipped to 67%, and declined to 63% by October. While traditional buyers retreated, competing buyers for 2nd homes and institutional buyers made up of Wall Street-backed iBuyers, hedge funds and other investment groups stepped in. Price appreciation slowed from an average of 3.3% per month to 1.1%.

While 2022 is coming out of the gate strong, and the Spring is typically the strongest season for buyers, it remains to be seen how much control investors and 2nd home buyers will take if traditional home buyers retreat. The last time they ignored affordability issues within the community, everyone lost in the end.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

Information provided courtesy The Cromford Report.

 

Posted in Market Updates
Jan. 5, 2022

January 2022 Market Update

Market Summary January 2022

Here are the basics - the ARMLS numbers for January 1, 2022 compared with January 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 5,776 versus 6,055 last year - down 4.5% - and down 15.4% from 6,825 last month 
  • Active Listings (including UCB & CCBS): 8,630 versus 9,788 last year - down 11.8% - but down 18.7% compared with 10,609 last month
  • Pending Listings: 6,359 versus 6,135 last year - up 7.5% - but down 15.8% from 7,830 last month 
  • Under Contract Listings (including Pending, CCBS & UCB): 9,353 versus 9,868 last year - down 5.2% - and down 19.5% from 11,614 last month 
  • Monthly Sales: 9,307 versus 10,017 last year - down 7.1% - but up 4.0% from 8,951 last month
  • Monthly Average Sales Price per Sq. Ft.: $267.31 versus $211.44 last year - up 26.4% - and up 1.1% from $264.43 last month 
  • Monthly Median Sales Price: $425,000 versus $332,000 last year - up 28.0% - and up 1.2% from $420,000 last month

The downward trend in supply that started in late October accelerated throughout December, taking us to the lowest number of active listings at year end that we have ever recorded.

To the consternation of those who harbor theories that the market is cooling off, this tells us that the real-world data does not agree with their theory. The housing market heated up in the last 10 weeks of 2021 and starts 2022 with a huge excess of demand over supply. This is not because of colossal demand. It is because of the unusually low supply. 

We normally see a strong flow of new listings in January while buyers tend to stay quiet until February. It is too early to tell if that will occur in 2022. It did NOT occur in 2021 and this was a striking reminder that the market was abnormal. In the next 4 weeks we will find out if the market remains in an abnormal state.

Prices continued to advance during December, more than 1% higher over the month. It would be surprising if we don't see at least a 3% increase over the next 3 months. My money would be on a move in excess of this, but nobody knows for sure what the future will bring, and the market continues to spring surprises on everyone.

Cost to Rent vs. Buy in 2022
Owner Occupant Buyers Retreated in 2021

For Buyers:
As the cost of purchasing a home increases in Greater Phoenix, the question of whether to rent or buy becomes harder to answer for some buyers.  The overall median cost of a home is currently $425,000, and for a typical 1,500-2,000 square foot home, the median cost is $420,000.  The estimated payment, assuming 10% down and including principal, interest, taxes and insurance, is $2,123.  The median monthly rental rate for the same size range, recorded through the Arizona Regional MLS, was $2,195 in the 4th quarter of 2021; just $72 per month more.
  
Some buyers might question the advantage of purchasing a home in order to save $72 per month. However, the financial advantage of owning vs. renting is typically realized for those who own their home for at least 3-5 years.

Let’s assume, hypothetically, that a buyer purchased a home today for $420,000 with a $42,000 down payment (10%).  Over the next 5 years, their home’s value fluctuates up and down and, in the end, doesn’t appreciate. That may sound horrifying, however during this time the loan principle has been paid down to $336,000. The homeowner’s equity has doubled from $42,000 to $84,000 without their home appreciating a dime, and with 20% equity they no longer have to pay private mortgage insurance. Their payment declines $200.  Still a win.

Now let’s assume, hypothetically again, that while our homeowner is paying down their loan, the home value fluctuates up, down and sideways, but still averages a 6% appreciation rate over 5 years (close to the current rate of inflation).  The home would be then be worth $562,000, an increase of $142,000.  

After 5 years, this hypothetical homeowner went from $42,000 to $226,000 in equity, and their monthly cost was nearly the same as what they would have paid in rent anyway. For this reason, even when the monthly payment required to buy is close to that to rent, buying still wins in the long game.

For Sellers: 
Despite rumors of the U.S. housing market cooling off, Greater Phoenix has moved farther into a seller’s market over the past month.Growing disparity between supply and demand in our market means there is little evidence to suggest price appreciation will slow in the first quarter. After a strong summer, new listings slowed down in the 4th quarter of 2021, while the number of accepted contracts remained high. The result is 2022 starting off with another historically low supply level, and listings under contract, while 7.6% below 2021, still strong with the 2nd highest count since 2014.

It’s an accepted opinion among local analysts that income levels in Greater Phoenix cannot sustain another year of 28% annual appreciation, especially if interest rates continue to increase. However, seeing there is little relief from home builders adding more supply to the equation, it’s reasonable to expect the market to respond with a softening of demand. This trend started to reveal itself in the 2nd Quarter of 2021 in a subtle manner. 

Since 2014, buyers purchasing their primary residence have made up 70%-76% of total residential purchases in Maricopa and Pinal County. In Q2 2021, that percentage dipped to 67%, and declined to 63% by October. While traditional buyers retreated, competing buyers for 2nd homes and institutional buyers made up of Wall Street-backed iBuyers, hedge funds and other investment groups stepped in. Price appreciation slowed from an average of 3.3% per month to 1.1%.

While 2022 is coming out of the gate strong, and the Spring is typically the strongest season for buyers, it remains to be seen how much control investors and 2nd home buyers will take if traditional home buyers retreat. The last time they ignored affordability issues within the community, everyone lost in the end.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

 


 

Information provided courtesy The Cromford Report.

Posted in Market Updates
Dec. 6, 2021

December 2021 Market Update

Market Summary December 2021


Here are the basics - the ARMLS numbers for December 1, 2021 compared with December 1, 2020 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 6,825 versus 7,388 last year - down 7.6% - and down 12.2% from 7,777 last month 
  • Active Listings (including UCB & CCBS): 10,609 versus 12,481 last year - down 15.0% - but down 12.3% compared with 12,104 last month
  • Pending Listings: 7,830 versus 7,347 last year - up 6.6% - but down 8.0% from 8,507 last month 
  • Under Contract Listings (including Pending, CCBS & UCB): 11,614 versus 12,440 last year - down 6.6% - and down 9.5% from 12,834 last month 
  • Monthly Sales: 8,964 versus 9,171 last year - down 2.3% - but up 2.1% from 8,780 last month
  • Monthly Average Sales Price per Sq. Ft.: $264.36 versus $207.78 last year - up 27.2% - and up 0.7% from $262.40 last month 
  • Monthly Median Sales Price: $420,000 versus $330,000 last year - up 27.3% - and up 1.2% from $415,000 last month

The slight downward trend in supply that we reported last month has turned into a much stronger dip - down over 12% in just 30 days. This is not too surprising since a fall in active listings happens in November during most years. We can expect further falls during December and by January 1 we will probably see another record low for the time of year. So, there is really no good news for buyers here.

There has been a significant drop in the use of UCB status since this time last year. UCB listings are down 26% but pending listings are up almost 7%. Overall, demand is still looking much stronger than normal. However, it has weakened just a shade over the past week, with the Cromford® Demand Index fading from a peak of 123.6 on November 26.

Prices are still moving higher, of course, and with the Cromford® Market Index over 360, there is little sign of that changing in the near to medium term.

December is unlikely to give us much housing market excitement as thoughts turn to things other than real estate. We are almost certain to see supply fall faster than demand. and prices are likely to rise by another 1 to 2%.

The next big signal will come in January when we see what the fresh supply looks like.

2022 Housing Predictions: Who to Believe?
Median Price Currently Rising 1% per Month on Average

For Buyers:
‘Tis the season for 2022 projections in the housing market and, as expected, there are conflicting opinions among national housing analysts. Zillow and Goldman Sachs predict home values will rise nationally 14-16% between now and the end of 2022. CoreLogic released their prediction that home values will only rise 1.9% next year, citing a concern with rising interest rates. Then there’s Zelman and Associates warning that investors are over-building and over-buying as household formation and population growth are weak, challenging the notion of a housing shortage.

Who do we believe?  Zillow recently pulled out of the business of buying homes after realizing their algorithm was failing to accurately value homes under current market conditions. CoreLogic’s prediction last year, that home values would drop 6.6% by May 2021, was a gross misfire as values soared instead. While Zelman is waiving a caution flag, the organization is stopping short of issuing a price prediction for next year.

In the meantime, prices in Greater Phoenix continue to rise. Prior to 2020, the median had been rising at 0.6%-0.8% per month on average (7-10% per year) which was in response to a milder seller market.  In the 2020-2021 extreme seller market, that average rose to 1.3% per month in 2020 and 2.3% per month so far in 2021, with a peak in the Spring between 3-5% and 1% per month average since June.  
Many local analysts agree the past rate of increase is indeed unsustainable. The payment for a 1,500-2,000 sqft home has risen 33%, or $500/month since last November, and the median rent on the MLS for the same sized home increased $372/month. At the rate prices have been increasing for the past 2 years, returning to a mere 7-10% annually would be considered a massive relief for buyers.

For Sellers:
While the caution flags are waving for a softer housing market next year, there are a number of positive indicators in Greater Phoenix that may keep our market appreciating, albeit slower. While interest rates, affordability, sluggish population growth and household formation are valid reasons for concern, here are a few counter-indicators to consider:

  • Lending practices have loosened up with the new $625,000 loan limit and more consideration of self-employed borrowers
  • Arizona is ranked in the top 10 states for population growth and household formation over the past decade due primarily to domestic migration
  • Per the Arizona Department of Economic Opportunity’s October Employment Report:
    • Jobs and the labor force have completely recovered from last year’s pandemic losses
    • Unemployment claims have fallen to pre-pandemic levels
    • W-2 Incomes have continued to rise and are up 3.4% YOY

While the market is expected to downshift sometime next year, the local economy and current supply and demand indicators for Greater Phoenix still point to strong price appreciation for at least 3-6 months.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2021 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

 


 

Information provided courtesy The Cromford Report.

Posted in Market Updates
Nov. 3, 2021

November 2021 Market Update

 

Market Summary November 2021

Here are the basics - the ARMLS numbers for November 1, 2021 compared with November 1, 2020 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 7,777 versus 8,682 last year - down 10.4% - but up 1.7% from 7,649 last month 
  • Active Listings (including UCB & CCBS): 12,104 versus 13,901 last year - down 12.9% - but up 4.1% compared with 11,622 last month
  • Pending Listings: 8,507 versus 7,862 last year - up 8.2% - and up 11.9% from 7,605 last month 
  • Under Contract Listings (including Pending, CCBS & UCB): 12,834 versus 13,081 last year - down 1.9% - but up 10.8% from 11,578 last month 
  • Monthly Sales: 8,765 versus 10,019 last year - down 12.5% - and down 6.6% from 9,383 last month
  • Monthly Average Sales Price per Sq. Ft.: $262.12 versus $207.38 last year - up 26.4% - and up 4.0% from $252.14 last month 
  • Monthly Median Sales Price: $415,000 versus $332,000 last year - up 25.0% - and up 1.2% from $410,000 last month

Supply has started on a slight downward trend once more, which will dismay buyers and please sellers. This trend is only a couple of weeks old, but is very likely to continue through the rest of 2021 since that would conform to the usual seasonal pattern. We are certainly not seeing the flood of new supply that would suggest an end to house price appreciation.

Demand is more complicated. The closed sales count for November was unimpressive, down over 12% when compared to November 2020. However the counts of listings under contract and pending listings are up sharply from last month. This indicates that demand is strengthening but closings are taking longer. Overall, demand is rising again.

The combination of the demand and supply trends is causing the Cromford® Market Index to start increasing once more. It is already at a very high level around 345 to 350, so we can expect more price rises over the near term. During November the average $/SF rose a massive 4% bringing the summer lull to an emphatic end. You should expect more increases to come.

Some people appear to think Zillow exiting the home buying business signals a top in the market. These people are mistaken. It indicates that Zillow did not understand how to operate a home buying business. They drastically overpaid for homes and were then surprised when they could not sell them for a profit. If they had waited a few months, that problem would have gone away because of market appreciation. However, that would have tied up an enormous amount of capital. Their primary mistake was over-paying for homes compared to their market value. Since the fundamental claim for Zillow is that they can calculate any home's market value, this rather undermines their core value proposition. Zestimates are not very accurate, but they are an effective way of drawing visitors to the Zillow site. Those visitors are not in a position to judge the accuracy of the Zestimate and in a frame of mind to believe it. That Zillow believe their own Zestimates led to their downfall in the home buying business.  (You can see a list of Zillow Owned homes by clicking this link....link shows the first 200 of 1004 listings...it is interesting to click the tax records to see what they purchased the home for.  you will see most of the homes are selling for a loss....Zillow Owned Homes (200 out of 1004)

New homes are still scarce thanks to supply chain and skilled labor shortages. So there is little sign of imminent improvement in the chronic shortages of homes for sale, whether new or resale. There is therefore still room for further increases in home prices. We are now well into levels that make homes much harder to afford for typical home buyers. But there appears to be still plenty of appetite to buy among investors and several new players entering the buy-to-rent business. 

Home prices do not go down when interest rates rise. Home prices do not go down just because they have gone up. What goes up must come down is a saying that relies on gravity. There is no gravity involved in home prices.

Home prices go down when supply exceeds demand. With supply as low as it is at present, demand would have to collapse far below normal. Instead demand remains well above normal right now and appears to be on the rise.

The End of Forbearance is Not the End of a Seller Market
Supply Up 93% Since April, Prices Continue to Rise

For Buyers:
The housing supply shortage is still in full swing, and there is online speculation that the end of forbearance may be the source of relief as some homeowners may need to sell.  According to Black Knight, the national number of mortgages in forbearance has declined 67% from a peak of 4.76M in May of last year to 1.6M as of September 28th, 2021. Surveys from the Mortgage Bankers Association indicate that at least 80% of homeowners have stayed in their homes after forbearance. That means roughly 600,000 properties have already been added to the national supply of homes for sale over the past year without causing home values to decline. If we can expect 20% of the 1.6M remaining homeowners in forbearance to leave their home; that’s roughly 6,400 properties per state on average. Since Greater Phoenix alone records roughly 11,000-14,000 closings per month, the number of properties exiting forbearance may be enough to ease the lack of supply for a short while, but probably not enough to cause prices to decline in Greater Phoenix.

For Sellers: 
The Greater Phoenix housing market is cooling, but it is far from cold.  To put the last 6 months in perspective, from April 1st to October 1st, supply rose 92% from 3,591 to 6,883* active listings in the Arizona Regional MLS. In the same time frame, listings under contract dropped 9% from 11,939 to 10,878*.  While a rise in supply combined with a decline in contracts in escrow indicates a cooling of the market, it’s important to put it in perspective from a seasonal and a non-seasonal point of view. Seasonally, it’s normal for listings in escrow to drop between April and October.  However, despite the most recent drop to 10,878 is still higher than previous counts on October 1st from 2014-2019, which ranged between 8,100 and 9,800. This places demand notably higher than even the pre-pandemic seller markets. It is not seasonal for supply to rise between April and October, so a 93% increase is a notable shift.  However, a count of 6,883 active listings is extremely low. In the last balanced market of 2014, the count on October 1st was 21,796.  During the seller markets from 2015-2019, October 1st counts declined from 18,000 to just over 12,000 listings. So despite the 93% increase in supply, it’s still 45% lower than the pre-pandemic 2019 seller market and 68% below the last balanced market of 2014. 
The effects of this 6-month weakening are mild.  Here are a few: 
· The Median Days on Market prior to contract has increased from 5 days to 11 days
· The Sale Price to List Price ratio has decreased from 101.8% (1.8% over list price) to 0.3%
· Sales over Asking Price have decreased from 60% of sales to 47% of sales
· The Median Amount over List has decreased from $20,000 to $11,000.

It’s good to be a seller.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2021 Cromford Associates LLC and Tamboer Consulting LLC

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

 


 

Information provided courtesy The Cromford Report.

Posted in Market Updates