New Market Updated - January :)

For your quick read I've made highlights, but all of this is worth digesting--especially understanding that the Cromford Index (defined below) is without a doubt our best local resource as a future local housing market indicator, as it is based on specific supply-demand trends by community.

Today's Cromford Daily Observation:

January 27 - Robert J. Shiller (yes he of the famous Case-Shiller Index) wrote an article for the New York Times yesterday. There are several parts of this article that seem off the mark to me.

One is: "Yet the unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down."

This is a misleading observation because different parts of the country are experiencing great differences between their local markets, and some of them don't need the reading of tea leaves to tell which way prices are headed. At the national level, the picture is mixed, so some areas may fall in price while others increase. Locally it is possible to be much more confident in the likely direction.

Robert Shiller focuses on examining the trends in the price index, but past price tends are a poor guide to future price trends. Momentum can be a dangerous signal, just as in the stock market. My advice is to ignore recent price trends if you wish to know where prices are moving in the future. Instead, future price trends depend on the balance between local supply and local demand, and we must study what is happening to these and watch changes in that balance very carefully. The S&P/Case-Shiller® Home Price Index® tells us almost nothing about either of these. For supply we need to look at:

·  the number of active listings

·  the rate at which new listings are being added

·  the number of unlisted lender owned properties

·  the number of pending foreclosures

·  the percentage of delinquent loans not yet in foreclosure

In some areas of the country, especially in New Jersey and New York, the last of these is an abnormally large and growing number and creates an overhang of supply that threatens to being additional distressed supply onto the market. In other areas, such as Arizona and California, this percentage is dropping very fast from previous heights and represents no such threat.

For demand we need to measure:

·  recent sales rate (allowing for seasonality)

·  the number of pending listings and how this is changing

·  the number of AWC/UCB listings and how this is changing

To combine measures of supply and demand and adjust for seasonality, we use the Cromford Market Index™. When this is above 100 then it indicates that demand exceeds supply and pricing pressure is upward. When it is below 100 it indicates that supply exceeds demand and pricing pressure is downward..

Right now across the ARMLS territory we see the Cromford Market Index™ at 172.8. That message is not vague. Long term pricing pressure is still strongly upward. There are areas where the Cromford Market Index™ is much lower, but most of the local housing markets have a strong excess of supply over demand. Here are some of the local Cromford Market Index™ values for the single family detached market:

·  Glendale - 228.8

·  Gilbert - 215.8

·  Tolleson - 214.0

·  Apache Junction - 209.5

·  Peoria - 208.5

·  Mesa - 206.5

·  Chandler - 204.3

·  Avondale - 197.6

·  Anthem - 197.0

·  Tempe - 194.9

·  Phoenix - 190.1

·  Paradise Valley - 171.6

·  Scottsdale - 170.3

·  El Mirage - 169.3

·  Cave Creek - 165.4

·  Laveen - 165.1

·  Fountain Hills - 163.1

·  Sun City -149.4

·  Sun Lakes - 140.8

·  Goodyear - 139.5

·  Sun City West - 134.1

·  Surprise - 129.3

·  Litchfield Park - 129.1

·  Casa Grande - 112.6

·  Arizona City - 110.8

·  Buckeye - 107.6

·  Queen Creek - 105.7 (dominated by San Tan Valley, the Town of Queen Creek is much stronger)

·  Gold Canyon - 91.5

·  Maricopa - 73.3

There is typically a 12-18 month delay between changes in the Cromford Market Index™ and a corresponding change in average sales price per sq. ft.. Note that Queen Creek (especially the San Tan Valley area) and Maricopa (city) have already seen huge increases in average price per sq. ft. and this has already done much to lessen demand and bring out more supply. Maricopa's CMI is now moving higher having hit a low point of 65.5 in December.

Last Comment~That 12-18 month delay is the 'predicting' part. Put another way, if everyone had been paying attention to this index in 2005 (see demand plummeting even as prices kept rising in my compilation graph below) many buyers would have avoided disaster. So now today's index would suggest prospective buyers could be making a serious mistake not jumping in if they can find the right property. Add to this that Lawrence Yun, chief economist for NAR is going around the country talking about the inevitability of higher interest rates. Kind of a no-brainer! Still, remember, for every point rates go up on a 80% loan is the rough equivalent of paying 10% more for the house (because of what the difference in payment would amortize).