Arizona Housing Forecast 2015

What will affect us directly…

Interest rates – the big one. Everyone has been expecting rates to rise as the Feds slow the printing presses – printing money has been floating mortgage rates on a sea of cash keeping interest rates ‘artificially’ low. Yet the latest rumors suggest rates will stay low until at least next summer.

Supply – new construction in Arizona is lagging. Well-respected local private economist Elliot Pollack blames much of the slow housing recovery in Arizona on the lack of rebound in construction saying we’ve only gained ‘about 8 percent of the construction jobs we lost – normally by this time we’d have gotten back about half…’

Demand – new construction may be lagging, but resale listings have kept pace with what has been lack luster demand. However, over the fourth quarter we’ve seen improvement. Local housing guru Mike Orr recently observed that the dollar volume in sales is now out pacing 2013 and ‘is currently outranking 6 of the last 10 years…only beaten by 2005, 2006 and 2012.’  (Cromford Report) See chart below:

More help on the way: The recent loosening of lending standards should help those younger, first-time ‘millennial’ buyers who would like to buy, but have delayed a home purchase, in part, because of stringent loan criteria.

At the other end of the buying spectrum it’s been a banner year in the luxury market sector, as high net worth folks diversify.

5-Year Forecast

Forecasting by the smart guys…

I don't claim to know everything.  Through this humility I've been able to predict very accurately by following those individuals that ARE that smart.

Institutional buyers of mortgage-backed securities have sophisticated forecasting tools at their disposal for risk management e.g. ‘bank grade’ automated valuation models, or AVM’s.

Their best in class algorithms not only closely approximate individual property values, but also provide 5-year forecasting, based on a host of factors.

The price forecasts below be are based on models developed by Collateral Analytics (CA), a leading company in the risk management business. Forecasts are driven primarily by employment growth and home price affordability, which are the two most important factors in housing markets (Collateral Analytics).

Collateral Analytics (CA) AVM has consistently had the highest ranking for accuracy in the industry.

Russ Lyon Sotheby’s International Realty (my broker) currently has an exclusive on the use of CA’s ‘bank grade’ tools tailored for the residential market in Arizona.

Below is an Arizona cross-sampling of CA’s 5-year forecast charts for select zip codes and cities within Core Based Statistical Areas (CBSA) – a geographic area defined by the U.S. Office of Management and Budget (OMB) based around an urban center of at least 10,000 people and adjacent areas that are socioeconomically tied to the urban center by commuting (Wikipedia).

By the way, we can generate these ‘bank grade’ AVM’s and 5-year CBSA-Zip Forecast charts for your property of interest anywhere in Arizona where MLS data has been integrated into Collateral Analytics database. Note some locations are still in process.

In the Forecast Charts below, the CBSA, city and respective zip code 85248 are indicated along the top. Dates track along the bottom horizontal axis. In this 15-year look-back and 5-year look ahead, the median price trend is shown on the vertical axis.

Chris Tiller, MBA

Russ Lyon Sotheby's

7135 East Camelback Road , Suite 360
Scottsdale, AZ 85251
Office: 480.287.5200
Cell: 602.561.1346
Free Home Estimate

December 28 - Looking at the monthly dollar volume chart for all areas & types (measured weekly / shown below) we see that 2014 lagged behind 2013 from January through early September, but since then it has gained ground. The monthly dollar volume currently stands at $1.4 billion versus $1.282 billon last year. The trend is looking increasingly positive as we progress through the fourth quarter.

Thanks to the strong performance of the luxury sector, for week 52, 2014 is currently outranking 6 of the last 10 years and is only beaten by 2005, 2006 and 2012.

December 27 - The single family monthly sales rate is higher than last year at this time in the following cities:

• Apache Junction
• Avondale
• Buckeye
• El Mirage
• Fountain Hills
• Gilbert
• Glendale
• Goodyear
• Mesa
• Paradise Valley
• Peoria
• Phoenix
• Queen Creek
• Scottsdale
• Sun City
• Sun Lakes
• Surprise
• Tolleson

This is a much more imposing list than the cities where the monthly sales rate is lower than 2013 at this time:

• Anthem
• Arizona City
• Casa Grande
• Cave Creek
• Chandler
• Gold Canyon
• Laveen
• Litchfield Park
• Maricopa
• Sun City West
• Tempe

In many cases, the 2014 number is only a small amount above the 2013 number, but a win is a win. The best advantages are seen in:

• Paradise Valley (39 versus 26)
• Fountain Hills (46 versus 36)
• Avondale (106 versus 71)
• Gilbert (370 versus 304)

The weakest situations are in:

• Anthem (27 versus 41)
• Maricopa (80 versus 112)

Overall the demand situation is showing some improvement though it is still far below what we would consider normal for the Greater Phoenix market.

30 Day Luxury Jump - Russ Lyon Dominating Once Again.

My Cromford Report Observation ~

December 17 - 

The last 30 days have seen a lot of expensive homes closed. We have seen 28 sales for $2,000,000 or more, of which 8 were for more than $3,000,000.

In the same period in 2013 we only saw 15 such sales. Only 4 were for more than $3,000,000.

Clearly the super luxury market is continuing to do very well compared with the last several years. This is powered by lenders' desires to write jumbo loans and an economy that is returning excellent profits for companies and investors.

______________________________

Chris T Comment: Todays the 18th and I get 29 closed over $2M from November 17 to today. Of those 58 sides, RLSIR had 23 (40%) - 10 of the sales and 13 of the listings. GO TEAM!!!

Closed Since Nov 17

Sold Price	City	Zip
$9,750,000	Scottsdale	85255
$5,700,000	Scottsdale	85262
$4,700,000	Scottsdale	85255
$3,750,000	Paradise Valley	85253
$3,550,000	Scottsdale	85255
$3,275,000	Flagstaff	86001
$3,200,000	Phoenix	85018
$3,200,000	Scottsdale	85251
$2,775,000	Scottsdale	85255
$2,738,250	Paradise Valley	85253
$2,724,700	Paradise Valley	85253
$2,675,000	Scottsdale	85266
$2,600,000	Paradise Valley	85253
$2,600,000	Scottsdale	85254
$2,550,000	Scottsdale	85266
$2,502,730	Paradise Valley	85253
$2,500,000	Scottsdale	85260
$2,500,000	Scottsdale	85266
$2,450,000	Paradise Valley	85253
$2,400,000	Scottsdale	85262
$2,300,000	Scottsdale	85255
$2,300,000	Scottsdale	85255
$2,300,000	Scottsdale	85262
$2,300,000	Scottsdale	85254
$2,300,000	Paradise Valley	85253
$2,265,000	Paradise Valley	85253
$2,050,000	Phoenix	85016
$2,000,000	Scottsdale	85262

Hey Millennials'....Buy a House. Here's Why.

Does anyone remember the days when 5% annual appreciation was considered really good?  These days it appears that some consumers now perceive anything under 10% as horrible, and reason enough to keep renting.  As our market returns to normal it may be beneficial to help future homeowners, specifically the millennial generation, visualize where they could be in 5 years with a “horrendous” 4% appreciation rate.  For the following example, we chose a $175,000 purchase with 3% down since it falls in line with where a first-time home buyer might start. 

Date	1/1/2015		1/1/2016	1/1/2017	1/1/2018	1/1/2019	1/1/2020
Purchase Price	$175,000	Future Value @ 4% Annual Appreciation	$182,000	$189,280	$196,851	$204,725	$212,914
3.5% Down Payment	$    6,125	Beginning Loan Balance @ 4% Interest	$166,153	$163,069	$159,858	$156,517	$153,039
Loan Amount	$168,875	Net Equity	$15,847	$26,211	$36,993	$48,208	$59,875

Home ownership in these circumstances gives the borrower a net equity of almost $60,000 after 5 years. Not bad compared with renting a property for the same 5 years. We assumed that the seller paid all the closing costs (which is quite a reasonable assumption these days).

The secret ingredient is leverage. The borrower puts only 3% down but gets to keep 100% of the appreciation. With interest rates as low as they are today, the millennial generation will probably want to kick itself in ten years time for the missed opportunity today.

Even with no appreciation the borrower gets net equity of $22,000 after 5 years, because a chunk of the monthly check goes to pay down the outstanding loan balance. However property taxes and maintenance will eat into that.

Realistically, 4% appreciation is over twice as high as inflation and a very satisfactory rate for the realistic homeowner.

Market Leveling Off & Price Per Sq/Ft

Arizonans pay attention to price per square foot: Total price divided by the total square feet of living space.  And yes, it’s both – useful & annoying. Among its many uses, it’s a popular way to track pricing trends for any given market segment (see select city and zip codes below).

It’s ‘annoying’ as a gross measurement, particularly in larger sample sizes, as it doesn't account for the many components that affect market value – location, lot size, condition, vintage, etc. to name a few.

In spite of the qualifiers it is a useful barometer of value, not only for showing pricing trends, but also establishing relative boundaries for what is obtainable in any given market segment.

For example, a home can be ‘over-improved’ so that while a ‘cost basis’ might suggest one value, the price per square foot of otherwise comparable properties will set limits on what a buyer will pay (‘market basis’)…or what a bank appraisal based on sold comparable properties will support.

With that backdrop we can now look at the price per square foot trends by select cities across the State of Arizona. Again, being mindful that the city view perspective is necessarily broad brush.

Also note that the more jagged trend lines will be typical of smaller market samples, where one sale can skew the data for that month.

You can come to your own conclusion looking at the area data of interest. What is generally apparent is the price improvements over the last 2 years. At the same time we currently see a leveling off in most markets as demand has moderated with increased prices. There are notable exceptions – Prescott, Cottonwood, Sedona & Flagstaff where the high country continues to roll.

Price per square foot trends, while a bit ‘annoying’ do help us visualize general pricing in the ebb and flow of supply and demand.

For the specific trend in your area of interest contact me and I'll get to work and shoot it over.

"But on Zillow it says..."

There are some phrases that a Realtor will absolutely dread to hear.  I won’t bore you with the list but lately there are five words I’m hearing more and more…

“But on Zillow it says…”

Unlike like most Agents I actually like Zillow.  If you are confident in your value proposition and are able to articulate what your job actually is Zillow, Trulia and others are a great tool to be leverages by the industry and not discarded.  If your agent is threatened or annoyed by these services you may want to reconsider your representation and ask the tough questions to determine if you have the right relationship based on your needs.

Back to Zillow:

Pros

Education – I love the platform and the information it brings to consumers.  The service has engaged buyers and sellers.  This has made my job of searching, rating and viewing homes significantly easier and less time consuming.  The power of the search is now leveraged by the consumer so they can narrow the area, preferences and competition much quicker and have essentially taken this off my plate.  Educated buyers and sellers are much easier to assist through the process.  Their communication is faster, expectations are clear and delivery is smooth and progressive.

Exposure – The link from IDX feeds, syndications, websites etc. Is shared automatically and seamlessly in many cases.  One of my jobs is to expose the property to as many qualified buyers as possible.  The new technology of Zillow allows for this to be streamlined and simple.

Inconsistency – While most people view this as a con.  Agents should not.  Buyers and sellers quickly, through verification with an agent, realize that this site is a starting point and far from accurate.  It’s not designed to be.  It’s designed to collect money from advertising.  Accuracy is not the business model.  The inconsistency speaks for itself and highlights why an educated and experienced agent is absolutely necessary through the process. 

Cons

Accuracy – Consumers could either be pleasantly surprised or frustrated with the actual value of their home.  Again Zillow is paid to keep your eyes on the screen.  Not offer you a valuable accurate estimate and I don’t blame them.  It’s not easy.  Without the personal touch of a representative how could a computer know to adjust for all the intangibles of each property.  Lot location, pool, upgrades, fixtures, artificial grass, HOA, Age, Smell, Solar…the list is extensive and incredibly unique.

Crutch – Unfortunately I’ve also experienced the agents who will utilize this source similar to how a consumer would.  This has several effects.  One it gives horrible representation to their clients and allows for the negative reputation of our industry to continue.  It also makes negotiating a nightmare.  The lack in effort and diligence creates an ill-informed seller or buyer and a stubborn agent.

The Know it All – “But on Zillow it says…” This can be very frustrating.  No matter how much you explain, defend with comps or offer their opinion cannot be altered.  Zillow is right and you are wrong.

Conclusion:

Personally I like Zillow and am not threatened by this.  It saves me time and allows me to focus on what I truly bring to the table.  To each his own.

All agents and consumers should be ready and able to talk about…

“What Zillow Says”

Until next time.

Does the real estate agent you use matter??

So it’s been a recent trend lately, it goes in spurts, that I find out a personal relationship hires another real estate agent to give their business to.  While I don’t take this personal and understand all the scenarios about personal relationships, family members etc. it occasionally throws me for a loop…and here’s why.

The irony behind people wanting to use their brother’s friends, neighbor’s uncle who just got their real estate license to do them a favor is that the new agent is doing YOU a disservice by allowing you to be sacrificed at the expense of their learning curve.  Now this is not true in all cases but don’t kid yourself, the other agent smells the fresh license and you will likely take the brunt of rookie mistakes without ever knowing.

When I first started almost a decade ago it still astounds me I was legally allowed to do business.  Real Estate school is completely irrelevant to the real world and only consistent transactions, good mentors and time will combine to make a quality real estate agent.

So this sounds great in theory but let’s put some teeth to it.  In my recent real world example I had a past client who decided to use a family member in their late 50’s who was “trying a new career path”.  This was a big mistake to which I will never reveal to them.  Here is the break down.

The new agent undervalued my ex-clients house by $10,000 minimum.  They had multiple offers on the first day, sight unseen and cash in a market and area in which this is no longer common.  Now fast forward to the purchase of their new home.  They offered list price on a house that was on the market for 4 months, needed work, was a rental property and had been listed as a rental but not filled in over 9 months.  Needless to say they needed to sell.  The cherry on top was that I knew the selling agent from a previous transaction.  They could have purchased this house for $11,500 less and all they had to do was ask.  The seller didn't even want to negotiate, just wanted it gone.

I know this because my past client called me half way through the purchase and had a ton of questions that his “new” agent could not answer.  I politely answered while listening to the above story.

So what did this mean to my past client…

$21,000 in money left on the table (probably more). Over a 30 year mortgage at 4.75% this will cost them almost $40,000 out of pocket….and they’ll never  know the difference.

I’m not here suggesting I know everything or that you should even use me.  Whatever you do stop and think about the decision you're make and handle it with the care it deserves.  It will likely be the most important financial investment of your lifetime.

Here is why sellers are often aggravated with selling their home.  A lack of education and knowledge about the realities of the market.  I dork out on this research to better serve my fellow agents and clients.  Where is your house??

We often look in the newspapers and see an overall annual appreciation AVERAGE and think we are all seeing the advertised 8% appreciation.  That couldn't be farther from the truth.  Remember how the average is calculated...it is not indicative of your house.  Below is a quick breakdown by price range to better gauge your home's actual appreciation.

We can all thank the few luxury homes that are selling for the recent jump in the overall market but certainly the majority is not seeing the same result.  

September 17 - If we examine the pricing as recorded in Maricopa and Pinal County Recorder offices for May through July in 2013 and 2014, we see the following changes in the average price per square foot:

Price Range	Change in Average $/SF
Below $100K	6.8%
$100K-$125K	6.9%
$125K-$150K	7.1%
$150K-$175K	4.8%
$175K-$200K	3.9%
$200K-$225K	4.6%
$225K-$250K	4.3%
$250K-$275K	4.2%
$275K-$300K	2.8%
$300K-$350K	6.4%
$350K-$400K	3.4%
$400K-$500K	2.6%
$500K-$600K	3.8%
$600K-$800K	3.4%
$800K-$1M	-2.5%
$1M-$1.5M	4.3%
$1.5M-$2M	9.7%
$2M-$3M	17.6%
$3M & Over	2.9%

Note that the strongest price advances were for:

1. $2M-$3M 17.6%
2. $1.5M -$2M 9.7%
3. $125K-$150K 7.1%

The overall change was 8.0%. However only two price ranges exceeded the overall percentage and most were well below that figure. Two effects are driving the overall number to be high:

• fewer distressed transactions
• low end price ranges have far lower volumes than last year

If we excluded distressed transactions the table looks like this:

Price Range	Change in Average $/SF
Below $100K	6.4%
$100K-$125K	4.9%
$125K-$150K	5.7%
$150K-$175K	2.8%
$175K-$200K	2.6%
$200K-$225K	3.4%
$225K-$250K	3.4%
$250K-$275K	3.1%
$275K-$300K	1.4%
$300K-$350K	5.3%
$350K-$400K	2.5%
$400K-$500K	2.4%
$500K-$600K	3.9%
$600K-$800K	3.3%
$800K-$1M	-3.5%
$1M-$1.5M	4.1%
$1.5M-$2M	10.0%
$2M-$3M	17.4%
$3M & Over	2.9%

Between $150K and $1.5M the increases in average $/SF are fairly small over the year, averaging 3.3%. Below $150K the average change in price per sq. ft. was 6.5%. Above $1.5M the average change was 10.2%.

So although the headline change is 8%, for most homes between $150K and $1.5M, the actual increase was just 3.3%

Interestingly, the range $300K-$350K showed strength while $800K-$1M showed weakness. We might have expected the $300-350K range to be weak because of the reduction in the FHA loan limit, but this turned out not to be the case.

September 14 - If we divide the average sales price by the average final list price we get a useful guide to how strong the market is. Expressing the result as a percentage is most common, but we must remember that the range is not great. In the last 14 years the minimum has been 93.82% (Feb 5, 2009) and the peak was 99.55% (Jun 5, 2005). The long term average is 96.88% and we have just dropped below that average in the last 3 days. This is a sign that the market is starting to cool slightly again at it approaches a balance between supply and demand. The highest reading in 2014 was on September 2, just 2 weeks ago, so the cooling trend is fresh and yet to prove its significance. However it is running counter to the direction of the Cromford® Market Index so we need to keep a close watch on it.

Arizona Real Estate Market Update...

I get this questions quite a bit.  "How's the market"?  I'm sure you've asked this or heard it many times as well.  My response remains the same.

It depends.

Most people aren't actually asking how the overall market is since it's rare to have a house that fits into the median of the market trends.  It's like someone asking if your family is "normal".  Of course not, everyone's family is crazy.  Try to define normal.

So, from a real estate perspective your answer will depend on various factors i.e. location, price range, condition, upgrades, lot location, school district etc.  While your situation may be in an appreciating market others may be in a slow down period.

This is why it's important to have someone who understands how to analyze the statistics of your niche.  Unfortunately either bad experiences or a lack in education leaves many people in the dark as to what their real estate agent is supposed to do.  Anyone can pull comps from the last few months and give you a quick range estimate of a homes value.  Shoot, this is Zillow's business model.  However, your agent should be going deeper than this.

Analyzing each house and sale independently for common characteristics is a must.  For example; open floor plans work in some areas and not others,  garage vs. carport, pool, local eateries etc.  These will all help paint a picture about not just when houses are selling but what houses are selling and most importantly WHY.  Zillow can't tell you this and unfortunately most agents won't either.

Now, I will still answer the standard question with a link to my market pulse website.  It's a macro snap shot that I still follow to assist in narrowing trends.  However, if you have any questions about your specific market please don't leave it to chance, or worst to Zillow.  I'm here to help anytime.

Market Update

Chris Tiller, MBA

Russ Lyon Sotheby's International Realty

17207 N. Perimeter Dr. Suite 120

Scottsdale, AZ 85255
Office: 480.502.3500
Cell: 602.561.1346
Fax: 480.624.3795

Market Slowing

No Big Gains Through the End of the Year : (

The monthly average sales price per square foot for all ARMLS areas & types is $126.41 today, once cent higher than it was on the first Saturday of January. After peaking in early April at $131.37, a gentle drift downwards has been the overall trend in this measure. In the short term we see some weakness in the pending $/SF so we anticipate the monthly sales $/SF entering the $120 to $125 range during the last 4 months of 2014. Our guess is that $/SF pricing will be a little lower in January 2015 than it was in January 2014. Not enough to cause significant appraisal problems, but enough to confirm we are no longer in a market with rising prices.

The Cromford® Market Index started to move downwards in July last year. It generally takes about 12-15 months for sales pricing to follow its lead, which is now starting to occur. The Cromford® Market Index is specifically designed to be a leading indicator while monthly average sales price per sq. ft. is very much a lagging indicator. Since the Cromford® Market Index started to rise again in March this year, the price weakness we see ahead is likely to be brief and relatively inconsequential over the longer term. Based on current trends we would expect sales pricing to start to firm up again during the spring of 2015, since that will be about 12 months after the Cromford® Market Index hit its low point and changed direction.

___________________________________________

If you're reading the above and wondering what the index is indicating for your particular city of interest, go to the City Snapshots posted here: http://RLSIRMarketing.com/stats

Keep in mind, an index score of under 100 favors buyers; over 100 favors sellers; 90 - 110 equals relative balance in supply and demand, which is where we are now.

Example: Snapshot of Scottsdale below (see arrow @ bottom of page pointing to the CMI):

BTW - This a pretty good improvement in the CMI for Scottsdale over the last 30 days. However, that's because, as you see below, month-over-month, we see more Active Listings than either Pending or Sales.

Ps. Green button trend good for sellers; red button trend good for buyers.

Quick Real Estate Update...

Despite there being very little sign of an improvement in demand, the market continues to swing slowly but surely back towards a more neutral and balanced state thanks to the weakest arrival rate of new listings in 14 years. This pushes the Cromford® Supply Index down and hence the Cromford® Market Index moves up. When we look at the single family market in the major and secondary cities over the last week we see:

​

Here we see 22 cities with an improved market for sellers and only 7 deteriorating. The largest percentage improvements were seen in:

1. Gold Canyon
2. Litchfield Park
3. Sun Lakes
4. Sun City West
5. Fountain Hills
6. Tempe
7. Chandler
8. Goodyear

Deterioration of more than 1% was seen only in:

1. Casa Grande
2. Laveen

The overall Cromford® Market Index has risen from 92.0 to 92.5 over the last week, certainly not a spectacular move but we are now well inside the balanced zone between 90 and 110.

The improvements in the cities that have become more favorable for sellers are mostly due to reduced supply. For example, active listings in Gold Canyon are down from 185 on June 26 to 118 today (excluding UCB). However Litchfield Park is unusual in seeing a short term uptick in demand.

Demand from investors has now dropped below normal and the market is once again dominated by regular MLS sales. Most agents who work only normal re-sale listings are experiencing pretty reasonable market conditions. However, the new home market remains in the doldrums and much weaker than expected. The REO and short sale sectors are much quieter than they used to be and this is not just due to lower numbers. Ordinary buyers are much less interested in rehabilitating a property. It is noticeable that most well-priced homes in great condition are moving more quickly than those that need a lot of work.

Market Update - July 2014....

I was on vacation so sorry for the delay but good things on the horizon...here is your real estate market update : )

 

July 6 - It's all in the mix. If we examine the monthly median sales price for all areas & types we get $196,200 today, which is up 7.2% from this time last year. However the majority of that price improvement is due to a change in the mix, not an increase in home sales prices between July 2013 and now. This is revealed if we look at the individual monthly median sales prices for the 3 major types of transactions across Greater Phoenix:

• Normal sales - $205,000 - up 2.5% from $200,000 last year
• REO sales - $134,045 - down 1.5% from $136,050 last year
• Short sales & pre-foreclosures - $138,000 - down 1.4% from $140,000 last year

Two of the categories are down from last year while the third (and most important) is up a mere 2.5%, not much more than inflation.

The big change is in the share of the market that each transaction type has taken:

• Normal sales - 89.7% - up from 79.5% last year
• REO sales - 6.5% - down from 8.7% last year
• Short sales & pre-foreclosures - 3.8% - down from 11.8% last year

The swing away from distressed sales (which have much lower prices) towards normal sales (which have slightly increased prices) accounts for a much larger increase in the overall median sales price than for any of the 3 individual transaction types.

July 5 - Looking at the Affidavits of Value filed in Maricopa County during June we can see that investor purchases have dropped again - down to 13.2% of sales from 14.9% last month and 24.3% in June 2013. We have to go back to October 2008 to find a month with as low a percentage of investor purchasing. However there were still 1,038 investor purchases while in October 2010 there were only 792. During 2008 most investors were on the sidelines waiting for prices to show some signs of stabilization. That happened at the end of March 2009 and the investor percentage immediately shot up to 20%.

The peak month for investors was July 2012 when they purchased 2,698 homes or 33.5% of the total.

Because they do not generate Affidavits of Value, these numbers excluded trustee sales and HUD sales.

July 4 - I don't want to sound repetitive but the current low volume of new listings is quite remarkable. The decline started in earnest in June and we can see that for Greater Phoenix there were 8,465 new listings in that month. This is by far the lowest number of new listings for any June since we started measuring in 2001. June 2013 was the previous low at 9,247. June 2006 was the highest at 15,995. It is all the more remarkable because during the first 4 months of 2014 the new listings were arriving significantly faster than in 2013. May saw roughly the same number as last year. If we look only at normal listings then there were roughly the same number of new listings in June 2014 as in June 2013. There were only 694 distressed listings in June 2014 while there were 1,469 in June last year. So this is where the decline is really taking place.

July 3 - A distinct improving trend has set in though we still have a little way to go until we recover to a fully balanced market. We can see the improvement from the Cromford® Market Index for the single family market in the major and secondary cities:

​

This is the best looking table for sellers than we have seen this year.

We now see 24 cities showing improvement and only 5 showing deterioration from a seller's perspective. Many of the improvements are substantial including those for:

1. Sun City
2. Anthem
3. Fountain Hills
4. Paradise Valley
5. Tolleson
6. Sun Lakes
7. Scottsdale
8. Casa Grande
9. Gilbert
10. Surprise
11. Glendale

However the following cities are still deteriorating:

1. Litchfield Park
2. Avondale
3. Goodyear
4. Chandler
5. Buckeye

The vast majority of areas are also seeing a fall in active listings over the last month. The notable exceptions are :

1. Avondale (up 6.4%)
2. Litchfield Park (up 5.7%)
3. Laveen (up 4.4%)
4. Tempe (up 3.6%)
5. Chandler (up 2.2%)
6. Goodyear (up 1.5%)
7. Buckeye (up 1.1%)

We can see a strong correlation between more active listings and a deteriorating market index.

April Update: Pocket Listings Taking Over?!? Short answer, No.

April Update:

There has been some very questionable commentary in certain media about the percentage of home sales that take place outside the MLS. It appears that some consultants are suggesting that almost half of transactions occur independently of the MLS or sell within a few days of listing. The phrase "pocket listing" is being banded about as if it is some new phenomenon that is rocking the market and causing the MLS to lose market share.

None of these things is true here in Greater Phoenix. Pocket listings blossomed during the hot market of 2012 and early 2013 but never reached epidemic proportions and are quite rare now.

If we examine all the residential transactions in Maricopa County during March 2014 for single family and condo/townhouse homes, we find that 76.4% of arms length transactions went through the MLS. For the 24.6% which did not touch the MLS, very few were "pocket listings".

Here are the percentages of transaction types that occurred outside the MLS in March:

• new homes - 73% of new homes did not get listed on the MLS - there were 555 unlisted new home sales
• trustee sales - 100% of trustee sales did not get listed on the MLS - there were 184 of those (excluding those that reverted to the beneficiary)
• bank sales - 12% of bank REOs did not get listed on the MLS - there were 25 of those sold without a listing
• GSE REOs - less than 0.5% of Fannie Mae and Freddie Mac sales are sold outside the MLS - just 1 in March
• investor flips - 28% of investor flips were sold outside the MLS - there were 130 of these unlisted - often sold to other investors without any fixing (wholesale)
• pre-foreclosures - 17% of these were sold outside the MLS - there were 14 of these unlisted, often because it was the buyer who initiated the conversation
• short sales - none of these were sold outside the MLS (unless already counted among the pre foreclosures) - lenders like to see homes marketed before agreeing to a short sale offer
• sheriff's sales - 100% of these took place outside the MLS - 16 in all
• HUD sales - 3% of these take place outside the MLS - amounting to just 1 home
• normal sales - 15% of these took place outside the MLS accounting for 837 sales

Among the 837 normal sales which took place outside of MLS, they break down as follows:

• 43% involved an investor buying from an owner-occupier - the seller rarely initiates these transactions, so the question of a listing doesn't come up.
• 17% involved a private sale from investor to investor - these are usually negotiated outside MLS with no agents involved. Indeed the investors often hold real estate licenses themselves.
• 17% involved an investor selling to an owner-occupier - sometimes with seller financing or a sale agreement, sometimes a sale to an existing tenant, requiring no marketing
• 24% were owner occupiers selling to owner occupiers. These are either FSBOs or "pocket listings". We cannot distinguish between the two because the agent does not get a mention on the deed and there is no MLS data

If we focus on owner occupiers who wanted to sell and didn't go through the MLS, they either tried to sell their home themselves (FSBO) or used an agent who did not use the MLS (pocket listing).

A remarkably small number of sales could classified as FSBOs or pocket listings. In March the total was 202, or just 2.6% of all sales.

Of the sales that took place through the MLS, 290 or less than 5% had cumulative days on market of 3 days or less. The remaining 95% took at least 4 days to go under contract.

There is no sign of the MLS losing market share. In fact it has gained significant market share over the last 12 months.

In 2005 at the height of the bubble, pocket listings were rampant, as well as FSBOs. But we are not at all like 2005 in 2014.

The Market Officially Switches

The change from a balanced market to a buyer's market that occurred exactly one month ago has now settled in firmly and those in denial are dwindling in number.

Here are the basic ARMLS numbers for March 1, 2014 relative to March 1, 2013 for all areas & types:

• Active Listings (excluding UCB): 26,589 versus 17,090 last year - up 55.6% - and up 4.1% from 25,541 last month
• Active Listings (including UCB): 29,613 versus 21,460 last year - up 38.0% - and up 4.2% compared with 28,413 last month
• Pending Listings: 6,462 versus 10,300 last year - down 37.3% - but up 12.9% from 5,723 last month
• Under Contract Listings (including Pending & UCB): 9,486 versus 14,670 last year - down 35.3% - but up 10.4% from 8,595 last month
• Monthly Sales: 5,462 versus 6,578 last year - down 16.7% - but up 14.7% from 4,778 last month
• Monthly Average Sales Price per Sq. Ft.: $127.54 versus $111.67 last year - up 14.3% - and up 1.7% from $125.45 last month
• Monthly Median Sales Price: $180,000 versus $160,000 last year - up 12.5% - but down 1.5% from $182,700 last month

The rate of change has slowed. Supply is increasing but less quickly because contract activity is picking up, as is usual for the time of year. Sellers must hope that the number of active listings reaches a peak and starts to reduce in March. That would be normal for a quiet year. However demand remains stubbornly low compared with the normal spring level and there is, as yet, no sign of improvement for sellers except in a few isolated areas.

Sales in February were higher than January (as they are every year) but much lower than in February 2013, giving us the lowest February sales total since 2009. Pending listings have risen since the start of the year but started at such a low point that they are still at their lowest level for early March since 2008. So far this is the second weakest year for pending listings since 2000 (2008 was much weaker still). We still haven't overtaken the pending listings for 2007, which is not a reassuring comparison as 2007 was an awful year for sellers.

New listings have been arriving at a rate which is consistently 9% higher than last year, and the most positive thing we can say about demand is that it has almost stopped getting weaker. The period between March and June almost always sees a down trend in active listings so we would expect to see little movement in total active listings this year until we get to July. If current trends continue we will see another rise in active listings through the second half from July to November. With supply only slightly below normal and demand well below normal we have a classic buyer's market.

In a buyer's market, prices tend to fall, but it takes quite some time to happen as long as we are not facing a lot of distressed properties. We are not. Distress is low and pending foreclosures are continuing to trend lower.

The monthly median sales price is already starting to fall. At $180,000 for all areas & types it is lower than last month and that was lower than the month before. At the moment $180,000 looks good compared with $160,000 for February 2013. However, the median sales price for June 2013 was $182,500, so in just 4 months we are likely to be reporting a negative annual change. The average price per square foot readings are looking more positive thanks to the relative strength of the luxury market. The luxury market contributes strongly to the average price per square foot but has virtually no influence on the median sales price.

The luxury market is seeing more problems appear. Demand remains stronger than the rest of the market, thanks to the stock market making new highs and lenders falling over themselves to offer jumbo loans at very attractive rates. However supply is becoming excessive and luxury sellers are starting to see too much competition for them to be aggressive in pricing.

The big question is: why is the demand so weak?

The change since last year is much bigger than we all expected and more than just the disappearance of investors.

We don't buy interest rates as the problem. There is probably something more fundamental going on. We suspect it is generational, and we are researching into its numbers. As baby boomers become gradually less important to the market, millennials start to take their place as the most influential generation for sales volumes. Millennials are behaving quite differently from previous generations. Some of these differences are by choice and some out of necessity.

For millennials:

• their ability to qualify for mortgages is often dramatically lower because of the size of their monthly student loan debt payment - this often raises their debt to income ratio to unacceptable levels for mortgage lenders
• they already have serious delinquency problems with student loan debt (over 11% of student loans are seriously delinquent and the trend is strongly upwards), impacting their credit score
• they have seen major problems with home ownership during 2005 to 2011 and not experienced positive home appreciation adding substantially to their net worth
• they enjoy the flexibility of renting because they change jobs more frequently than earlier generations
• they do not have a very positive image of Arizona as a destination due to the negative publicity it has received in the media over the last several years
• on the whole, they appreciate urban lifestyles in dense cities and public transportation, contrary to the suburban preferences of earlier generations
• they tend to value experiences over ownership, for example they spend more on eating out than previous generations

Phoenix doesn't really have an affordability problem overall, but it has an affordability problem for millennials because on average they have less savings. lower earnings and far lower net worth than previous generations had.

Demand for homes to purchase is increasingly affected by these trends as more millennials join the workforce and more baby boomers leave it.

The typical local millennial is short of money and renting and intends to rent for a long while yet. In a recent survey 75% of millennials responded that student loan debt had affected their decision or ability to purchase a home. 43% stated that it had delayed their decision to start a family. 63% reported that it had impacted their ability to purchase a car. The size of student debt is vastly higher than for previous generations. In the past someone with a student loan was more likely to become a home buyer than average. For the millennials, attending college with a student loan has made them less likely to become a home buyer. So far the recession has meant that their investment in education has not yet paid back in earnings when employed. This is not just a problem for millennials. It is a problem for the entire economy, because there is a lack of ability to spend on the things that drive the economy, including home purchase.

The implication is that we are going to need additional affordable rental accommodation in the medium term. The existing rental supply is getting low at the same time that the for-sale supply is growing.

Cromford Market Summary for the beginning of March

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MikeB Comment: I'm sending this statewide because the trends and socio-economic facts and implications offered here will have statewide relevance. 

From a self-serving point of view, if the millennials are and will continue to be a drag on the housing market, then the sweet spot of mid-range (2nd home owner / move-up buyer / older / more established) buyers and sellers that are attracted to our more upscale, lifestyle-centric brand is a bit of a silver lining for RLSIR. 

At least for now. 

Not that we take comfort in the idea that a whole generation may be necessarily turning away from the value of home ownership. But again, if this is an economic reality that will re-shape our industry, then to be blunt about it, better to appeal to the have's than the have-nots! 

Or put another way, I don't know about you, but I'd rather work with buyers and sellers than tenants and landlords.

For your success,

C. Tiller