More evidence of a 'market cooling down' (NOT a bubble burst)

Once again we are showing the table of Cromford® Market Index values for the single-family markets in the 17 largest cities:

If you thought last week's average 8.4% decline was impressive, then you will be even more impressed with the 9.3% fall we have this week.

Glendale managed a very small increase but the other 16 cities saw declines, most of them over 10%.

The common story is that listings are going under contract slower than usual which makes active listings start to build up. We are NOT seeing an increase in the number of new listings arriving.

Despite the declines, all the cities (even Buckeye) are still in the seller's market zone over 110. Remember that 100 represents normality. We expect Buckeye will drop below 110 by next week, but the overall market is still much stronger than it was for most of 2014. We are approaching a more balanced market at some speed, but given the continued weak supply, we are very unlikely to overshoot. We would need a large increase in supply to create a buyer's market. It is not at all obvious where this extra supply would come from. The situation is very different from 2005 when tens of thousands of empty homes had been purchased by speculators with ill-advised and reckless loans. Anyone who thinks the current situation is a bubble bursting is very much mistaken. It is merely the normal process of an over-heated market cooling down, something we expect to see several times a decade. True bubbles in housing tend to occur once or twice a century.

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Once again, I find myself essentially highlighting the entire Daily Observation. It's so important to be able to counter sensational headlines and exaggerated points of view.

For those who fear another bubble burst I would reinforce and add to what has been quoted above:

• The crash of 2005 - 2007 was driven by lier loans
• By contrast, today it's an 'equity' market
• 'True bubbles in housing tend to occur once or twice a century' - we had the 'great depression' and we had the crash of the last decade
• The next generation (millenials) are about 5 years behind their predecessors because of economic factors
• A Sothebys International Realty research add-on is that the millenials are about to be the beneficiaries of the larges transfer of wealth in the history of the world (Boston Consulting Group's piece for SIR called The New Affluent
• That being said there is a housing shortage, particularly in affordable housing

Again, as a talking point, I like the verbiage 'it is merely the normal process of an over-heated market cooling down'.

The evidence that we are still more in a sellers market is evidenced by the above Cromford Market Index. 

For the uninitiated, a 'balanced' market, in terms of supply and demand, is a CMI of around 100.

The degree over 100 represents more demand than supply - sellers market

The degree under 100 represents more supply than demand - buyers market

The CMI tends to be a good short term market predictor, hence a sellers market that's cooling down.