Looking Ahead
In reporting real estate statistics, we attempt to measure as many metrics as we can, and then focus on the most relevant. As we move into 2020, there is no more important metric than supply and how supply relates to demand. Looking ahead to 2020, we’re coming out the box hot, characterized by above normal demand and extremely low supply. STAT reported 18,049 active listing (excluding UCB & CCBS) at the beginning of 2019, and we begin this year with only 12,425, a decline of 31%.
ARMLS Active Listings
The significance of this phenomenon cannot be overstated, and there is no one better than Michael Orr of the Cromford Report to explain these implications. In his recent monthly observation he states,
“The current situation is remarkable. The lack of supply can only be described as shocking. A 30% decline since this time last year to reach the lowest level since August 2005. This to satisfy a population that has grown more than 20% since 2005. Anyone who thinks this severe shortage will not result in a significant rise in prices is going to have another thought coming soon. The median sales price is already up 11% over the last 12 months and the average price per square foot is up almost 9% and probably heading for a double figure appreciation rate.
“Demand remains higher than normal but the Cromford® Demand Index has eased from around 107 to around 103 over the past 4 weeks. This will not make much of a difference while supply remains under half of what is needed for a balanced market.
“The big hope for buyers must be for a surge in new listings arriving over the next 12 weeks. Perhaps sellers will be tempted by the higher pricing they can achieve. However, if they are staying around Phoenix, they will have to pay more for their new home too. Phoenix is currently the strongest large-city housing market in the USA, and this is fueled by inter-state population movements. Retirees are a big part of that, but so are people moving here from California and other Western states for work and the lower cost of living. Demand is likely to remain healthy despite the rising prices.
“The primary question is whether we will see any change in the meager supply of homes for sale. If this is to take place it is likely to be visible over the next few weeks. There has been no sign of an improvement in new listing flows in the last several weeks of 2019. But 2020 is a new year, so we will be watching closely for signs of change.”
In their forecasts for 2020, most national real estate experts anticipate the housing market moving sideways rather than up or down, with the consensus of a 4% increase in sales volume and a 4.5% increase in prices. As for our market, my crystal ball shows a different slant, at least through the first part of the year. I never like to offer forecasts. That said, if I were a betting man, I’d concur with Michael Orr and wager 2020 is going to come roaring out of the gate. The first half of 2020 people are going to be surprised. We will exceed national expectations. In the above chart, Fannie Mae cites the main reason people are buying. Here’s why my expectations are high:
- Strong price gains in December suggest above normal price gains during our “home buying season” with contracts accepted February through May and closings March through June.
- Anecdotally, it doesn’t matter where you go in the Valley on a Friday or Saturday night, the restaurants and bars are booming, many with lines to get in. This is indicative of a strong local economy.
- Competitive interest rates. According to Freddie Mac, “Mortgage rates drop as 2020 gets underway. Mortgage rates fell to the lowest level in thirteen weeks as investors sought the quality and safety of the U.S. Treasury fixed income markets. The drop-in mortgage rates, combined with the strong labor market, should propel a continued rise in homebuyer demand.”
- Homeowners are leaving California and choosing Arizona as one of their prime destinations.
- In almost every election year (exceptions include the anomaly that was the rise and fall of 2004-2008), we see total dollar sales volume increase significantly from the previous year. I anticipate the trend to continue in 2020.
The Pending Price Index
Last month the STAT mathematical model projected a median sales price for December of $287,900. The December reported median was $289,900. Looking ahead to January, the ARMLS Pending Price Index anticipates the median sales price will increase ever so slightly, projecting a median sales price of $290,000. The December median of $289,900 was not only the high-water mark for home sales in 2019, but the highest ever. This upwards price pressure will make for an interesting start to the 2020 selling season, which begins early February.
We begin January with 4,821 pending contracts; 2,741 UCB listings and 360 CCBS giving us a total of 7,922 residential listings practically under contract. This compares to 6,441 of the same type of listings one year ago. At the beginning of January, the “pending” contracts are 23% higher than last year. There were 21 business days in January of 2019 and 21 this year. ARMLS reported 5,357 sales in January of 2019. For the first projection of 2020 we’re just going to increase 2019 volume by 23% which anticipates sales around 6,600. This puts 2020 line with 2005 numbers. There’s a part of me that wants to go even higher, but we’ll leave it where it is. In next month’s STAT, we’ll let you know how far we missed the mark.
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Confidence through competence,
