Where has the inventory gone?! Under contract...that's where.

Listings under contract continue to accumulate as buyers sign up for the diminishing supply of homes for sale:

Note how 2020 followed a very similar track to 2018 until mid-March. Contract activity fell sharply but stabilized during April and then recovered all the lost ground and more over May and June.

It is very unusual for us to see almost 14,000 listings under contract at this point in the year. It did happen between 2009 and 2013 but that was caused by the large number of short sales that stayed under contract for many months awaiting lender approval.

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The SIR Ninja Facebook meeting with SIR president Phillip White had one particularly interesting takeaway for me - that what we're experiencing in our local market is being mirrored nationally - brisk post-lockdown sales activity coupled with little inventory. A national housing shortage.

Catch-22 - a problematic situation for which the only solution is denied by a circumstance inherent in the problem.

This is what's happening. The solution to the inventory problem is more listings, however, chances are many would-be sellers feel stuck because there's nowhere to go.

Actionable: 'Move-up' sellers in this situation...it might be worth a serious exploratory conversation especially if you'll be needing financing on the next purchase. The 3% versus the 5 to 6% interest rate we thought was so good about 12 years ago gives buyers about 30% more buying power today. Maybe more, if you get to retire a higher interest rate on their current mortgage in the process. 

This is huge. And while the FED is signaling these rates aren't going away any time soon, the feeding frenzy in our market doesn't look like it's going away any time soon either!

Your favorite mortgage rep may be of help laying out sale / purchase scenarios to help motivate that seller who, again, might like to move if they could see that it's worth getting into this highly competitive, high stakes game of Monopoly we're in.

Market Frenzy....Back with a Vengance

Cromford Daily Observation - Once again, here is our table of Cromford® Market Index values for the single-family markets in the 17 largest cities

Like last week, all 17 cities have moved in favor of sellers over the prior month, but this time they are moving at the fastest rate we have ever witnessed.

A surge in demand coupled with an unusually weak supply of new listings is creating an almost surreal market. In many segments, buyers outnumber sellers many times over. In this environment things can get very frenetic and stressful, decision time is often very short and mistakes can result. Buying a home is one of the biggest decisions a buyer will make so I hope they will take time out to think carefully and not get caught up in the frenzy.

As recently as May 21, all 17 cities were moving in favor of buyers, so the change in direction has been sudden and violent. This is not normal.

The higher end of the market was lagging behind significantly, but is now joining in too. Paradise Valley's CMI is up 26% and Scottsdale's up 25% over the last month.

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You don't need me to decode this...you're seeing it.

As we approach tomorrow's summer solstice, we clearly see the inverse relationship between 2019 and 2020 - that as the market would typically be slowing in the heat, it's actually heating up...dramatically.

Again, the best evidence is Listings Under Contract:

Below we see PV about to overtake 2019 in a season-defying surge:

Similarly, Scottsdale has now surpassed 2019 in Listings Under Contract:

And then there's the Valleywide scenario! 

Here we see this week 24 of 2020 has over 1,000 transactions over this time last year.

Frenzy is the word...

Quick Update 6/11/2020

Frenzy Is Back - 23% of Sales Close Over Asking Price
Luxury Rebound - Contracts Over $500K Up 159%

For Buyers:
Greater Phoenix is officially back to a frenzy market with more properties under contract than available for sale.  Over the past 4 weeks the number of contracts accepted weekly has jumped another 20% since last month’s report, bringing the total recovery since April 5th to 68% and 2.5% higher than it was in late February; before the stock market crashed and the stay home orders were imposed due to COVID-19. 

The most frenzied areas are those with average sale prices between $200K-$400K.  That includes just about all of the Southeast Valley and West Valley, North and South Phoenix.  At last count, there were 2,061 properties for sale between $200K-$300K and 4,333 under contract already.  Between $300K-$400K, there were 2,006 available for sale and 3,017 under contract (24% higher than this time last year). 

While all price ranges have rebounded in contract activity, May saw the largest comeback between $500K-$1M where the number of accepted contracts soared 167% from a low of 148 contracts the first week of April to 395 the first week of June.  That’s 58% higher than last year’s count in the same week of 250 contracts. Even more dramatic, contracts over $1M are now up 85% compared to this week last year.

The result for buyers is an inventory that’s back to a pre-pandemic low. In our March update, inventory was at a historic low of 11,087 listings before vacation rentals began flooding the market for sale.  Inventory rose 35% over the course of 4-5 weeks and peaked in mid-April. Since then, inventory has consistently dropped week over week and now lies at 11,232; just 145 more listings than before this whole situation began.

Low interest rates and positive affordability indicators continue to fuel demand and cause prices to rise.  The big question buyers ask, “Is it still a good time to buy?”. The answer is yes, for now.  Affordability is still within normal range, which is a good reason why there’s so much demand. However, if affordability drops below the normal range for those making the median family income, then the market will begin to cool.  We are not there yet. It’s best to get in while it’s affordable.

For Sellers:
Not surprisingly, there is an increasing percentage of closings over asking price.  23% of all closings so far in June have recorded over asking price, up from 17% recorded in January and 19% recorded in February.  That percentage increases to 38% for closings between $200K-$250K and 27% between $250K-$300K.  It’s not uncommon for sellers to experience multiple offers, escalation clauses and appraisal waivers in today’s environment. In fact, there have been reports of 70 competing offers or more on homes under $300K.

Sellers who have been on the fence about listing their home lately should seriously consider it now and take advantage while the market is hot.  This spurt in buyer activity may peak very soon and then fall into the typical seasonal decline the Greater Phoenix market experiences every year from July to December.  Pent up demand from the pandemic is now being released, but there’s no guarantee that it will continue at this level for long.  If you planned to sell your home this year, now is the time to list it.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2020 Cromford Associates LLC and Tamboer Consulting LLC

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This whole piece above is worth digesting for it's talking points. 

Pent up demand from the pandemic is now being released, but there’s no guarantee that it will continue at this level for long.  

If you planned to sell your home this year, now is the time to list it. Tina Tamboer, Senior Housing Analyst with The Cromford Report

Keep in mind that a listing agent's income doubles to triples, as every listing generates inquiries, which statistically translate into another 2 or 3 revenue units (listings and sales).

Monthly Payment vs. Interest Rates...A historical Phoenix Comparison

Cromford Daily Observation - Today we are sharing a couple of charts created by Tina Tamboer to compare the monthly payment for a typical 1,500 to 2,00 sq. ft. home over time.

We see that the ideal time to buy a home was between March 2009 and late 2012. Because of the current low interest rates, the typical house is no more expensive to own than it was 15 years ago in 2005. It is a lot cheaper than in mid 2006.

Focusing on the more recent years:

Although home prices have increased, monthly payments have gone down over the last 18 months.

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This is an important and compelling message that applies statewide - the bottom line being that even though average prices (in the Valley) are back to where they were at the market peak in April of 2006, the mortgage payment is 30% less! That's because interest rates are over 3% less. Put another way, today's buyer has 30% more buying power for the same cash outlay. This also increases the seller's pool of qualified buyers!

A major 'talking point' in the Peak Training Series is on today's interest rates - 3 points: 1. They're 'artificially' low (Fed printing money); 2. unsustainable; and 3. the money point - 'for every 1% interest rates go up buyers lose 10% buying power.'

Tina Tamboer's charts above skillfully demonstrate this phenomenon in a most timely way. Such a graphic is a remarkable message to both buyers AND sellers...

Message to buyers: You can't save money fast enough to compensate for what you will lose as interest rates inevitably climb. 

Message to sellers: If you need financing for your next purchase you'll win on both sides by making your move sooner than later i.e. you'll have a larger pool of qualified buyers for your home today AND you'll have more buying power for that next purchase.

AZ Market Turn Around

Once again, here is our table of Cromford® Market Index values for the single-family markets in the 17 largest cities:

The turnaround in the direction of the market is enough to make your head spin. We now have 13 out of 17 cities improving for sellers, most of them at a very fast rate.

We note that the 4 cities that have not improved for sellers over the past month are all higher priced parts of the valley. All four of them have started improving for sellers over the past week or two. Paradise Valley remains in a balanced market but all the others are seller's markets.

Among the smaller cities we do have one example of a mild buyer's market - Sun City. The age restricted market has been hardest hit as a large percentage of their population is vulnerable to COVID-19 and many are probably sheltering in place.

The general market below $600,000 is now booming and supply is dropping very fast.

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Decoding the chart above:

The Cromford Market Index (CMI) is a proven short term predictor of the market. Essentially it's an algorithm that looks at the relationship between supply and demand.

A score of 100 = supply / demand balance

Over 100 = more demand than supply

Under 100 = more supply than demand

Green arrow up = trending in sellers favor

Red arrow down = trending in favor of buyers