Needed Inventory Bump

We saw very weak new listings numbers in the first half of 2020, down 5% from 2019 for the first quarter and down 14% for the second quarter, across all areas & types. However the third quarter has got off to a blazing start and new listings are up 11% compared to the same 4 weeks in 2019. This extra supply will certainly help dollar volume and sales counts, but so far it has not done very much to raise the level of active listings. This is because active listings are getting acceptable offers even faster than before, meaning the higher arrival rate of new listings is balanced by listings going under contract faster and being removed from active inventory.

This stronger trend in new listings is accelerating and over the last week we have seen 17% more new listings than during the same period in 2019. If this trend continues then we should see inventory start to grow. We normally expect to see inventory grow between August and November every year, so this would not be very surprising.

Today we see slightly more inventory (without a contract) for single-family homes than we did a week ago in the following major cities:

• Avondale
• Cave Creek
• Chandler
• Gilbert
• Maricopa
• Mesa,
• Phoenix
• Queen Creek
• Tempe

However single-family inventory without a contract is still falling in:

• Buckeye
• Fountain Hills
• Glendale
• Goodyear
• Paradise Valley
• Peoria
• Scottsdale
• Surprise

These trends suggest that the Cromford® Market Index will continue to rise, but at a slowing pace over the next few weeks.

Long-term rental listings are arriving at a slow pace - 2,181 for the last 4 weeks across all areas & types. This is down 11% compared to the same time last year.

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While we welcome the new listing improvement, to keep things in perspective, the year-over-year Active Listing totals remain 27% lower. 

So, this is really 'early bird' info that isn't showing up yet in our monthly Listing Activity charts. And, as mentioned above, inventory continues flying off the shelves faster than it's being 'restocked'.

Still, this is a welcome talking point - 'more listings year-over-year these past 4 weeks in 9 or our 17 Valley cities'. 

A more refined point is that so far, the supply / demand imbalance in the NE Valley luxury corridor is showing no improvement yet (except Cave Creek).

May the improving inventory 'trend' continue and broaden - that the listing gap begins to close and the market normalizes some as we continue into the second half of this year.

Record AZ Real Estate Despite Pandemic

The market just hit a new all time record for dollar volume.

At $4.126 billion, the amount closed over the last month exceeds the previous record of $4.085 billion set in June 2019.

It may seem counterintuitive to some that the record should be set during the midst of a pandemic, but the numbers don't lie. In fact the low levels of sales during April, May and June mean there is now a backlog of pent-up closings which far exceeds the norm for the third quarter. On top of a jump in closings, there is also a surge in pricing making this third quarter unlike any we have seen before.

There was a dramatic change in the mix of transactions during the second quarter of 2020, compared with any previous quarter.

Comparing specifically with the second quarter of 2019:

• Purchases for owner-occupied primary residences increased from 74.6% to 82.7% of all sales across Maricopa and Pinal County
• Purchases of second homes decreased from 10.1% to 8.3% of all sales
• Purchases by investors dropped from 10.7% to 8.1% of all sales
• Purchases by iBuyers fell from 3.7% to 0.7% of all sales

The dramatic collapse of iBuyer purchases means they are starting the third quarter of 2020 with much lower inventories than they started the second quarter..

Investors were less active during the second quarter of 2020 and cash purchases were lower than normal too - they fell from 21% to 15% of all sales between Q2 2019 and Q2 2020.

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Beyond record breaking volume we're seeing fewer investor and iBuyer purchases; more owner-occupied sales; and more buyers holding onto their cash. No big surprises. 

Talking points: 

• Record breaking Volume together with incredibly low interest rates is a definite green light to make your move if you can find a place to go!
• Also, the transaction / buyer mix hopefully translates into a fraction less competition for first time buyers (competing with investors).
• The more interesting, ongoing tracking we're doing is on Listing Under Contract - the real time pulse of the market.
• Below we see the seasonal drift, yet tracking 15% over 2019!  With everything going on, amazing news on multiple fronts.

Out of State Buyers Update

There has been talk of increased inward migration to Central Arizona but as we mentioned on July 18, there is no evidence of that from affidavits of value recorded during the second quarter. If there is a surge of interest from out of state buyers, those homes are still under contract or closed after June 30. Of course, we have no data about out-of-state renters, since leases are not recorded.

Based on the last 12 months to June 30, the following states provided the most in-bound purchasers of homes in Maricopa and Pinal. I have excluded company purchases and those buying properties to rent to a third party. I only included individuals and couples who bought a primary or secondary residence for their own occupation.

1. California 4,762
2. Washington 1,722
3. Colorado 1,292
4. Illinois 1,167
5. Minnesota 774
6. Oregon 616
7. Texas 591
8. Wisconsin 443
9. Utah 388
10. Michigan 366

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Well, around 400 Californians moving here every month is no surprise.

As you read this, keep in mind in this highly charged environment we have zero interest inferring any political statement. This is simply what our clients are reporting to our agents.

To the question of who's coming:

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1. Still Californians, which came on strong last year since they’ve had enough of the politics/policies, taxes, and now the pandemic, want privacy & more space; make note they were originally looking to make this a 2^nd home and now selling elsewhere to make it primary!
2. Seattle coming in 2^nd for the same reasons.
3. Midwest major city’s Minneapolis, Chicago, Milwaukee & a sprinkling from St. Louis.
4. East coast big cities wanting out (we have part-time owners that have decided to stay here all year; have homes on Park Avenue & Chicago Lake street nothing to go back for…no restaurants open nor theater and they live in high-rises with restrictions)
5. Can’t forget our Valley homeowners wanting to move out & up!! I’ve seen several potential buyers from PV looking for more space.

Overall between pandemic and the protestors in the streets people are seeking more space & larger homes as well; we currently have 18 homes closed, UCB, or Pending over 6,000 SF only one in February all others after April and majority May & June. This is new; up until this most people wanted under 5,000 SF.

Another item that came up of note is a few of our international owners are selling since they can’t get here. Now, I’m thinking maybe it's because they were thinking of selling this coming year anyway and since they couldn’t come they're selling. As we know a lot of Canadians had to leave in early March and still can’t come back… we may lose them eventually.

Market Update 7/21/2020

Cromford Daily Observation- At times like these, appraisers have a tough job. Prices have risen fast over the past few weeks but the comps that appraisers are looking at stretch much further back in time, including April, May and June, when pricing was much weaker. The result is we are seeing many more agreed sales where the appraisal comes in low. This can be frustrating for the buyers and sellers, causing some sales to fall through.

Using comparisons over the last 3 months will give us an average of about $182 per sq. ft. But closings in July have averaged over $191 per sq. ft. The rate of price increases for listings under contract suggest the $200 level is not far away. Appraisals act as a natural brake on the fast movement of prices since they assess new deals on the basis of older ones. However, when supply is very low, there is usually an offer on the table that does not require an appraisal. So despite the braking effect, the market pressures still move prices higher.

We expect offers with a waiver of appraisal to become especially attractive to sellers over the next several weeks. However, many buyers will not have that option since their lender will probably be much more cautious than the buyer. This is one thing that is very different from 2004, when many lenders were willing to throw caution to the wind. Those lenders went out of business by 2010 so it is not surprising that lenders insist that appraisers continue to do their job very carefully.

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The Cromford Report primarily covers the Valley. However, the message above is mirrored statewide.

I'm using Collateral Analytics to show how the rapid increase in prices is being mirrored in all the Arizona markets we serve.

July 20 Update - The Market's Ridiculous

Top 5 Cities Selling Over Asking Price
Contracts Accepted in 8 Days or Less Under $400K

For Buyers:
Greater Phoenix has a population of approximately 4.8 million people and 1.4 million single family homes, condos and townhomes in total inventory.  As of July 8th, only 8,579 of these units were available for sale through the Arizona Regional MLS.  If that number doesn’t cause you to gasp, then this might: only 1,023 are single family homes under $300,000 and that number is diminishing every day. The last month has seen a surge of buyer activity, but it was not met with an equivalent surge of new listings. New listings overall compared to last year were down 7.8% while contracts in escrow soared 24% higher.  For buyers under $300K however, new listings were down 22% in June compared to last year and are down 38% so far in July.  This is causing an extreme amount of buyer competition in this price range. When buyers expand to over $300K, then new home construction starts supplementing inventory and providing some much needed alternatives.  The top 3 cities for single family home permits are Phoenix, Mesa and Buckeye with notable spikes in building permits issued in Surprise, Maricopa and Queen Creek.  Most new homes are selling between $300K-$500K, but buyers looking for a brand new single family home under $300K still have some options. Their best bet is in Pinal County or Buckeye with average sizes between 1,800-2,000 square feet for their budget. Conversely, new listings over $500K saw a spike last month, up 20% over last year.  1,596 new listings came on the market and 2,046 contracts were accepted in this price range in June.

For Sellers:
Brace yourselves.  Half of the sellers who accepted contracts under $400K in the first week of July were on the market for just 8 days or less with their agent prior to contract acceptance.  Sellers who took contracts between $400K-$600K had a median of 14 days on the market with their agent and those who landed contracts between $600K-$1M had a median of 41 days.  It’s a good time to be a seller.  While 28% of all sales in July so far have closed over asking price, that percentage peaks at 41% for those between $200K-$300K. Top cities for closings over asking price are Tolleson, Avondale, Glendale, Gilbert and Youngtown.  Gilbert is the only city in that list with a median sale price over $300K.  Seller-assisted closing costs remain popular and were involved in 23% of all sales in the first week of July. That percentage increases to 33% on transactions closed between $150K-$300K.  Top areas where 50%-60% of sales involved sellers accepted closing cost assistance were Youngtown, West Phoenix, Aguila, Glendale, and Tolleson. This supports the theory that sellers receiving offers over asking price in the West Valley and other affordable areas are still open to accepting closing cost assistance if a contract meets their most important needs.

Increase in inventory...finally. Early but let's see if it continues.

As you probably know, we scour the new listings every day for signs of a change in the market. Today we can report what looks like a significant change over the past week. A total of 2,103 of new listings have been added to the ARMLS database in the last 7 days, This is up over 19% compared with the same period in 2019 and up over 8% compared with the same 7 days in 2018. New listing counts have been exceptionally weak since April, but just as we saw a surge in new listings between March 19 and April 3, we are now seeing something similar. The first surge in March occurred at the same time as the initial rise in COVID-19 cases began to seriously impact the housing market.

The underlying reason for the current surge in new listings is not entirely clear, just yet. It could be due to a number of reasons, including the sharp increase in COVID-19 infections since the low of May 25. It could also signal some lack of enthusiasm by landlords given their exposure to inadequate rent collections. Certainly purchases by investors have been unusually low in the last 3 months and restrictions imposed on evictions and high unemployment are not good market conditions for landlords. The percentage of homes purchased by investors in June 2020 was the lowest since 2004. Some landlords may decide to sell while the market is frothy. We will need to do further digging to determine the owners of these new listings. This requires a cross-reference between the ARMLS database and the assessor's database, since the owner data is frequently omitted from the MLS listings.

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Because 'life happens' in the ebb and flow of market cycles, opportunities shift accordingly.

We know there's a spike in the luxury sector - both inventory and sales, even while the helter-skelter of the low and mid-range markets continues to be 'frothy' - that word from above makes me smile for some reason. What strikes me in reading the Cromford Daily Observation above is that the perceived negative turn for landlords and investors could create a sliver of opportunity right where the market is most difficult - working with first-time buyers.

This is really 'early' speculation, but here's the rationale:

1. IF we continue to see an increase in inventory, particularly in the 'starter' home range, it could signal some relief to Millenials looking for that first home AND

2. There may be listing opportunities by identifying absentee owners who see the combination of forces (travel restrictions; 'inadequate rent collections'; and yet a screaming hot market) as a good time to consider selling.

If you wanted to explore this further, you'd need a way to easily identify absentee owners. This short video is the 'how to' I created some time ago on using Monsoon in FlexMLS to generate a database of absentee owners who are from where you're from (common ground) is a perfect tool for this

Sellers market like we've never seen....

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

We described last week's table as approaching absurdity. Well this week we got closer still. The average increase in the CMI over the past month is 56%, up from 54% last week.

All the cities are running with the bulls, now that the luxury market is performing again. Paradise Valley is the only one of the 17 with a CMI less than 200 and even here we saw a movement in favor of sellers of 65%.

The inner west valley leads the table with Glendale and Avondale. How do you achieve a CMI of 572.7? You allow your single-family active listings without a contract to fall to less than 30, when the long term average is 357 and 126 homes are closing a month. Glendale has just 136 single-family homes available, compared the long term average of 928 and a monthly sales rate of 422.

The CMI is at an all-time record high in Avondale and Glendale, meaning they are in a more extreme situation than during the real estate bubble of 2005. The remaining 15 cities have not reached that point yet.

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To decode the graph above....

Green arrow up - favors sellers. Demand exceeds supply that's approaching unprecedented. For perspective, a CMI score of 100 represents a relative balance between supply and demand. 

The utility of the CMI is it's accuracy as a short term market predictor.

As mentioned above, we're reaching extremes in lack of supply relative to demand not seen since the real estate bubble of 2005. The dynamics, of course, are completely different e.g. no liar loans; an equity market, etc. 

Looking at Listings Under Contract, we do see some easing. Hard to say how much of that is seasonal heat or sheer lack of supply to meet the demand. At a minimum we see Listings Under Contract 13% ahead of last year (12,555 in 2020 versus 10,912 in 2019).