Appreciation Number Updated

The latest S&P / Case-Shiller® Home Price Index® numbers were published today. They cover home sales during the period from May to July 2020.

Comparing with the previous month's series we see the following changes:

1. Portland +1.32%
2. Cleveland +1.27%
3. Los Angeles +1.14%
4. San Diego +1.07%
5. Boston +1.02%
6. Phoenix +0.88%
7. San Francisco +0.87%
8. Washington +0.82%
9. Charlotte +0.59%
10. Seattle +0.59%
11. Las Vegas +0.58%
12. Tampa +0.56%
13. Chicago +0.53%
14. Minneapolis +0.53%
15. Atlanta +0.51%
16. Miami +0.45%
17. Denver +0.38%
18. Dallas +0.36%
19. New York -0.14%

The national average was +0.78% so Phoenix home prices increased at a higher rate than the national average, but slipped from 3rd to 6th place compared with last month..

The year over year comparisons are below:

1. Phoenix 9.2%
2. Seattle 7.0%
3. Charlotte 6.0%
4. Tampa 5.9%
5. San Diego 5.5%
6. Cleveland 5.5%
7. Los Angeles 5.3%
8. Minneapolis 5.2%
9. Portland 5.0%
10. Atlanta 4.8%
11. Denver 4.4%
12. Washington 4.4%
13. Boston 4.4%
14. Miami 4.1%
15. Las Vegas 3.3%
16. Dallas 3.2%
17. San Francisco 2.5%
18. New York 1.3%
19. Chicago 0.8%

The national average was 4.8%. Phoenix remains well out in front of the annual measurement.

________________

We always have to footnote that the Case-Shiller® Home Price Index is a 3-month look back. So the 'national average' of 4.8% is July data.

Given the most recent appreciation numbers in our market, while the relative city data is instructive, it would be even more robust if it were current.

Market Update - 9/25/2020

  How best to measure house price appreciation? There are so many choices:

• average sales price
• median sales price
• average price per square foot
• median price per square foot
• index based on sales of the same property

Case-Shiller's approach is the last of these and tries to eliminate the distortion that occurs when the mix of homes changes. However, it still does not account for huge improvements in the property that may account for some of the sales price appreciation. During the housing crash of 2007 to 2011 it failed to account for huge deteriorations in the properties that occurred when owners abandoned their foreclosed homes. In addition, using an index tends to make the data very old by the time it is published. With Case-Shiller, we are always 2 to 3 months behind the current market.

The other question is what period to measure

• monthly sales
• quarterly sales
• annual sales

The longer the period measured the higher the number of measurements and therefore a much steadier picture emerges. However, when prices are moving quickly, the long measurement period tends to obscure the recent price movements.

We, therefore, like to use a wide variety of measurements of appreciation, rather than just one.

At the moment we have an extremely fast upward movement in home prices and they are accelerating. This pushes us in favor of using a short measurement period like a month. However, we need to make sure the sample size remains adequate. Most ZIP codes are too small to qualify, but the major and secondary cities are big enough.

As predicted by the huge rise in the Cromford® Market Index that started back in May, we are now getting high rates of appreciation and they are rapidly moving higher still. Here are yesterday's numbers for annual appreciation based on the average price per square foot for single-family sales that closed between August 24 and September 23, 2020, compared with the same period in 2019.

1. Cave Creek - 23.6%
2. Sun Lakes - 23.1%
3. Arizona City - 19.4%
4. Scottsdale - 19.4%
5. El Mirage - 19.0%
6. Avondale - 18.6%
7. Gold Canyon - 18.2%
8. Phoenix - 18.1%
9. Litchfield Park - 18.0%
10. Peoria - 17.3%
11. Queen Creek - 16.9%
12. Casa Grande - 15.7%
13. Gilbert - 15.6%
14. Fountain Hills - 15.5%
15. Tolleson 15.0%
16. Tempe - 14.9%
17. Apache Junction - 14.7%
18. Sun City West - 14.6%
19. Maricopa - 14.1%
20. Paradise Valley - 13.6%
21. Surprise - 13.1%
22. Laveen - 12.9%
23. Sun City - 12.6%
24. Goodyear - 12.0%
25. Mesa - 11.9%
26. Glendale - 11.9%
27. Anthem - 10.6%
28. Chandler - 9.6%
29. Buckeye - 9.0%

The greater part of those price rises happened in the last 4 months and the next 4 months will also see rapid escalation of pricing. This will continue until the prices have risen enough to cure buyers of their enthusiasm.

___________________

Seasonality has been turned on its head! 

This isn't the first time. 

Look what happened and when it happened during the rise and fall of the market during the crash:

To give additional perspective: Average annual appreciation long term in the Valley and pretty much throughout the State has been around 5% per year.

Above we see a stunning 9 years worth of appreciation happened in the 2004 - 2005 run up!

In this same graph we contrast the subsequent crash that followed in 2006 but really got it's momentum in 2008 as reflected above, where pretty much all of that gain was lost.

If we look year-over-year today, again, we're beginning to see some stunning appreciation figures...and happening during the time of year we would typically see some retraction in market activity and stalling of appreciation gains:

As I brought up earlier this week - with the rapid rise and fall of the market 15 years ago embedded in the collective psyche, the question of sustainability with today's rapid appreciation (and projections of more of same) has to be of central concern to buyers who 'remember' and maybe suffered the consequences of it.

So it's incumbent upon us to be versed with the differences between then and now.

• Then, the rapid rise was based on the artificial device tagged liar loans. A feeding frenzy resulted as inventory evaporated in the face of off-the-charts-demand, giving us an unsustainable appreciation spike.
• It was unsustainable, albeit prices kept rising for 27 months even as demand collapsed.
• Today, liar loans are gone. Demand is organic - with a rather perfect storm of factors we could argue are sustainable. 
• To name a few:
• Pent up Demand, as millennials come of age
• An Equity Market - as sellers equities have been restored to at or above the peak.
• The long-standing internal U.S. migration, as people want their place in the sun, partially driven by demographics (aging population) and...
• The talk-of-the-day migration we're experiencing in real-time as a consequence of the pandemic
• The expectation that the post-pandemic shift to work-from-home being adopted by much of America's workforce is here to stay
• Subsequently, the 'lifestyle' shift toward a desire for more space reigniting a resurgence in the appeal of bedroom communities - in no small part connecting the dots with the Cromford Data above, as cities like Cave Creek are suddenly experiencing an out-of-character (by historical norms) spike in appreciation relative to other communities, albeit the entire Valley is metaphorically speaking on fire.

 There is this fascinating compare and contrast that again, I suspect I'm needing to unpack for my buyers and sellers. To that end, I hope this helps.

A nice supply jump! Quickly off-set with another demand peak.

 I have to admit I was not expecting the daily CMI chart to look like this:

Having reached a plateau at 342 and facing a large percentage rise in new listings compared with September 2019, I was expecting to see a decline starting in early September. But even if you have been tracking the market closely for 16 years, it can still surprise you. Demand has continued to increase despite its already high level. This has not only soaked up the new supply it has prevented the active listings without a contract from growing except in a few small areas.

As a consequence, the CMI keeps making new record highs, today's being 346.1. This comfortably exceeds the highest point in 2005 (312.9). In April 2005, the CMI started a long and continuous descent to eventually reach its nadir at 26.5 in October 2007. Today's situation is unlike 2005 in many significant ways, but I would still expect a little steam to come out of the boiler to relieve the pressure. In most years we see a noticeable increase in active listing counts between September and the beginning of December. 2020 has been different from normal in so many ways, so we do not know if this pattern will repeat. In theory, the rapid rise in prices which is now taking place, should make homes less affordable and damp down some of the buyer enthusiasm. On the other hand, many buyers may see the price increases and decide that if they wait it will only get harder to get the home they want.

So we do not know if the CMI will keep hanging up there like Wile E. Coyote running off the edge of a cliff, continue another leg upwards or start to obey the natural laws of economic gravity. The only thing we do know is that a CMI of over 200 means home prices must rise a great deal from where they are in the immediate future.

__________________

Defying season norms is great for my business. However, it does beg the question of sustainability. Some of my potential buyers are thinking: Are we buying at the top of a market that will ultimately implode. 

Simple explanations are usually the best. 

Of course, we don't have a crystal ball. But we can cite short and long term trends - the simple dynamics of supply and demand. 

There's inherently a finite supply of land and homes to feed the supply side. 

It's the demand variable that's key. 

Like a broken record we keep coming back to the historical facts that long term - truly ever since air conditioning came to the Valley about the time Russ Lyon Realty was fortuitously formed in 1947, people have come for their place in the sun. It's my story. Perhaps yours as well. That, together with the Arizona lifestyle, has kept us in record-breaking territory these past 70 plus years. 

The pandemic in a very real sense has just put this long term historical trend on hyperdrive. 

To the question of sustainability - 

Beyond the continuation of the long term trend, we're experiencing a fundamental shift in how people think about 'home'. Most notably, the sudden rise in the work-from-home option. Ironically, just that alone is creating a massive shift being felt Statewide, as well as nationwide and worldwide. 

It's setting in motion a recalibration that clearly has legs. I say 'clearly' because everyone feels it, knows it, making it self-perpetuating.

APPRECIATION - 'you probably ain't seen nuthin' yet'

 The monthly appreciation chart is complete and shows, based on comparing the average $/SF for August 2020 with August 2019, that the **current appreciation rate is 15.2% across all areas & types.

This does not mean that any specific house has risen in value by this much, because the mix of homes that sold in August 2019 is not necessarily the same as the mix that sold in August 2020. This summer, luxury homes are selling in much stronger numbers than they did in the summer of 2019. The age of the home is crucially important because a home that is updated and modern is going to sell for a whole lot more than one that is tired and out-dated. This is why fix and flip works, even when the size of the home is unchanged.

It does mean that prices are now beginning the powerful surge upward that was predicted when the Cromford® Market Index started to rocket skywards in June.

The CMI is now at the highest level ever recorded, which indicates:

You probably ain't seen nuthin' yet.

___________________

**This is the current appreciation rate in the Monthly Price per Square Foot chart referenced above:

To see how this translates to the Valley-wide Monthly Average Sales Price and it's year-over-year percentage increase we have the following chart:

Monthly Average Sales Price. However, we have to be careful not to confuse the increase in Monthly Average Sales Price with appreciation.

With many variables at play this kind of rapid annual appreciation rate has its challenges for us.

For example, the seller's temptation, a mistake of course, is using the Valley's current appreciation rate as a means to get to the current value of their particular property.

Your carefully crafted CMA remains the best way to parse relevant distinctions to deliver that tight 'trading range' in which a property should be 'competitively positioned' to sell for top dollar, all things considered.

Practical Application: If the question coming from your out-of-state buyer is how do appreciation rates compare across different cities in the Valley, we can break it down to the city level - samples below. 

So now as you scroll the city samples below, notice how Appreciation Rates vary. 

Definitions:

Appreciation Based on Annual Av $/SF: This measurement takes the average price per square foot for sales during the preceding annual period and compares it with the same period one year earlier.

Monthly Av Sales Price: The value measured is the average price for homes sold during the calendar month.

So, even though it's 'apples to oranges' (no direct correlation), I thought it would be interesting to see a side-by-side comparison of both: 

In other words, the current rate of Appreciation based on the Annual Av $/SF chart followed by the current change in Monthly Average Sales Price, together with my calculation of the year-over-year percentage difference. 

Notice, for example, how Scottsdale has a fairly modest current Appreciation Rate of 7.4% (by comparison with other Valley cities), but a whopping current 25% year-over-year increase in the Monthly Average Sale Price - now pushing $1M ($933K to be precise)! Rather stunning.

Perhaps this is what was meant as the Cromford Daily Observation anticipates a powerful surge upward in prices saying 'You probably ain't seen nuthin' yet!

More city comparisons - listed alphabetically:

What a difference a year has made in Cave Creek - the widest gap in our year-over-year Annual Appreciation Rate sample. Some of you are thinking 'how about Carefree'? Cromford doesn't publish these charts for Carefree, probably because of the small size of that market. 

If you're scratching your head for a way to leverage this information, I have an idea for a custom marketing piece I'll share with you tomorrow using a collection of Collateral Analytics Intelligence Reports elements that do much the same compare and contrast that you see in the Cromford Charts above, only down to the subdivision level. Stay tuned...

15% Annualized Appreciation - No Kidding

 Market Summary for the Beginning of September

Here are the basics - the ARMLS numbers for September 1, 2020 compared with September 1, 2019 for all areas & types:

• Active Listings (excluding UCB & CCBS): 8,028 versus 13,609 last year - down 41.0% - and down 5.3% from 8,477 last month
• Active Listings (including UCB & CCBS): 13,178 versus 17,577 last year - down 25.0% - and down 0.6% compared with 13,259 last month
• Pending Listings: 7,892 versus 6,350 last year - up 24.3% - and up 4.5% from 7,550 last month
• Under Contract Listings (including Pending, CCBS & UCB): 13,042 versus 10,318 last year - up 26.4% - and up 5.8% from 12,332 last month
• Monthly Sales: 9,225 versus 8,916 last year - up 3.5% - but down 12.5% from 10,543 last month
• Monthly Average Sales Price per Sq. Ft.: $194.85 versus $169.18 last year - up 15.2% - and up 1.9% from $191.16 last month
• Monthly Median Sales Price: $325,000 versus $280,000 last year - up 16.1% - and up 3.2% from $315,000 last month

The housing market remains extremely strong and continues to hit news heights. The closings in August were down from July, but this is partly due to August having fewer working days than July. The fact that pending listings and listings under contract rose between August 1 and September 1, tells us that demand is not weakening despite the lower number of closings. The balance between closed sales and contracts that have not yet closed has swung in favor of the latter.

We can see that supply remains very low indeed, but has only declined 0.6% over the past month. We anticipate that supply will start to grow over the next 30 days. This is because we are seeing far more new listings than we observed during the first half of the year. With the average price per square foot up more than 15% it is not surprising that this is tempting a few more sellers. In theory it should be tempting a few less buyers, but the low mortgage interest rates have kept buyer interest very high.

A startling figure is 26.4% - the amount by which listings under contract exceeded this time last year. The level of growth is highly unusual.

Once again, supply is low and demand is high, so prices have to rise. The price increases have really started to accelerate over the past 2 months. We now see appreciation over 15% measured by monthly $/SF and over 16% when measured by the monthly median sales price. This is even more shocking given that August is usually one of the weakest months of the year for pricing. By the time we get to year end, we can expect these numbers to be even higher.

The market is more stable than last month, with the Cromford® Market Index hovering near its all time high. The expected growth in supply over the coming 3 months should give some welcome relief to buyers. At least they should have a little more choice. However, there will be little to no respite from multiple offers and the ensuing stress levels. We expect price rises to eventually start negatively impacting affordability causing more buyers to drop out of the market and start a cooling cycle. But eventually could mean quite a long time in the current conditions. The market remains hard to predict, so instead will require close and timely observation.

__________________

Here are the most salient talking points:

• 26.4% year-over-year increase in Under Contracts (UC's being our best near-term predictor)
• 15% year-over-year annual $/sq ft appreciation, as demand remains off the charts relative to supply, which will continue to translate to higher prices
• We're starting to see more new listings, giving some relief to buyers
• Affordability should eventually cause appreciation to moderate, however (not mentioned above) current historically low interest rates help maintain affordability, fueling demand