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.

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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.