Appreciation Update - Still #1

 Cromford Daily Observation - The latest S&P / Case-Shiller® Home Price Index® numbers were published today. They cover home sales during the period June to August 2020.

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

1. San Diego +1.90%
2. Cleveland +1.64%
3. Phoenix +1.54%
4. Los Angeles +1.36%
5. Boston 1.33%
6. Tampa +1.27%
7. Washington +1.15%
8. Seattle 1.14%
9. Las Vegas +1.13%
10. Portland +1.10%
11. Miami +1.08%
12. Dallas +0.98%
13. New York +0.95%
14. Charlotte +0.87%
15. San Francisco +0.83%
16. Denver +0.72%
17. Minneapolis +0.68%
18. Atlanta +0.50%
19. Chicago +0.41%

The national average was +1.06% so Phoenix home prices increased at a much higher rate than the national average, and rose from 36th to 3rd place compared with last month.

These are very strong price rises for a single month and show the earlier CoreLogic home price forecasts to be wildly inaccurate. These forecasts will have to be revised upwards substantially over the next few months.

The year over year comparisons are below:

1. Phoenix 9.0%
2. Seattle 7.8%
3. San Diego 7.1%
4. Cleveland 6.4%
5. Tampa 6.4%
6. Los Angeles 6.4%
7. Charlotte 6.3%
8. Portland 5.8%
9. Minneapolis 5.4%
10. Washington 5.4%
11. Boston 5.4%
12. Denver 5.0%
13. Atlanta 4.9%
14. Miami 4.6%
15. Las Vegas 4.4%
16. Dallas 4.0%
17. San Francisco 4.0%
18. New York 2.7%
19. Chicago 1.2%

The national average was 5.4%, up from 4.8% and showing a rapidly rising trend.. Phoenix remains well out in front on the annual measurement.

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When annual appreciation exceeds the long term average of around 5% it's particularly noteworthy e.g. Phoenix 9%! 

As always, keep in mind this is broad brush and inherently dated - 3-months old. This is why the commentary suggests These forecasts will have to be revised upwards substantially over the next few months.

It will be interesting to see what the combination of a national election followed by the holiday season will have. Maybe we'll have a little better idea after next week, though the dynamics we're seeing in the market - demand outpacing supply - will no doubt continue, albeit with some seasonal adjustments i.e. perhaps a bit more inventory; perhaps some tempering in demand. But we'll see soon enough!

Market Update - Still an Inventory Problem

 

 For Buyers:
A common complaint in the resale market is “there’s nothing for sale”.  However, from July through September, the Realtor® community added 30,340 brand new listings to the Arizona Regional MLS and sold 27,746, leaving just 8,203 remaining listings for sale.  That makes this 3rd Quarter the 2nd best in Greater Phoenix history for closings, falling just 436 sales short of 2005.  If that’s not impressive enough, there are another 13,502 properties currently under contract and scheduled to close in the next 30-45 days; up 36% from this time last year.  With this information, we can conclude that there is plenty for sale, but many listings are simply not in Active status longer than 24 hours in order to be counted.  Getting the supply count to rise right now is like trying to fill a bathtub when the drain is wide open.

Over half of all listings that went under contract in the 3rd Quarter were Active for only 9 days or less prior to contract.  To quote the movie “Spaceballs”, that’s ludicrous speed!  As exhausting and stressful as it is for buyers and their agents, supply and demand measures indicate prices in Greater Phoenix will continue to rise well into 2021. Hopefully, the short-term pain will lead to long-term gain for those who ultimately win a successful contract.

For Sellers:
Appreciation has accelerated significantly since June of this year.  The median sale price is up 18% since last October, but the current measure of $329,900 is up 12% from where it was just 4 months ago at $295,000. While that’s exciting for sellers, the speed at which homes are selling is causing some to worry they will not find somewhere to go after their home closes.  As a result, Realtors® are dusting off rarely used seller contingency addendums stating that any accepted contract will be contingent on the seller finding a home themselves prior to close. 

Compared to last year, sellers are asking 15-20% more for their homes in all price ranges between $150K-$500K. Between $500K-$1M, list prices are up 9-13% and 3-8% for price ranges over $1M.  The highest percentage of sales over asking price in the last 30 days are occurring between $200K-$400K with a measure of 34-45%.  While that’s a high percentage, it’s not the majority of sales. Most properties are still closing at or below asking price. However, for those who did go over the asking price under $400K, most winning bids were within $7,000 of list.

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

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The above Buyer and Seller commentary is packed with talking points. I've highlighted those that stand out for me - particularly the fact that it's not that there aren't listings coming on the market, it's the pace of absorption that is leaving us with nearly record low 'standing' inventory. 

The other standout is that to manage the problem of Seller's fearing they won't be able to find a place to go, the 'Seller contingency'. 

AZ Demand in a Pandemic - Best of Both Worlds

 The COVID-19 pandemic is not letting up any time soon and this morning over 92% of the US population lives in states where the weekly count of new cases is rising. The only exceptions are Alabama, Arkansas, Hawaii, Maine, Nebraska, North Carolina, Puerto Rico and the US Virgin Islands. Record numbers of new confirmed cases are being reported by the health authorities in Alaska, Indiana, Kansas, Kentucky, Minneapolis, Missouri, Montana, North Dakota, South Dakota, Utah, Wisconsin and Wyoming.

While the pandemic is wreaking havoc in parts of the real estate market, especially, the retail, office, and hospitality sectors, single-detached housing is more popular than ever. In a trend seen around the world, buyers are seeking some open space with privacy, so larger yards are at a premium but flats in tower blocks are out of favor. Big expensive cities with crowded downtown areas are seeing an exodus to the suburbs, especially for people who can effectively work from home.

Because Phoenix does not have much dense downtown housing (none at all that is comparable to New York, Paris, Tokyo or London), its residential sector is looking very strong even for the central areas. To get some idea how much of a shock the pandemic has caused elsewhere, look to the exclusive area of Kensington and Chelsea in London. This is unaffordable to most people, but it is getting cheaper. Residential rents have fallen by a staggering 25% in the past 12 months. Landlords are in despair as their property values fall and they fail to collect an unusually large percentage of rents, especially if they include retail units. New listings are flooding onto the market, bringing prices down.

One of those landlords is the Queen. Forbes estimates that her real property portfolio has fallen by $700 million since March this year.

However, the remote parts of the UK, such as Scotland, Wales, and the North of England are experiencing the highest rates of appreciation they have witnessed since 2009. Suddenly a rural location is seen as an advantage, not an inconvenience.

Similar effects can be found in Arizona with small villages in Gila, Yavapai, and Coconino counties being overwhelmed with buyers from outside the area and often outside the state.
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A positive take away from the Daily Observation above (and a question that's been on my mind and I suspect yours) is that Phoenix and by extension Tucson's urban areas are still seen as desirable - not suffering so much from the sudden, pandemic-drive and potentially sustained international migration away from the densely populated urban areas. 

Simultaneously we are clearly seeing the surge in interest from out-of-state buyers for our suburban and master-planned communities. 

Buttressing this demand has to be Arizona's broad association with golf communities, inherently providing the 'open spaces' people are seeking worldwide - giving us a new premium attractor-factor for the Arizona lifestyle.

Urban to suburban - we have the best of both new worlds!

1/3 of Zip Codes Selling ABOVE Asking Price

With low supply and high demand we see the unusual situation where the average selling price exceeds the average list price becoming more commonplace. Here is a list of all the ZIP codes where this happened in September for single-family detached homes:

1. Casa Grande 85193 - average sales price 102.29% of average list price
2. Phoenix 85031 - 101.49%
3. El Mirage 85335 - 101.37%
4. Mesa 85210 - 101.28%
5. Tolleson 85353 - 101.17%
6. Phoenix 85051 - 101.15%
7. Chandler 85226 - 100.92%
8. San Tan valley 85143 - 100.91%
9. Mesa 85204 - 100.86%
10. Arizona City 85123 - 100.84%
11. Glendale 85302 - 100.84%
12. Avondale 85392 - 100.83%
13. Mesa 85208 - 100.78%
14. Chandler 85225 - 100.78%
15. Gilbert 85233 - 100.74%
16. Mesa 85203 - 100.72%
17. Glendale 85308 - 100.67%
18. Phoenix 85017 - 100.65%
19. Avondale 85323 - 100.62%
20. Glendale 85304 - 100.61%
21. Chandler 85224 - 100.60%
22. Phoenix 85037 - 100.59%
23. Surprise 85388 - 100.54%
24. Gilbert 85295 - 100.53%
25. Surprise 85379 - 100.52%
26. Phoenix 85043 - 100.50%
27. Phoenix 85033 - 100.49%
28. Phoenix 85029 - 100.46%
29. Maricopa 85138 - 100.44%
30. Phoenix 85027 - 100.44%
31. San Tan Valley 85140 - 100.30%
32. Gilbert 85234 - 100.29%
33. Peoria 85345 0 100.27%
34. Goodyear 85338 - 100.26%
35. Mesa 85209 - 100.21%
36. Peoria 85381 - 100.21%
37. Phoenix 85053 - 100.19%
38. Gilbert 85296 - 100.19%
39. Buckeye 85326 - 100.19%
40. Mesa 85212 - 100.16%
41. Glendale 85306 - 100.16%
42. Phoenix 85008 - 100.13%
43. Surprise 85378 - 100.10%
44. Maricopa 85139 - 100.04%
45. Phoenix 85044 - 100.03%
46. Phoenix 85083 - 100.02%
47. Glendale 85301 - 100.00%

That is almost one third of all the ZIP codes in Greater Phoenix.

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During the crash ironically we would see some of this - where a few entire zip codes had average closed sales over 100% of average list price. However, ironically, this tended to be in zip codes with a predominance of bank owned properties! How can that be? 

Those of you who were around then will recall banks would list their foreclosed properties based on a broker opinion of value (BPO's). If they didn't get it sold in a week they'd lower the price 5%...sometimes by the week! Unlike sellers, banks are not emotional! 

The net result: massive investor feeding frenzy - hence the phrase 'first in, first out' - where some of the most distressed areas become the hottest areas. 

Today, as mentioned above, we're seeing almost a third of all zip codes in Metro Phoenix averaging over list price sales. But, of course, these are not bank owned distressed situations. Today it's sheer massive demand outstripping supply. 

You're hearing this ad nauseum, but the value in this Daily Observation is having the 'evidence' to prep my buyers.

Where this info can be misleading and you need to apply some sobering reality: 

My sellers are hearing about or seeing this info and might get overly optimistic. Looking at zip codes is a broad brush. Managing unrealistic expectations is a chore...but part of the gig to be sure.

2 helpful things I do to manage overly optimistic sellers expectations:

1. When you're running your comps preparatory to taking a listing, take that group of sold comps through FlexMLS's Buyer Statistical CMA  (see sample below) -you see the average Sale/List Price ratio column (I call the 'trading range'). In other words, the difference between average list price and average sales price specific to that market segment. Typically it will be in the range of 2-5% - the average amount sellers are coming down in negotiations. It's a smart exercise, as it will quantify what's happening in that specific market, so you can make recommendations to 'competitively position' accordingly.

Note: On the buy-side the exercise above can help inform reasonable offers in certain market sectors.

2. In the uber high end, check the Listing Success Rate using the Cromford Tableau Charts dropdown menu posted on our STATS page. You may find that a significant percentage of high end properties still don't sell within their listing contract period (listing success rate). For example, in the graph below we're looking at the percentage of properties of $3M that aren't selling in their contracted listing period - does it surprise you that the percentage not selling is diminishing, it's still about 30%!

More broadly, as we would expect, the chart below shows a direct correlation between list price and the Listing Success Rate:

Forebearance Foreclosure Rush? Not exactly...

Many people are worrying about what happens when COVID-related forbearance plans expire. However the Black Knight Mortgage Monitor report released today suggests that the problem is likely to be less severe than might be expected.

I refer you to the original release, but some highlights are worth picking out:

• Of the 6.1 million homeowners who have been in COVID-19-related forbearance plans, 41% (2.4M) have since exited, with the vast majority of those borrowers currently performing; of those who remain past due, 267,000 are in active loss mitigation with their lenders
• Just 54,000 loans are past due and not in active loss mitigation, and 70% of these were already past due in February before the pandemic began to impact mortgage performance
• Record levels of equity continue to help mitigate foreclosure risk, with only 9% of homeowners in forbearance having less than 10% equity in their homes
• The average homeowner now has nearly $125,000 in tappable equity; an increase of more than $3200 from last year – also a record. These strong equity positions help to provide a backstop to elevated delinquency levels and slow recovery from COVID-19-related impacts. 

The state of Arizona has 5.7% of first position loans that are delinquent by 30 days or more. Only 0.1% are in foreclosure and the remaining 5.6% are non-current. This is around double what we saw in August 2019. Arizona ranks 38th among the states, with Mississippi worst (11.7% noncurrent) and Idaho best (3.8% non-current).

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The Daily Observation above is noteworthy good news in terms of mitigating the concern about the consequences of forbearance plans. 

There's a secondary message here: We've pointed out the half dozen or so reasons that today's rapid appreciation does NOT mirror the residential crash in 2007-8 following the rapid appreciation in 2005-6. 

The above article indirectly speaks to one of them - today's sellers have an equity position (unlike the situation that devolved from the 'liar loans' that underwrote the feeding frenzy preceding the crash - an important distinction).