Slight Turn - Will It Continue?

 Cromford Daily Observation - Here is our latest table of Cromford® Market Index values for the single-family markets in the 17 largest cities:

All but 3 cities now see their CMI falling with Paradise Valley and Cave Creek notable exceptions and Tempe just squeaking out again over the last 4 weeks.

The reason for the decline is a significant drop in our demand readings. Many cities now have a Cromford® Demand Index below 100, meaning demand is below normal. Tell that to a buyer facing multiple competing offers and they will not believe you, but it is still true. The vast majority of people are unable to distinguish between a hot market because demand is high and a hot market because supply is low. The Greater Phoenix market is hot because of the extremely low supply. So low in fact that fluctuations in demand are almost irrelevant. The heat is generated by the difference between supply and demand. Demand could drop in half and it would still vastly exceed the available supply.

If local people are deciding not to move, then this reduces demand and supply at the same time, because they do not list their home for sale. However incoming people from out of the area generate demand without adding to the supply. The top end of the market is still heating up because so many buyers are from out of state.

It is quite understandable for some buyers to drop out of the market because prices are rising beyond their reach. This is one way rising prices re-balance the market. However, with all 17 cities over 395, we still have some very large price increases ahead of us. A lot more buyers will have to drop out before prices start to stabilize. By the time prices stop rising, they will be at a yet more unaffordable level. Unless supply starts to recover dramatically, this could be many years away.

A sharp rise in active listings would be the main signal to watch for over the next 12 months.

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For the uninitiated - decoding the Cromford® Market Index

The CMI has been shown to be an accurate short market indicator. It's essentially an algorithm that measures supply relative to demand.

CMI scoring:

100 represents a balanced market (supply | demand)

Less than 100 represents the degree to which supply is outpacing demand

Over 100 represents the degree to which demand is outpacing supply

Takeaways:

• Demand is cooling, but undetectable at the street level and having much to do with potential sellers concerned they won't be able to find a suitable home in this environment.
• The luxury market demand continues to be driven in no small part by out-of-state purchasers. 
• RLSIR is well positioned to continue to capitalize on the inflow of buyers in the luxury sector.

Now That's Appreciation...

 Mid Month Pricing Update and Forecast

Each month about this time we look back at the previous month, analyze how pricing has behaved, and report on how well our forecasting techniques performed. We also give a forecast for how pricing will move over the next month.

For the monthly period ending March 15, we are currently recording a sales $/SF of $227.56 averaged for all areas and types across the ARMLS database. This is up 3.1% from the $220.75 we now measure for February 15. Our forecast range midpoint was $227.17, with a 90% confidence range of $222.63 to $231.71. Prices were very close to the midpoint of our forecast, just 39 cents higher.

On March 15 the pending listings for all areas & types show an average list $/SF of $230.59, up 2.6% from the reading for February 15. Among those pending listings we have 98.8% normal, 0.5% in REOs and 0.7% in short sales and pre-foreclosures. There has been little change in these percentages compared with last month, and the number of distressed sales remains extremely low by historical standards.

Our mid-point forecast for the average monthly sales $/SF on April 15 is $233.87, which is 2.8% above the March 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $229.19 to $238.55.

Average sale $/SF has risen 26% in the last 8 months, equivalent to an annual appreciation rate of almost 35%. In fact prices are rising at a steady pace of roughly 3% per month at the moment.

We now anticipate that the annual appreciation rate will approach or even exceed 40% by the time we get to the middle of 2021.

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MikeB Commentary~

The highlighted text above, anticipating appreciation of 40% by mid-year (3 months away) is stunning. It rivals the run-up of some 44% in 2005.

Of course, you can't help but see what happened after that! But that was then... 

Today buyers will rightly question if we're not setting up another fall. We've addressed this a number of times, but a worthy reminder, especially for the uninitiated, is that the dynamics were quite different. 

Yes, you had demand far outpacing supply creating the inevitable rapid rise in prices. However, the driver was 'liar loans' - the mind goes to the 2015 movie 'The Big Short'! And there were other factors we've documented as well.

Today the thing you say to buyers is that today it's an equity market - evidence all the inmigration and cash offers you're having to compete with, together with historical low interest rates - almost like free money. Those dynamics don't show any sign of changing any time soon. 

It appears we're in for the appreciation ride of our lives, underscored by this 'bank grade' 5-year Forecast - which btw, holds anywhere in the state.