The trend is proving consistent....

The weakening in demand that we have been reporting for several months is now showing up in the monthly sales numbers:

The monthly sales rate is now just over 9,000, well below last year when it was over 10,000.

Although the monthly sales rate has only declined for the last 5 weeks, our Cromford® Demand Index has been anticipating this since the end of the first quarter. This is because the CDI uses data from listings under contract to compute demand, not just closed listings.

Currently demand appears to be stable and still above normal, but nowhere near as impressive as it was during the second half of 2020. If demand had stayed as strong as last year, I have little doubt that supply would not be rising as it is now. Having said that, supply is only rising at a modest rate and nothing like as fast as it did back in the summer of 2005.

The summer of 2005 looked exactly like a bubble bursting with prices continuing to rise even as demand plummeted and supply soared. In those days the bubble was primed by rampant, mindless speculation and the widespread belief that prices only ever went up. In 2021 we have a very different situation with widespread caution, largely because so many people vividly remember the lessons of 2005. This caution will keep the rate of price increases lower than 2005 and we are already seeing a significant slowdown in appreciation. This is a healthy sign and a per-requisite to avoiding a painful period of declining prices. The latter still looks unlikely based on the current market readings.

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The thing we have to keep reminding ourselves in comparing this year with last year is the aberration caused by the spring lockdown (April -May) followed by the summer recovery from pent-up demand that was sustained throughout the balance of the year.

This is not to contradict the Cromford Daily Observation, just to add (again) that today's sales numbers (9,137) are almost identical to this time in 2019 (9,140) - a very strong year.

Talking Point: To the extent demand is moderating some and prices stabilizing it's a good thing.  We are NOT mirroring 2005 (as pointed out in the last paragraph in the above Daily Observation) and potential buyers should NOT anticipate price reversals. It's steady as she goes...

Still cooling...is it seasonal...or a trend?

 When 'they' say the market is 'mostly cooler' it is a very relative thing. The best evidence of this is another Cromford Report tool, the Cromford Market Index.

We share these charts with you on a pretty regular basis, but for the uninitiated, when a market is balanced (supply of inventory and respective buyer demand) the CMI score is 100.

The degree above 100 gives you the 'temperature' of a hot market.

Conversely, the degree below 100 gives the degree of 'cooling'.

With that in mind see the latest CMI chart below for 17 of the Valley's cities with the month-over-month change:

Cromford interpretation of the chart above ~

Most cities are seeing their CMI drop quickly now as inventory rises. Because supply has been so low recently, the increases are large in percentage terms. For example, Chandler has 150 active single-family listings (excluding UCB and CCBS) which is double the 75 it had at the beginning of April. However, the long-term average count for Chandler is 940 and the maximum we have measured was 2,481. So 150 would seem very low if we had not seen 75 three months earlier.

Paradise Valley is not seeing much of an increase in supply so far, but its demand has been falling from unusually high levels.

Cave Creek is unusual in that its supply is at a similar level to April. It has been zooming up the chart and looks likely to reach the number two spot soon.

With more supply to choose from, and list prices increasing more slowly, some buyers are being attracted back into the market. We are seeing a slight rise in demand in several cities. These include Glendale, Maricopa and Queen Creek. When supply increases and demand falls, the CMI heads down very quickly, but if demand starts to rise at the same time as supply increases, the CMI's rate of decline could well moderate.

An interesting time to be watching the market.

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This is a lot of statistical jargon to absorb if you're not familiar or so inclined. That being said, the effort to parse shifting sands is no small part of our job and the value I can bring to my client's decision-making process. 

As I'm fond of saying, we don't have a crystal ball but we can cite trends and avoid the broad brush that paints the market monotone.

Takeaway: The payoff comes from paying special attention to your market segment of interest and observing/sharing how it contrasts with adjacent markets, both in terms of location and price range e.g. Scottsdale is slightly 'cooler' in terms of the CMI, while down the road in Cave Creek it's heating up by that same CMI measure. Both cities have significant luxury sectors (over $800K), though notice how Cave Creek is significantly more 'affordable' and seemingly trending more so, even as it's CMI is on the rise:

Much needed inventory increase trend...

 For Buyers:

Buyers with budgets over $300,000 may notice that they have more listings to choose from than a few months ago. This is especially true in the price points between $400,000 and $800,000 where inventory has grown 92% since February. When a buyer has, for example, 4 or 5 homes available that meet their criteria instead of just one, they are less inclined to throw all of their ammunition into one home in order to win it. They may still offer full price or more, but may not be under as much pressure to waive contingencies and shorten inspection periods.

As this subtle change proliferates with more inventory, the buyer experience will become less stressful. As the median sale price continues to rise, affordability is something to pay attention to. Not what’s affordable to you necessarily, especially if you’re out of state, but what percentage of the local population can afford your home if you need to sell right away or sometime in the future. A family making the median income in Greater Phoenix could afford 63% of what sold in the 1st quarter of 2021. That was within the normal range of 60-75%, indicating a good time to buy or sell. While we wait until August for the 2nd quarter measures to be released, we expect the new measure to land around 57%, slightly below normal.  This does not indicate that the market will plunge into a buyer market causing prices to decline, but it does indicate a reason to expect prices to rise much slower going forward.

For Sellers:
The Greater Phoenix housing market continues to shift from an extreme seller market into a less extreme seller market. As prices continue to rise, more new sellers are motivated to put their home on the market and fewer buyers are able or willing to pay the higher price. Over the next 5 months, give or take, the market is expected to move into a weaker seller market, driven in part by dwindling affordability and buyer fatigue.

The first half of 2021 has been so insane with contingency waivers and exorbitant offers over asking price that many sellers may not know what a normal seller market looks like. Here are a few things to expect:

• Sales price appreciation will not average 3.1% per month. April 2021 saw prices appreciate 5.1% within 4 weeks. May was 2.3%. June was 1.1%. From 2015-2019, a long-term seller market but much weaker than today, prices appreciated at an average of 0.5% per month with a range between 0.3% and 0.8%.
• There will be more list price reductions. It’s important to remember that the sales price is the LAST thing to respond in a shifting market. One of the first things to respond is a list price, in the form of a price reduction. When a seller overshoots what the market can bear, they will get the silent treatment in the form of zero offers. That triggers a price reduction by the seller. Weekly price reductions have risen 112%   since mid-February from 317 in a week to 672. In a weaker seller market, expect between 1,500-2,000 price reductions every week.
• Sellers will get their price, but pay more in concessions. If a seller prices their home high in anticipation of excess demand but only gets one offer instead of multiple offers, they are more likely to accept home warranties, do repairs and offer concessions. Currently, the percentage of sales involving concessions is very low at 4%, up from 2.7% the week prior. In 2019, a good seller market, 25% of closed sales involved seller concessions.

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'Buyer fatigue'...more 'seller concessions'. Those phrases pop out in Tina's Commentary, albeit not suggesting it's still anything less than a frenetic seller's market. Just less frenetic.

There's also been noticeable press talk about how local buyers are being squeezed by outside forces - competing with equity-rich Californians at the higher end and massive corporate purchasing by corporate interests like Blackstone group (world's largest real estate investor) on the lower end. This is arguably not a happy place for the Arizona locals (buyers). 

On the glass-is-half-full side - those forces don't show any sign of abating any time soon, so local buyers who can navigate what's happening (qualify) would likely be better off making their move sooner than later.

To sellers - I'm a broken record: 'competitive positioning' is their pathway to the happiest outcome available...always!