Buyers Market Right Around the Corner

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

This table is a little worse than we were expecting. Of course, we anticipated all 17 cities would be in the red, but we thought it was possible that the rate of decline might ease up. Instead, the CMIs are falling at the same rate that we measured last week, which is -35% per month. It goes without saying that this is a very negative indicator for the entire market.

As in all previous downturns, the worst affected spots tend to be the lower-priced outer areas, such as Maricopa, Queen Creek (especially the unincorporated Pinal County areas that make up San Tan Valley) and Buckeye. Buckeye is one week away from a balanced market and if the trend continues without hesitation, three or four weeks away from a buyer's market. The supply of active listings in Buckeye is now higher than the long-term average. Demand is falling, but only slowly. It is the supply of homes for sale in Buckeye that is starting to get out of hand. Up 9% in just the last 7 days and up 374% from this time last year. With the latest increases in mortgage rates, we could see another step down in demand in Buckeye and things would then get really ugly for sellers.

The situation looks hardly any better in Queen Creek and Maricopa. Maricopa's supply now exceeds its long term average and it is less than 2 weeks away from a balanced market. Queen Creek remains well below its long term average for active listings, but the situation is deteriorating rapidly for sellers. Available active listings are up 209% from last year and up an astonishing 347% from three months ago.

Among the higher-end areas, Cave Creek seems to have lost more of its mojo than Fountain Hills, Scottsdale or Paradise Valley. We still have 7 cities with CMI readings over 200, but this will not last long if current trends persist. Only Paradise Valley looks likely to stay above 200 for any length of time. Supply in Paradise Valley has so far stayed quite low compared with all other areas.

The largest percentage CMI declines are to be found in Avondale, Glendale, Gilbert, Phoenix, and Chandler, all down 40% or more and representing a huge percentage of our total market. Peoria, Goodyear and Surprise are all 37% down, so not significantly better.

The chance of a balanced market within a couple of months is now very high and the chance of entering a buyer's market a few short time later is increasing with every day. The speed of change is unprecedented and dangerous to both participants and forecasters. With another 75 basis point increase in the Federal Funds Rate suggested for July, the bad news for the housing market just keeps coming.

Hits keep coming...

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

The Greater Phoenix housing market continues to weaken and the trend is still accelerating, with an average CMI decline of -35% which compares unfavorably with -34% last week. The luxury market is cooling but at a slower rate than the mid-range. Paradise Valley is easily the best performing city in the top 17 but has still seen a decline of 16% in its CMI. Fountain Hills and Scottsdale are tumbling by 33% or more but are the strongest markets in the list.

Maricopa, Queen Creek and Buckeye are much easier places to find new homes and the builders have been far more enthusiastic about putting their homes onto the MLS over the past two months. They are also more generous with buyer broker commissions. This only happens when they are concerned about a shortage of demand. Higher interest rates have taken a lot of buyers out of the market, but at least the ones who remain active will be getting more respect and personal attention. They may even be getting some concessions.

The largest declines are to be found in Avondale, Gilbert, Phoenix, and Chandler, all down 40% or more since this time last month.

At 131.5, Buckeye is getting close to a balanced market. At the current rate of decline, its CMI would fall below 110 by the end of June. Queen Creek and Maricopa are about 10 days behind and are likely to become balanced markets during July.

**As an indication of how far demand has collapsed in the last few months, the number of pending listings of all areas & types in the ARMLS database is 6,873. This is the second lowest number we have ever recorded for mid-June, beaten only by June 15, 2007. June is usually a strong month and we would normally expect counts to fall from June through the rest of the year.

We have been saying for several years that the imbalance in the market was caused by very low supply, not unusually high demand. This is illustrated by the fact that a sudden increase in mortgage interest rates can drop the demand to almost record lows.

___________________

**You'll have to forgive the broken record here, but the above referenced 'collapse (in demand) in the last few months' is absolutely price range specific - specifically under $400K.

Evidence from the Percentage Change in Listings Under Contract - our best gauge of current demand:

Under $400K year-over-year ~ down a sobering 53.7%. 

But to give some perspective - this dramatic impact is on what amounts to 20% of a total 24 billion dollar YTD market - total volume up 12% year-over-year!

Volume in the under $400K market ~

Now, just take it up to the next bracket - $400K to 500K and Listings Under Contract are outpacing last year by a rather stunning 26.1%!

As we shared yesterday, the biggest gains year-over-year in Average $/SqFt and now Listings Under Contract are in the $500K to 600K range ~

$600K to $1.5M is running a very healthy 23% over last year in UC's ~

$1.5M to $3M is just under par with 2021 in UC's (again, keeping in mind 2020 & 2021 were banner years in the luxury sector) ~

And finally, the uber luxury $3M plus market is doing just fine tracking at a 14% year-over-year increase in UC's ~

Takeaways ~

Clearly, the lower end is being decimated by higher interest rates. 

How can it not be with year-over-year appreciation of 25% - making that $400K home last year, $500K today - combined with the effect of interest rate hikes robbing an additional 30% in borrowing power! 

We can summarize the crash in low-end demand to one word: Affordability.

However, with all do empathy, we would be remiss not to recognize that while we would expect and even welcome some softening after such an incredible appreciation run these past few years, at least so far, the mid and upper range markets are more than holding their own, with more opportunities for buyers to boot, as inventories increase to double what they were a year ago.

Rinse and repeat ~ As long as we hear the deafening drum beat of a market in decline we must keep driving the point of 'interest rate impact compartmentalization'.

Bifurcation continues...

 With demand down and supply growing, the upward pressure on pricing is dissipating very quickly. This is best measured by the average price per sq. ft. The readings move at different points in the cycle.

1. First to change are list prices for active listings, as sellers start to compete with each other by lowering their asking prices.
2. Second to change are list prices for listings under contract, as the better deals go under contract sooner than over-priced homes.
3. Last to change are prices for closed listings, since their contract prices were determined a month or two prior to close of escrow.

At the Cromford® Report, we like to measure these things on a daily basis. Hence the chart below, which covers six months. The figures for closed listings use the average for listings that closed in the immediately preceding monthly period. On June 13 this means listings that closed between May 13 and June 12.

This chart has many very clear messages if we take the time to read them:

1. Asking prices are coming down. They peaked on April 27 at $364.81, then gradually started to ease. They are drifting downward and are currently hovering around $353.
2. Under contract prices are also coming down. They peaked on May 14 at $314.06 and have now settled back to $311 with a gentle downtrend established.
3. Closed pricing has moved mostly sideways since the beginning of May, but the high point reached so far was $305.97 on June 10. There is little sign of them going over $306 and as the under-contract prices decline, this will severely limit any upside to closed prices. The red line will always tend to stay below the green line.
4. The list price for closed listings is still rising a little, because the achieved percentage of the list is falling.

In a normal market, the red line is always below the brown line (that is, most buyers pay less than list price), but right now the average closed sale went for about 1% more than the asking price. This situation probably will not last much longer.

If current trends continue, we may very well see the average price of closed listings start to fall, while still staying slightly higher than the average list price of those closed homes. This is something I would have previously believed as rare as a unicorn. It can only happen when the change from hot to cold is as fast and violent as we have seen between mid-April and June 2022. This has not been observed since we started measurements in 2000.

Anyone who is planning to sell their home today needs to understand that their property is no longer likely to appreciate in the months ahead. Be grateful for the incredible surge in its value over the past several years, but all good things come to an end.

___________________

As always, price range matters.

Comparing Active Listings Average $/Sq Ft across select price points:

All = what appears to be a major down trend...

$500 - 600K = major up trend beginning to level off...

$600K - $1M = pretty flat...

$1M - 3M = again, pretty flat...

$3M plus = and again, pretty flat...

So, where the 'big picture' is alarming when including under $500K and may well be predictive of future movement across the board, at least for now, there's relative stability in Active Listing $/Sq Ft $500K plus, albeit a more competitive environment to be sure.

Takeaway ~

Inventory is trending up fast even as demand is trending down. This you know.

That said, to the extent we're moving toward relative balance between supply and demand its not a bad situation.

The real concern is what's driving buyer and seller motivations. 

You're talking to some who believe policy-makers (worldwide) are hell-bent on crashing economies and destroying the middle class! Others are more circumspect, like NAR Chief Economist who has just said:

“On the same $300,000 mortgage, the monthly payment has risen from $1,265 in December to $1,800 today. That’s painful and, consequently, will shrink the buyer pool...Only when consumer price inflation tops out and starts to fall will mortgage rates stabilize or even decline a bit,” Yun said. “That is why providing additional oil supplies will be critical in containing consumer prices and interest rates.” 

Okay, so just open the spigot Joe. What are the chances...

Substantial Market Changes...

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

This table tells us that the cooling market trend is still accelerating, with an average CMI decline of -34% which compares unfavorably with -33% last week. Demand continues to fall in most areas but the dominant effect is now the rise in supply, with new listings arriving at a pace that is well above average. Paradise Valley has seen little change in its supply over the last month, though demand is still trending lower. At -18% it is the top performing city in the table.

The largest declines are to be found in Avondale, Gilbert, Cave Creek and Chandler, all down more than 40% since this time last month.

We now have 4 cities below 200 and at 143.6, Buckeye is not far from a balanced market between 90 and 110. Maricopa and Queen Creek are racing towards that zone too.

The upper end of the market is slowing, but to a lesser degree than the mid-range between $400,000 and $1 million. This effect is placing Fountain Hills and Scottsdale at the top of the table.

Supply below $400,000 remains very low and that segment of the market remains strong.

___________________

It's good to see the Cromford folks noting what we have been hammering for the last couple of weeks - the bifurcation, or really trifurcation of the market.

Specifically, that the market is slowing to a lesser degree than the mid range ($400 - $1M) and even less so in the upper end ($1M plus). 

That said, they make a noteworthy distinction in the below $400K market - that while that below $400K market is what's been dragging down the year-over-year Under Contract stats - a whopping 52% when taken by itself - it's still a strong market segment for lack of inventory (see **Days Inventory below) ~

Listings Under Contract ~

Under $400K down a whopping 52% y-o-y ~ no doubt most heavily impacted by rising rates.

$400K to $1M market is up 23% as of week 23 (week 23 starts June 5th) ~

$1M up market is up 12% ~

Back to the below $400K market - the Daily Observation makes the point the below $400K market remains strong for lack of inventory.

That's manifest most plainly looking at the Days Inventory, where we see about a third of the Days Inventory below $400K versus mid range $400K - $1M:

Days Inventory ~

**Below $400K Day Inventory = 15.3  (still just over a 2 week supply!) ~

$400K - $1M Days Inventory = 43.2 ~

'

Above $1M Days Inventory = 85.3 Having less than a 3 month supply in the upper end is remarkable!

Sellers market duly noted, the common denominator is Days Inventory is trending up in all price range sectors.

Takeaway ~

While inventory is trending up even as demand trends down, the higher the price range the slower the slowing.

Market Update

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

This table tells us that the cooling market trend is still accelerating, with an average CMI decline of -33% which compares unfavorably with -28% last week.

The weakening demand and rising supply now applies to almost every market segment, and certainly to all 17 of the largest cities. Paradise Valley saw the smallest decline in its CMI but it is still down 22% compared to a month ago. The worst affected are Avondale, Gilbert, Queen Creek and Cave Creek, all down by 37% or more, while Phoenix is down 35%.

No city is over 400, even though, back in March, 14 of the 17 cities were over 400. March feels like a very long time ago.

Sellers need to be fully aware of how much of their advantage has disappeared. Be nice to buyers.

________________

If you're familiar with the CMI you can't help but notice all those red button down arrows - favoring buyers vs. green button up arrow favoring sellers. 

Since today's Cromford Daily Observation specifically references the cities 'worst affected' (in a month-over-month comparison) by a Sellers Market in an 'accelerating cooling', I thought I'd provide the respective visual gauges that most dramatically show the Supply vs. Demand Indices creating the Market Index: 

'Worst affected' ~

Least affected ~

Top 3 'Sellers Market' cities ~

Takeaway ~ The Daily Observation says it best: 'Sellers need to be made aware just how much of their advantage has disappeared'. 

So yes, 'be nice to buyers'!

Quotable: Keep in mind the first offers are historically the best offers, as they're coming from the most motivated buyers. 

I call them 'the hoverers' - those buyers waiting for that next best value; who know there's always competition for the best (in any market); and who will subsequently pay the most.

Quick Market Change Update

 We issued a red flag warning on April 24 and in the 5 weeks since then the market has deteriorated at the fastest rate we have ever seen. The Cromford® Market Index is 272.2 today, but it stood at 406.2 on April 24, so it has plummeted by one third in just 5 weeks. On May 1, the CMI stood at 385.2 so it has dropped 113 points over the month. This is by far the largest monthly decline we have ever seen in the CMI.

We admit to being surprised at how quickly the market is cooling. We expected a downward trend but did not anticipate it would be so dramatic. The softening trend is now very well established and momentum is strong. We will shortly be entering the third quarter, usually the weakest time of year for the Greater Phoenix housing market. Even in a good year, prices tend to drift lower during the third quarter. We are not having a good year, despite the incredible strength of the first quarter.

• Supply is growing fast
• Demand is weakening
• Sales volumes are in swift decline
• More asking prices are being lowered
• Listing cancellations and expirations are starting to rise

The last time we saw a similar frenzied market cool down very quickly was in April to November 2005. This is a more striking reversal than we experienced that year.