Thursday, August 4, 2022

August Market Update: Summary? Not Good.

 Market Summary for the Beginning of August

Here are the basics - the ARMLS numbers for August 1, 2022 compared with August 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 17,957 versus 7,105 last year - up 152.7% - and up 24.6% from 14,406 last month
  • Active Listings (including UCB & CCBS): 20,724 versus 10,913 last year - up 89.9% - and up 20.1% compared with 17,261 last month
  • Pending Listings: 5,291 versus 7,236 last year - down 26.9% - and down 8.2% from 5,766 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 8,058 versus 11,044 last year - down 27.0% - and down 6.5% from 8,621 last month
  • Monthly Sales: 6,171 versus 9,139 last year - down 32.5% - and down 24.0% from 8,115 last month
  • Monthly Average Sales Price per Sq. Ft.: $285.93 versus $250.59 last year - up 14.1% - but down 4.8% from $300.38 last month
  • Monthly Median Sales Price: $452,500 versus $400,000 last year - up 13.1% - but down 4.6% from $474,374 last month

We described June as dismal but July was worse. There has been a slight let-up in the supply of new listings, but they are still arriving much faster than demand can cope with. This means an ever increasing number of active listings - the total without a contract having grown another 25% in the last month. This is for the market as a whole, but the high-end is not seeing the same increase. Areas like Paradise Valley, Fountain Hills, far North Scottsdale, Carefree and Cave Creek still have fairly modest numbers of active listings. Other modestly-priced areas like Buckeye, Maricopa, Florence and Queen Creek (including San Tan Valley) already have more active listings than their long term average.

The real downer is the demand. Closed sales dropped 24% compared with June and they are almost 33% lower than last year. This is obviously bad news for those whose incomes are derived from closings, such as real estate agents, title company staff and mortgage brokers. Listings under contract slipped again, down more than 8% from last month, meaning that we do not expect much joy from August numbers this time next month. Even in the high-end of the market, demand is low, so the modest number of active listings is still plenty.

Prices are reacting much more quickly to the poor market conditions than we expected. In 2005 and 2006, it took a long time for prices to change direction. In 2022, the change has happened almost overnight. This is probably because people are primed to believe price drops are likely whereas in 2005 most people still believed that home prices never go down. Whatever the reason, sellers in 2022 have been willing to make quick and frequent cuts in their asking prices and accept offers well below those. The average percentage of list (price) achieved has dropped from 99.81% on July 1 to 98.74% on August 1 and the trend is strongly downward.

Further falls in price are likely until a recovery in demand takes place. There is very little distress in the market with foreclosures still extremely low. Pressures to sell at lower prices are coming from the sellers themselves. Low demand means they are competing with other sellers and a lower price is an obvious tool for them.

Demand from iBuyers has remained surprisingly strong for the last few months and they have built up large inventories. These have to be a concern to them, so we expect far fewer iBuyer purchases and much more effort focused on selling their existing stock of homes. These two factors will unfortunately compound the problem of too little demand and too much supply, driving prices lower. Many iBuyer homes are already being closed at sale prices lower than their purchase prices. This will probably become commonplace in the next few months.

Institutional investors have mostly continued their homes buying sprees, but in the July numbers we are seeing clear signs of their enthusiasm waning. If more of them stop buying this will cause further falls in demand measures. If they also start to dispose of any of their rental properties, this might add to supply.

The listing success rate has dropped from over 91% on May 1 to under 73% on August 1. This is a crucial statistic and it is in free fall. The long term average stands at 67.5% and it looks as though we will drop below this percentage during August. If more than 1 out of 3 listings fail to sell, it creates an atmosphere of worry that is hard to escape. We are nowhere near the dreadful 20.4% that we experienced in January 2008, but the listing success rate is a reliable and crucial indicator that is flashing red. We need this to stabilize and start increasing if we are to be optimistic in our outlook. We recommend watching this number closely.

All in all, there are few reasons to expect an improvement in market conditions just around the corner. A large drop in interest rates would almost certainly help, but this is not something that is widely expected at the moment.

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'Prices are reacting more quickly'. 

I've recently shared how historically 'prices are a lagging indicator', born of the 2005 notion that home prices never go down (as it took over 2 years for prices to reflect the crash in sales back then).  Well, apparently a lesson learned. 


  1. The Listing Success Rate (the % of listings selling within their contract period) 'has dropped from over 91% on May 1 to under 73% on August 1'.
    • Access the chart below using our STATS page | Cromford Tableau Charts
    • image.png
    • The Listing Success Rate is very price range sensitive.
      •  Notice, in spite of the relative resilience of the luxury sector, how we appear to be moving back very quickly to the long time average of half the uber high end properties not selling within their contract period:
    • image.png
  2. The Trading Range (list-to-sales-price ratio) 'has dropped from 99.81% on July 1 to 98.74% on August 1 and the trend is strongly downward.'
    • I've labeled the list-to-sales-price ratio The Trading Range, as we find that residential real estate, regardless of the market or location, has historically been 'trading' in the 2 to 5% range (seller discount when priced to sell). 
    • This goes to how 'efficient' the market is. The current barely over 1% discount successful sellers are achieving is still on the very positive side of that equation. However, if demand continues to wane and competition increases, this will be a stat to track. 
    • The best market specific way to have this statistic is using the FlexMLS Buyer Statistical CMA
      • Sample below is 85258 | $2M - $2.5M | last 3 months. 
    • image.png
    • More broadly for the zip code specific Trading Range you can also use Collateral Analytics | Trends - sample below is 85255:
      • image.png
  3. Days Inventory (or # of Month Supply)
    • image.png
    • Above chart is zip code 85255 - filtered by price range & sourced from our STATS page | Cromford Tableau Charts
    • image.png
    • Above chart is 85255 sourced from Collateral Analytics | Trends
  4. Listings Under Contract (Demand)
    • Chart below can be accessed from our STATS page | Cromford Tableau Charts
    • image.png
    • Again, very price range sensitive e.g. the $2M plus range is still outperforming last year:
    • image.png
  5. Active Listing Counts (Supply)
    • Chart below can be accessed from our STATS page | Cromford Tableau Charts
    • image.png
Takeaways ~
  • Prices are reacting more quickly to market conditions.
  • Key metrics can help make the case for market-specific competitive positioning.
    • Remember, there is always competition for 'the best'. 

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