Market Update - Stil Declining

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

Yes, things are still getting worse for sellers, with all 17 cities having seen a fall in their CMI over the past month. The deterioration in the market continues to accelerate with the average monthly change in CMI at -8.8%, worse than -6.8% last week. Paradise Valley is the most notable with a 29% drop in its CMI, while Cave Creek, Avondale, Mesa and Maricopa all fell 12% or more.

Least affected were Tempe and Buckeye, the latter managing to escape the bottom rung and leaving Queen Creek in that unenvied position.

11 cities are buyers markets, 3 are balanced and 3 are still sellers markets, though all 3 are deteriorating rapidly.

Outside the Northeast Valley, Phoenix and Chandler are the strongest markets, but even these look likely to slip below 90 within the next couple of weeks.

Demand Just Gave Us A Warning

 The listings under contract chart has suddenly shot a warning cannon across the market.

This is a much more negative view than the one we published just a couple of weeks ago, which we described as worrying at the time. A drop below 7,500 at a time when the autumn buying season should be fully underway is not a good sign. Only 2007 and 2008 gave us lower readings than this.

It suggests that another leg down in demand has followed the recent rise in mortgage interest rates. Not exactly surprising, but the drop is even larger than we anticipated.

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The drop in demand is being driven primarily by the rise in interest rates. 

HOWEVER, the Central Banks have blinked. 

It appears the strategy of raising interest rates to fight inflation is more painful to the markets than the long term consequences of continuing quantitative easing ie. 'printing' money / buying debt, which should lower rates some. 

• The stock market loves it - on a tear this morning. 
• Mortgage lenders will love it.
• We should love it...at least short term, as we would expect some interest rate relief that will increase buyer purchasing power.

How this plays out in the longer term e.g. inflation; the value of the dollar; etc. is above my pay grade - which really means I'm not only not qualified to comment with any authority, but truth is, choose not to parrot what many sober prognosticators are saying is simply kicking the proverbial debt can down the road.

This brings up a 'problem' for me as a trusted advisor. 

Everything is connected. More so than I can ever recall. No doubt, in no small part due to the acceleration in global messaging via the internet.

To the rescue: 

We do have Collateral Analytics' 5-year Forecast, which we would expect will recalibrate accordingly. 

Btw, no change yet as of this writing. 

I take great comfort in your proprietary access to this tool - both for its utility in giving us that 'bank grade' metric to translate the financial markets big picture to our local market, but also the differentiation it gives me; the power to add value to the conversation with the greatest objectivity we can provide for a forward look!

The point is, real estate trends don't happen in a vacuum. So we have the inherent challenge that even as the real estate market is a hyper local business we can't ignore the broader context that drives interest rates; the stock market; and at the end of the day, people's confidence in moving forward.

Stay tuned for an interesting ride as we enter Q4!

Market Update 10/3/2022

The total number of active listings without a contract has just exceeded 20,000, across all areas and types, excluding UCB and CCBS listings. This is the first time we have broken through the 20,000 barrier since March 2017. However 20,000 is still below the long term average , which is around 25,000.

While it is true we no longer have a supply shortage, we do not have an excess of supply either, at least when we examine the market as a whole. Things get a bit more complicated when we look at counts by price range.

In certain price ranges, supply can appear very high compared to the long term average. For example:

• For single-family detached homes priced between $350,000 and $400,000 we have 2,082 active listings. This is the highest count since January 2008.
• For single-family detached homes priced between $400,000 and $500,000 we have 4,456 active listings. This is the highest count we have ever seen.
• For single-family detached homes priced between $500,000 and $600,000 we have 2,510 active listings. This is the highest count since December 2007.

You might be thinking - wow - those are high active counts if they are setting new records like that, especially for the $400,000 to $500,000 segment. But this is because $400,000 to $500,000 is the new normal. The median sales price falls in this range and closed listings are also relatively high for this price range compared to the long-term average.

The key is to look at the how the active inventory count compares with the current sales rate:

• $350,000 to $400,000 we have 3.3 months of supply at the current monthly sales rate and 75 days of inventory at the current annual sales rate
• $400,000 to $500,000 we have 3.8 months of supply at the current monthly sales rate and 87 days of inventory at the current annual sales rate
• $500,000 to $600,000 we have 3.7 months of supply at the current monthly sales rate and 90 days of inventory at the current annual sales rate

These supply statistics are high compared to the last several years, but not even above average from a long term perspective.

With interest rates still moving upwards, things could certainly get worse from here, but we should not misunderstand the situation right now. These price ranges are looking very normal from a supply versus demand perspective. We will see prices fall for sellers who hold a weak hand or are impatient, and because sentiment is poor after such a positive 2 years. But this is not what a crash looks like.

It is what a correction looks like and it would not be at all surprising if prices in December 2022 look similar to those in December 2021.

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We can't stop at $500-600K...

As we go on up price ranges below, I'm adding the Months of Supply chart giving you that remarkable market 'shift' trend line visual ~

• $600 - 800K we have 3.8 months of supply 
  

• $800 - $1M we have 4.3 months of supply 
  
• $1M - 1.5M we have a 4.9 months of supply 
  
• $1.5M - 2M we have a 5 months of supply 
  
• $2M - $3M we have a 6.4 months of supply 
• $3M plus we have a 11.9 months of supply