Arizona Real Estate Market Update...

I get this questions quite a bit.  "How's the market"?  I'm sure you've asked this or heard it many times as well.  My response remains the same.

It depends.

Most people aren't actually asking how the overall market is since it's rare to have a house that fits into the median of the market trends.  It's like someone asking if your family is "normal".  Of course not, everyone's family is crazy.  Try to define normal.

So, from a real estate perspective your answer will depend on various factors i.e. location, price range, condition, upgrades, lot location, school district etc.  While your situation may be in an appreciating market others may be in a slow down period.

This is why it's important to have someone who understands how to analyze the statistics of your niche.  Unfortunately either bad experiences or a lack in education leaves many people in the dark as to what their real estate agent is supposed to do.  Anyone can pull comps from the last few months and give you a quick range estimate of a homes value.  Shoot, this is Zillow's business model.  However, your agent should be going deeper than this.

Analyzing each house and sale independently for common characteristics is a must.  For example; open floor plans work in some areas and not others,  garage vs. carport, pool, local eateries etc.  These will all help paint a picture about not just when houses are selling but what houses are selling and most importantly WHY.  Zillow can't tell you this and unfortunately most agents won't either.

Now, I will still answer the standard question with a link to my market pulse website.  It's a macro snap shot that I still follow to assist in narrowing trends.  However, if you have any questions about your specific market please don't leave it to chance, or worst to Zillow.  I'm here to help anytime.

Market Update

Chris Tiller, MBA

Russ Lyon Sotheby's International Realty

17207 N. Perimeter Dr. Suite 120

Scottsdale, AZ 85255
Office: 480.502.3500
Cell: 602.561.1346
Fax: 480.624.3795

Market Slowing

No Big Gains Through the End of the Year : (

The monthly average sales price per square foot for all ARMLS areas & types is $126.41 today, once cent higher than it was on the first Saturday of January. After peaking in early April at $131.37, a gentle drift downwards has been the overall trend in this measure. In the short term we see some weakness in the pending $/SF so we anticipate the monthly sales $/SF entering the $120 to $125 range during the last 4 months of 2014. Our guess is that $/SF pricing will be a little lower in January 2015 than it was in January 2014. Not enough to cause significant appraisal problems, but enough to confirm we are no longer in a market with rising prices.

The Cromford® Market Index started to move downwards in July last year. It generally takes about 12-15 months for sales pricing to follow its lead, which is now starting to occur. The Cromford® Market Index is specifically designed to be a leading indicator while monthly average sales price per sq. ft. is very much a lagging indicator. Since the Cromford® Market Index started to rise again in March this year, the price weakness we see ahead is likely to be brief and relatively inconsequential over the longer term. Based on current trends we would expect sales pricing to start to firm up again during the spring of 2015, since that will be about 12 months after the Cromford® Market Index hit its low point and changed direction.

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If you're reading the above and wondering what the index is indicating for your particular city of interest, go to the City Snapshots posted here: http://RLSIRMarketing.com/stats

Keep in mind, an index score of under 100 favors buyers; over 100 favors sellers; 90 - 110 equals relative balance in supply and demand, which is where we are now.

Example: Snapshot of Scottsdale below (see arrow @ bottom of page pointing to the CMI):

BTW - This a pretty good improvement in the CMI for Scottsdale over the last 30 days. However, that's because, as you see below, month-over-month, we see more Active Listings than either Pending or Sales.

Ps. Green button trend good for sellers; red button trend good for buyers.

Quick Real Estate Update...

Despite there being very little sign of an improvement in demand, the market continues to swing slowly but surely back towards a more neutral and balanced state thanks to the weakest arrival rate of new listings in 14 years. This pushes the Cromford® Supply Index down and hence the Cromford® Market Index moves up. When we look at the single family market in the major and secondary cities over the last week we see:

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Here we see 22 cities with an improved market for sellers and only 7 deteriorating. The largest percentage improvements were seen in:

1. Gold Canyon
2. Litchfield Park
3. Sun Lakes
4. Sun City West
5. Fountain Hills
6. Tempe
7. Chandler
8. Goodyear

Deterioration of more than 1% was seen only in:

1. Casa Grande
2. Laveen

The overall Cromford® Market Index has risen from 92.0 to 92.5 over the last week, certainly not a spectacular move but we are now well inside the balanced zone between 90 and 110.

The improvements in the cities that have become more favorable for sellers are mostly due to reduced supply. For example, active listings in Gold Canyon are down from 185 on June 26 to 118 today (excluding UCB). However Litchfield Park is unusual in seeing a short term uptick in demand.

Demand from investors has now dropped below normal and the market is once again dominated by regular MLS sales. Most agents who work only normal re-sale listings are experiencing pretty reasonable market conditions. However, the new home market remains in the doldrums and much weaker than expected. The REO and short sale sectors are much quieter than they used to be and this is not just due to lower numbers. Ordinary buyers are much less interested in rehabilitating a property. It is noticeable that most well-priced homes in great condition are moving more quickly than those that need a lot of work.

Market Update - July 2014....

I was on vacation so sorry for the delay but good things on the horizon...here is your real estate market update : )

 

July 6 - It's all in the mix. If we examine the monthly median sales price for all areas & types we get $196,200 today, which is up 7.2% from this time last year. However the majority of that price improvement is due to a change in the mix, not an increase in home sales prices between July 2013 and now. This is revealed if we look at the individual monthly median sales prices for the 3 major types of transactions across Greater Phoenix:

• Normal sales - $205,000 - up 2.5% from $200,000 last year
• REO sales - $134,045 - down 1.5% from $136,050 last year
• Short sales & pre-foreclosures - $138,000 - down 1.4% from $140,000 last year

Two of the categories are down from last year while the third (and most important) is up a mere 2.5%, not much more than inflation.

The big change is in the share of the market that each transaction type has taken:

• Normal sales - 89.7% - up from 79.5% last year
• REO sales - 6.5% - down from 8.7% last year
• Short sales & pre-foreclosures - 3.8% - down from 11.8% last year

The swing away from distressed sales (which have much lower prices) towards normal sales (which have slightly increased prices) accounts for a much larger increase in the overall median sales price than for any of the 3 individual transaction types.

July 5 - Looking at the Affidavits of Value filed in Maricopa County during June we can see that investor purchases have dropped again - down to 13.2% of sales from 14.9% last month and 24.3% in June 2013. We have to go back to October 2008 to find a month with as low a percentage of investor purchasing. However there were still 1,038 investor purchases while in October 2010 there were only 792. During 2008 most investors were on the sidelines waiting for prices to show some signs of stabilization. That happened at the end of March 2009 and the investor percentage immediately shot up to 20%.

The peak month for investors was July 2012 when they purchased 2,698 homes or 33.5% of the total.

Because they do not generate Affidavits of Value, these numbers excluded trustee sales and HUD sales.

July 4 - I don't want to sound repetitive but the current low volume of new listings is quite remarkable. The decline started in earnest in June and we can see that for Greater Phoenix there were 8,465 new listings in that month. This is by far the lowest number of new listings for any June since we started measuring in 2001. June 2013 was the previous low at 9,247. June 2006 was the highest at 15,995. It is all the more remarkable because during the first 4 months of 2014 the new listings were arriving significantly faster than in 2013. May saw roughly the same number as last year. If we look only at normal listings then there were roughly the same number of new listings in June 2014 as in June 2013. There were only 694 distressed listings in June 2014 while there were 1,469 in June last year. So this is where the decline is really taking place.

July 3 - A distinct improving trend has set in though we still have a little way to go until we recover to a fully balanced market. We can see the improvement from the Cromford® Market Index for the single family market in the major and secondary cities:

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This is the best looking table for sellers than we have seen this year.

We now see 24 cities showing improvement and only 5 showing deterioration from a seller's perspective. Many of the improvements are substantial including those for:

1. Sun City
2. Anthem
3. Fountain Hills
4. Paradise Valley
5. Tolleson
6. Sun Lakes
7. Scottsdale
8. Casa Grande
9. Gilbert
10. Surprise
11. Glendale

However the following cities are still deteriorating:

1. Litchfield Park
2. Avondale
3. Goodyear
4. Chandler
5. Buckeye

The vast majority of areas are also seeing a fall in active listings over the last month. The notable exceptions are :

1. Avondale (up 6.4%)
2. Litchfield Park (up 5.7%)
3. Laveen (up 4.4%)
4. Tempe (up 3.6%)
5. Chandler (up 2.2%)
6. Goodyear (up 1.5%)
7. Buckeye (up 1.1%)

We can see a strong correlation between more active listings and a deteriorating market index.

April Update: Pocket Listings Taking Over?!? Short answer, No.

April Update:

There has been some very questionable commentary in certain media about the percentage of home sales that take place outside the MLS. It appears that some consultants are suggesting that almost half of transactions occur independently of the MLS or sell within a few days of listing. The phrase "pocket listing" is being banded about as if it is some new phenomenon that is rocking the market and causing the MLS to lose market share.

None of these things is true here in Greater Phoenix. Pocket listings blossomed during the hot market of 2012 and early 2013 but never reached epidemic proportions and are quite rare now.

If we examine all the residential transactions in Maricopa County during March 2014 for single family and condo/townhouse homes, we find that 76.4% of arms length transactions went through the MLS. For the 24.6% which did not touch the MLS, very few were "pocket listings".

Here are the percentages of transaction types that occurred outside the MLS in March:

• new homes - 73% of new homes did not get listed on the MLS - there were 555 unlisted new home sales
• trustee sales - 100% of trustee sales did not get listed on the MLS - there were 184 of those (excluding those that reverted to the beneficiary)
• bank sales - 12% of bank REOs did not get listed on the MLS - there were 25 of those sold without a listing
• GSE REOs - less than 0.5% of Fannie Mae and Freddie Mac sales are sold outside the MLS - just 1 in March
• investor flips - 28% of investor flips were sold outside the MLS - there were 130 of these unlisted - often sold to other investors without any fixing (wholesale)
• pre-foreclosures - 17% of these were sold outside the MLS - there were 14 of these unlisted, often because it was the buyer who initiated the conversation
• short sales - none of these were sold outside the MLS (unless already counted among the pre foreclosures) - lenders like to see homes marketed before agreeing to a short sale offer
• sheriff's sales - 100% of these took place outside the MLS - 16 in all
• HUD sales - 3% of these take place outside the MLS - amounting to just 1 home
• normal sales - 15% of these took place outside the MLS accounting for 837 sales

Among the 837 normal sales which took place outside of MLS, they break down as follows:

• 43% involved an investor buying from an owner-occupier - the seller rarely initiates these transactions, so the question of a listing doesn't come up.
• 17% involved a private sale from investor to investor - these are usually negotiated outside MLS with no agents involved. Indeed the investors often hold real estate licenses themselves.
• 17% involved an investor selling to an owner-occupier - sometimes with seller financing or a sale agreement, sometimes a sale to an existing tenant, requiring no marketing
• 24% were owner occupiers selling to owner occupiers. These are either FSBOs or "pocket listings". We cannot distinguish between the two because the agent does not get a mention on the deed and there is no MLS data

If we focus on owner occupiers who wanted to sell and didn't go through the MLS, they either tried to sell their home themselves (FSBO) or used an agent who did not use the MLS (pocket listing).

A remarkably small number of sales could classified as FSBOs or pocket listings. In March the total was 202, or just 2.6% of all sales.

Of the sales that took place through the MLS, 290 or less than 5% had cumulative days on market of 3 days or less. The remaining 95% took at least 4 days to go under contract.

There is no sign of the MLS losing market share. In fact it has gained significant market share over the last 12 months.

In 2005 at the height of the bubble, pocket listings were rampant, as well as FSBOs. But we are not at all like 2005 in 2014.

The Market Officially Switches

The change from a balanced market to a buyer's market that occurred exactly one month ago has now settled in firmly and those in denial are dwindling in number.

Here are the basic ARMLS numbers for March 1, 2014 relative to March 1, 2013 for all areas & types:

• Active Listings (excluding UCB): 26,589 versus 17,090 last year - up 55.6% - and up 4.1% from 25,541 last month
• Active Listings (including UCB): 29,613 versus 21,460 last year - up 38.0% - and up 4.2% compared with 28,413 last month
• Pending Listings: 6,462 versus 10,300 last year - down 37.3% - but up 12.9% from 5,723 last month
• Under Contract Listings (including Pending & UCB): 9,486 versus 14,670 last year - down 35.3% - but up 10.4% from 8,595 last month
• Monthly Sales: 5,462 versus 6,578 last year - down 16.7% - but up 14.7% from 4,778 last month
• Monthly Average Sales Price per Sq. Ft.: $127.54 versus $111.67 last year - up 14.3% - and up 1.7% from $125.45 last month
• Monthly Median Sales Price: $180,000 versus $160,000 last year - up 12.5% - but down 1.5% from $182,700 last month

The rate of change has slowed. Supply is increasing but less quickly because contract activity is picking up, as is usual for the time of year. Sellers must hope that the number of active listings reaches a peak and starts to reduce in March. That would be normal for a quiet year. However demand remains stubbornly low compared with the normal spring level and there is, as yet, no sign of improvement for sellers except in a few isolated areas.

Sales in February were higher than January (as they are every year) but much lower than in February 2013, giving us the lowest February sales total since 2009. Pending listings have risen since the start of the year but started at such a low point that they are still at their lowest level for early March since 2008. So far this is the second weakest year for pending listings since 2000 (2008 was much weaker still). We still haven't overtaken the pending listings for 2007, which is not a reassuring comparison as 2007 was an awful year for sellers.

New listings have been arriving at a rate which is consistently 9% higher than last year, and the most positive thing we can say about demand is that it has almost stopped getting weaker. The period between March and June almost always sees a down trend in active listings so we would expect to see little movement in total active listings this year until we get to July. If current trends continue we will see another rise in active listings through the second half from July to November. With supply only slightly below normal and demand well below normal we have a classic buyer's market.

In a buyer's market, prices tend to fall, but it takes quite some time to happen as long as we are not facing a lot of distressed properties. We are not. Distress is low and pending foreclosures are continuing to trend lower.

The monthly median sales price is already starting to fall. At $180,000 for all areas & types it is lower than last month and that was lower than the month before. At the moment $180,000 looks good compared with $160,000 for February 2013. However, the median sales price for June 2013 was $182,500, so in just 4 months we are likely to be reporting a negative annual change. The average price per square foot readings are looking more positive thanks to the relative strength of the luxury market. The luxury market contributes strongly to the average price per square foot but has virtually no influence on the median sales price.

The luxury market is seeing more problems appear. Demand remains stronger than the rest of the market, thanks to the stock market making new highs and lenders falling over themselves to offer jumbo loans at very attractive rates. However supply is becoming excessive and luxury sellers are starting to see too much competition for them to be aggressive in pricing.

The big question is: why is the demand so weak?

The change since last year is much bigger than we all expected and more than just the disappearance of investors.

We don't buy interest rates as the problem. There is probably something more fundamental going on. We suspect it is generational, and we are researching into its numbers. As baby boomers become gradually less important to the market, millennials start to take their place as the most influential generation for sales volumes. Millennials are behaving quite differently from previous generations. Some of these differences are by choice and some out of necessity.

For millennials:

• their ability to qualify for mortgages is often dramatically lower because of the size of their monthly student loan debt payment - this often raises their debt to income ratio to unacceptable levels for mortgage lenders
• they already have serious delinquency problems with student loan debt (over 11% of student loans are seriously delinquent and the trend is strongly upwards), impacting their credit score
• they have seen major problems with home ownership during 2005 to 2011 and not experienced positive home appreciation adding substantially to their net worth
• they enjoy the flexibility of renting because they change jobs more frequently than earlier generations
• they do not have a very positive image of Arizona as a destination due to the negative publicity it has received in the media over the last several years
• on the whole, they appreciate urban lifestyles in dense cities and public transportation, contrary to the suburban preferences of earlier generations
• they tend to value experiences over ownership, for example they spend more on eating out than previous generations

Phoenix doesn't really have an affordability problem overall, but it has an affordability problem for millennials because on average they have less savings. lower earnings and far lower net worth than previous generations had.

Demand for homes to purchase is increasingly affected by these trends as more millennials join the workforce and more baby boomers leave it.

The typical local millennial is short of money and renting and intends to rent for a long while yet. In a recent survey 75% of millennials responded that student loan debt had affected their decision or ability to purchase a home. 43% stated that it had delayed their decision to start a family. 63% reported that it had impacted their ability to purchase a car. The size of student debt is vastly higher than for previous generations. In the past someone with a student loan was more likely to become a home buyer than average. For the millennials, attending college with a student loan has made them less likely to become a home buyer. So far the recession has meant that their investment in education has not yet paid back in earnings when employed. This is not just a problem for millennials. It is a problem for the entire economy, because there is a lack of ability to spend on the things that drive the economy, including home purchase.

The implication is that we are going to need additional affordable rental accommodation in the medium term. The existing rental supply is getting low at the same time that the for-sale supply is growing.

Cromford Market Summary for the beginning of March

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MikeB Comment: I'm sending this statewide because the trends and socio-economic facts and implications offered here will have statewide relevance. 

From a self-serving point of view, if the millennials are and will continue to be a drag on the housing market, then the sweet spot of mid-range (2nd home owner / move-up buyer / older / more established) buyers and sellers that are attracted to our more upscale, lifestyle-centric brand is a bit of a silver lining for RLSIR. 

At least for now. 

Not that we take comfort in the idea that a whole generation may be necessarily turning away from the value of home ownership. But again, if this is an economic reality that will re-shape our industry, then to be blunt about it, better to appeal to the have's than the have-nots! 

Or put another way, I don't know about you, but I'd rather work with buyers and sellers than tenants and landlords.

For your success,

C. Tiller

February Update : ) Market slowing....

Market Summary for the Beginning of February

The market stability and balance which prevailed between the end of November and mid January seems to be coming to an end. Both demand and supply are now rising, as is normal for the time of year. However it is the rise in supply that is having the stronger effect and this is bad news for sellers.

Sales were very low in January, giving us the lowest January sales total since 2009. Pending listings have risen sharply since the start of January but started at such an unusually low point that they are still at their lowest level for early February since 2008. In fact the weekly pending listing chart looks a lot like 2007 which is not a year we take any pleasure remembering. We expect 2014 to do better than 2007 once we get past the end of February, but at the moment the tepid demand is not making much of a dent in the rise in active listings. If we were going to have a strong spring for sellers then active listings would have peaked in mid January and be falling by now. On the positive side, the new supply is almost all non-distressed, whereas in 2007 we faced an onslaught of foreclosed homes coming to market.

New listings have been arriving at a rate which is about 9% higher than last year, so if demand remains below par we can probably expect to get back to a "normal" level of supply around 32,000 listings (including UCB) during the second half of this year. With supply normal and demand some 20% below normal we are heading towards a classic buyer's market.

This means increasing concessions from sellers and erosion of their pricing power. The monthly median sales price is already starting to look a little wobbly, both overall and in a number of specific locations including the City of Phoenix. The medians are not assisted by the relative strength in the luxury sector. However the average price per square foot is being given a significant boost by the luxury segment and although the monthly average fell between December and January, the under contract $/SF is still moving upwards.

If current trends stay in place then we expect no significant sales price rises during the first half of 2014. Indeed, if current trends stay in place through the second half of the year then pricing is likely to be lower by January 2015 as sellers compete with each other for the attention of the smaller pool of buyers. However, five months is a long time in the ever-volatile Phoenix housing market and trends may very well change by then.

Here are the basic ARMLS numbers for February 1, 2014 relative to February 1, 2013 for all areas & types:

• Active Listings (excluding UCB): 25,541 versus 17,573 last year - up 45.9% - and up 11.0% from 23,091 last month
• Active Listings (including UCB): 28,526 versus 21,757 last year - up 31.1% - and up 12.7% compared with 25,319 last month
• Pending Listings: 5,723 versus 9,523 last year - down 39.3% - but up 23.9% from 4,667 last month
• Under Contract Listings (including Pending & UCB): 8,595 versus 13,707 last year - down 36.8% - but up 25.7% from 6,895 last month
• Monthly Sales: 4,728 versus 5,928 last year - down 20.2% - and down 20.9% from 5,975 last month
• Monthly Average Sales Price per Sq. Ft.: $125.13 versus $108.05 last year - up 15.7% - and down 1.4% from $126.89 last month
• Monthly Median Sales Price: $182,700 versus $154,900 last year - up 17.8% - but down 1.4% from $185,000 last month

We are seeing an increasing number of price cuts among the active listings and a fairly rapid rise in the average number of days on market for closed sales. The average days on market for active listings is not rising, because there are plenty of new listings coming along that start with zero for days on market. This is not a good sign.

The Cromford® Market Index has started to head downwards again, though it currently remains above 90 at the lower end of the balanced zone. Should it drop below 90, as seems very possible, this will signal that a buyer's market is fully in effect. Many sellers are understandably reluctant to accept that the market has changed so dramatically in just 7 months, but they will probably need to be very realistic in the coming few months and price and negotiate accordingly.

We will need a significant acceleration in demand to change the current direction of the market. The most obvious potential cause of such a change would be an increase in the flow of money from lenders due to a relaxing of their guidelines, especially for first time homeowners. The lowering of the FHA loan limits has had a noticeable effect in the opposite direction. It will impact the price range from $275,000 to $375,000 in a major way. The introduction of the Dodd-Frank Act provisions has had little noticeable effect so far except by putting more constraints on seller financing by larger investors. However its main provisions are designed to limit mortgage money flow rather than encourage it. In contrast, Money is flowing well to the jumbo mortgage market and, as a result, 2013 was easily the best year since 2006 for the luxury home market.

Another possible positive change in demand would be increased household formation and home buying among those aged 25-35. At the moment this age group is placing stronger demand on rental supply and home purchases seem to be occurring to a lesser extent than for earlier generations.

Chris Tiller - M.B.A.
Russ Lyon Sotheby's International Realty
602.561.1346
chris.tiller@russlyon.com