Good News for Valley Seller

This week the Cromford® Market Index table for the single family markets in the 17 largest cities is looking better for sellers everywhere except Cave Creek:

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I admit that the change in Phoenix is also negative for sellers, but a change of less than 2% is hardly statistically significant. The West Valley is still improving fastest with most of the big movers located west of I-17:

1. Buckeye +17%
2. Peoria +8%
3. Avondale +7%
4. Goodyear +7%

Sellers in Paradise Valley and Fountain Hills get some relief at last from the discouraging trends of the past several month, and Queen Creek continues its improving trend.

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The CMI (Cromford Market Index) is an algorithm (formula) that tends to be an accurate short term market predictor. It essentially looks at the relative balance between supply and demand, though there's more that goes into it.

An index score of 100 = a relatively balanced market in terms of supply and demand.

Over 100 indicates demand exceeding supply, good for sellers.

Under 100 indicates supply exceeding demand, good for buyers. 

A green button shows the arrow trend is favoring sellers.

A red button shows the arrow trend is favoring buyers.

Keep in mind the obvious - the most favorable trends - where demand is exceeding supply, are in the low to mid range priced areas.

The higher-end areas, most specifically, the NE Valley, are generally not lacking in demand so much as having a year-over-year supply (new listings) exceeding demand (new contracts). 

The slightly improving trend in most of the NE Valley cities is the encouraging word.

Your City Appreciation Update 5.5.2016

As appreciation rates have declined from the huge numbers (both negative and positive) during the disruptive period of 2003-2013, it has become more obvious that our usual method for calculating appreciation is less useful for smaller segments of the market. Our method has been to take the monthly average price per square foot and compare it with the same measurement one year earlier. This works quite well for the entire market but as you break the market into smaller segments, the volatility in their monthly average $/SF become excessive. Therefore we are changing our method to use the annual average $/SF instead of the monthly average to measure appreciation for all segments of the market. We will still use our original method for measuring the entire market (all areas & types).

Using the new method here is a ranking of the cities by appreciation rate, based on the 12 month change in their annual average $/SF for single family detached homes.

1. Tonopah 27.0%
2. Wittmann 19.7%
3. Youngtown 16.3%
4. Tolleson 10.8%
5. Eloy 10.7%
6. Sun City 10.5%
7. El Mirage 9.8%
8. Glendale 9.8%
9. Avondale 8.7%
10. Waddell 8.2%
11. Laveen 8.1%
12. Florence 7.8%
13. Tempe 7.8%
14. Buckeye 7.5%
15. Arizona City 7.4%
16. New River 7.4%
17. Phoenix 7.3%
18. Maricopa 7.2%
19. Coolidge 7.1%
20. Queen Creek 7.0%
21. Mesa 6.6%
22. Sun City West 6.4%
23. Surprise 6.4%
24. Apache Junction 6.3%
25. Anthem 5.7%
26. Chandler 5.5%
27. Peoria 4.8%
28. Gilbert 4.7%
29. Desert Hills 4.7%
30. Goodyear 4.4%
31. Wickenburg 4.4%
32. Litchfield Park 3.4%
33. Sun Lakes 2.9%
34. Casa Grande 1.6%
35. Scottsdale 1.4%
36. Carefree 1.3%
37. Fountain Hills 0.5%
38. Cave Creek -0.5%
39. Rio Verde -0.5%
40. Paradise Valley -0.7%
41. Gold Canyon -3.9%

We note that 10 out of the top 11 cities are in the West Valley. The lone exception is Eloy, where prices are being helped a lot by new home sales in the Active Adult community Robson Ranch. Prices in Robson Ranch are much higher than the average home with a postal address in Eloy

6 out of the bottom 7 cities are in the Northeast Valley. In fact all of the northeastern cities are in the bottom 7. This underscores how badly the luxury market has been affected by excessive supply. If you were to remove all sales over $500,000 you would get a different picture of the Northeast Valley:

1. Paradise Valley 26.1% (but only 3 sales a year were under $500,000)
2. Carefree 8.5%
3. Scottsdale 5.5%
4. Fountain Hills 4.6%
5. Cave Creek 1.0%
6. Rio Verde 0.0%

We can disregard the Paradise Valley number since there is almost no market in PV under $500,000. The appreciation numbers for Carefree, Scottsdale and Fountain Hills are perfectly respectable for the market under $500,000. However Cave Creek & Rio Verde seem to be stuck in neutral even for the lower price ranges. Gold Canyon is also neutral at 0.3% if we exclude homes over $500,000, but as with Cave Creek & Rio Verde, neutral is better than the negative appreciation we see when we include all homes.

All the above numbers are based on ARMLS closings, not total recorded deeds.

Are Millennial's Buying Homes?

Ellie Mae has introduced what they call their "Millennial Tracker™" , which provides some statistics about mortgages closed by millennial borrowers (born 1980-1999). For the Phoenix metro area, they report that:

• millennials comprise 26% of all borrowers
• 45% of millennial borrowers were married
• average age was 29
• average loan amount was $195,966
• 85% of loans were for purchase and 15% for refinancing
• 52% of loans were conventional with 47% FHA and 1% VA
• average loan took 45 days to close
• average FICO score for successful borrower was 716
• average appraised value was $225,199
• average loan-to-value was 89%

In the Tucson metro area, only 22% of borrowers were millennials.

Across the country the percentage of borrowers who were millennials varied from lows of 10% (Sarasota FL and Myrtle Beach SC) to 45% (Laredo TX). The northeast and mid west has the highest percentage of millennial borrowers. Most of California has low percentages, probably because of extremely high prices. For example San Francisco is 16%, Los Angeles 16% and San Diego 17%.

All this data relates to the first quarter of 2016.

Southeast Valley Appreciation. Some great, some flat. Where are you?

Cromford Daily Observation - In the Southeast Valley we see the following high appreciation areas comparing 1Q 2016 with 1Q 2015:

1. Tempe 85281 - 16%
2. Tempe 85283 - 16%
3. Mesa 85201 - 15%
4. Mesa 85204 - 13%
5. Mesa 85205 - 12%
6. Mesa 85208 - 12%
7. Chandler 85224 - 12%
8. Chandler 85225 - 10%
9. Mesa 85210 - 10%
10. Mesa 85202 - 10%

While these are not quite as impressive as the West Valley areas we looked at yesterday, they are well above the valley average. Notice that these are mostly the older parts of Mesa, Chandler and Tempe with relatively little new construction.

The worst performing ZIP codes for appreciation in the Southeast Valley are among the more expensive areas:

1. Mesa 85207 - down 5%
2. Phoenix 85045 - down 2%
3. Tempe 85284 - down 1%
4. Phoenix 85048 - flat
5. Mesa 85215 - flat

Quick Year Over Year Update - Very Positive

The basic March 2016 numbers are in for Maricopa County recordings with Affidavits of Value and they are looking very positive. We count a total of 9.639 closed transactions for single family and condo properties which represents a 12% increase over March 2015. Since March 2015 was 17% higher than March 2014, this is a big 31% increase over 2 years. The year over year unit volume increase was even more impressive for new homes, up a startling 50%, making the re-sale market's gain of 8% look paltry in comparison. New home market share has risen from 9.7% in March 2015 to 12.7% in March 2016. Before getting too excited we should remember that this is nowhere the peak of the market, when new homes represented 40.6% of December 2006 transactions.

The median sales price is up 8.4% from $211,320 in March 2015 to $229,000 in March 2016. The median sales price for new homes actually fell by 2% from $321,085 to $315,229, as there are now larger numbers of less expensive new homes below $300,000 entering the new home mix. Median sales prices are close to useless for measuring new homes. You have to use average price per sq ft to compensate adequately for the changes in the mix.

The median sales price for resale homes rose from $200,000 in March 2015 to $217,00 in March 2016, an annual rise of 8.5%.

Note that transactions without affidavits are excluded from all the above numbers. This includes HUD sales, trustee sales, and REO sales processed by the out of state title companies Quality Escrow and Servicelink. Both of these title companies continue to completely misunderstand Arizona law regarding exemptions from affidavits. If the county assessors ever notice, the title companies could be in legal trouble for claiming false exemptions for their lender clients.

Market Update 4.4.2016 - Bidding Wars Around $200k

When we examine the number of active single family listings by price range, we can clearly see the long term shortage of affordable homes, the adequate supply in the mid-range and the glut of luxury homes for sale.

Price Range	Active (excluding UCB & CCBS) April 1, 2016	Year Ago	% Change	Comment	Days of Inventory
Under $100K	181	308	-41%		46
$100K-$125K	183	313	-42%		39
$125K-$150K	441	793	-44%	lowest level since 2005	40
$150K-$175K	760	1,060	-28%		52
$175K-$200K	1,134	1,188	-5%		73
$200K-$225K	987	917	+8%		80
$225K-$250K	1,144	1,084	+6%		87
$250K-$275K	912	812	+12%		96
$275K-$300K	1,144	1,031	+11%		115
$300K-$350K	1,633	1,555	+5%		130
$350K-$400K	1,438	1,439	0%		151
$400K-$500K	1,903	1,601	+19%	highest active count since Mar 2009	191
$500K-$600K	1,229	1,036	+19%	highest active count since Apr 2009	253
$600K-$800K	1,337	1,065	+26%	highest active count since Jun 2009	293
$800K-$1M	760	683	+11%	highest active count since Aug 2009	384
$1M-$1.5M	808	677	+19%	highest active count since Nov 2009	480
$1.5M-$2M	465	408	+14%	highest active count since Mar 2010	684
$2M-$3M	407	382	+7%	highest active count since Mar 2010	798
Over $3M	327	300	+9%	highest active count since Dec 2009	1,219

From $400,000 upwards we have more active listings than we have seen in the last 6 years, so buyers have plenty of choice and therefore negotiating power.

Below $200,000 we have a chronic shortage of homes available for purchase, and there is precious little to rent too. Here sellers have most of the negotiating power.

The median sales price for single family homes is at $230,000.

While above we looked at

 the supply by price range

​, below​

 we look at the demand for single family homes, by examining the number of listings under contract:

Price Range	Under Contract (including UCB & CCBS) April 1, 2016	Year Ago	% Change	Comment	Contract Ratio April 1, 2016	Contract Ratio March 1, 2016	Contract Ratio April 1, 2015
Under $100K	155	360	-57%	large decline	85.6	96.6	116.9
$100K-$125K	214	513	-58%	large decline	116.9	135.0	163.9
$125K-$150K	738	1,116	-34%	large decline	167.3	137.2	140.7
$150K-$175K	1,163	1,186	-2%		153.0	127.2	111.9
$175K-$200K	1,254	1,115	+12%		110.6	97.2	93.9
$200K-$225K	886	795	+11%		89.8	92.3	86.7
$225K-$250K	1,046	835	+25%	strong growth	91.4	73.5	77.0
$250K-$275K	725	598	+21%	strong growth	79.5	72.5	73.6
$275K-$300K	709	577	+23%	strong growth	62.0	62.6	56.0
$300K-$350K	899	723	+24%	strong growth	55.1	52.2	46.5
$350K-$400K	670	552	+21%	strong growth	46.6	39.8	38.4
$400K-$500K	723	600	+21%	strong growth	38.0	35.9	37.5
$500K-$600K	361	285	+27%	strong growth	29.4	25.0	27.5
$600K-$800K	309	297	+4%		23.1	21.6	27.9
$800K-$1M	170	115	+48%	strong growth	22.4	21.1	16.8
$1M-$1.5M	103	111	-7%		12.7	12.8	16.4
$1.5M-$2M	63	56	+13%		13.5	12.4	13.7
$2M-$3M	33	39	-15%		8.1	8.1	10.2
Over $3M	16	29	-45%	large decline	4.9	6.0	9.7

From $225,000 to $600,000 we have far more listings under contract that at this time last year. We also see very strong growth for the sector from $800,000 to $1 million.

From $175,000 to $225,000 and from $1.5 million to $2 million we have moderate increases in listings under contract of between 10% and 15%. For the sector from $1.5 to $2 million this goes a little way to mitigating the increase in supply.

The shortage of supply means the market under $175,000 is much smaller than last year, though the contract ratios are much higher between $125,000 and $175,000 showing there is no lack of buyer interest. Below $125,000 there is not much for sale and buyer interest is lower than last year too.

There are significant problems for sellers between $1 million and $1.5 million as well as for those over $2 million. This is because the number of listings under contract is down from last year at the same time that supply is much higher.The contract ratios have slipped compared with April 2015 and this signifies a large shift of negotiation power away from sellers and towards buyers. We should not be surprised to see weaker pricing trends in these price ranges as a result.

Quick Update 4.4.2016

Today we take another look at the single family markets in the largest 17 cities and examine how the Cromford® Market Index has changed over the past month:

Overall, the market continues the recent improving trend for sellers with 11 out 17 cities seeing an increase in their CMI. Many of them are up 5% or more, including Maricopa, Surprise, Avondale, Goodyear, Buckeye, Peoria, Mesa, and Chandler.

Fountain Hills, Paradise Valley and Tempe are the main weakening spots for sellers, though Tempe is still in the seller's market zone over 100. Paradise Valley and Fountain Hills are firmly in buyer's market territory now.

Once again, Maricopa is the faster improving market and managed to rise from 17th to 16th place.

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Decoding the above. The green button arrow trend is good for sellers; the red button trend is good for buyers.

An Index of 100 is a balanced market in terms of supply and demand. Over 100 means the market favors sellers (more demand than inventory); under 100 means the market favors buyers (more inventory than demand).

The Cromford Market Index or CMI tends to be a good short term predictor of the market.

The above graph and commentary once again reinforces the story so far this season, which is an improving market generally; relatively balanced; but with the low end on fire and the high end a bit sluggish as new listings outpace new sales.

To be sure, it's not that we don't have higher-end market sales, it's just that there are disproportionately more new listings than sales - a trend, that, as it continues, has to mean softer prices for all but the most desirable properties. 

These graphs tell the tale in the higher-end ($800K plus).

Bottom line for the higher end buyer: You have great choices right now, albeit keep in mind there's always competition for the best.

Bottom line for the higher end sellers: You need to really take an objective look at the properties your competing against and position yourself as the next best one to get top dollar. Time is not on your side (competitive positioning).

Bottom line for the mid-to-lower end market: In most of the rest of the market, as evidenced in the city CMI graph above, we see demand generally increasing relative to supply - especially right now as the pace of new listings is slowing down. And of course as the average price point lowers, particularly below $400K, the demand heats up accordingly.

For your general conversations about market conditions those are the key talking points.