National Real Estate Update by City

The S&P/Case-Shiller® Home Price Index® report for September through November was published today and we can therefore rank the 20 cities by the change in index over the last month:

1. Tampa +0.84%
2. Miami +0.59%
3. Las Vegas +0.35%
4. San Diego +0.29%
5. Los Angeles +0.28%
6. Phoenix +0.16%
7. Atlanta +0.15%
8. Dallas +0.11%
9. Denver +0.09%
10. San Francisco +0.08%
11. Portland +0.06%
12. Boston -0.22%
13. Charlotte -0.30%
14. Cleveland -0.35%
15. Seattle -0.38%
16. Washington DC -0.51%
17. Minneapolis -0.73%
18. New York -0.79%
19. Detroit -0.87%
20. Chicago -1.06%

Although 11 of the cities saw an increase over the last month the composite 20-city index fell 0.22%. Although we only saw a small 0.16% gain, this was enough to put Phoenix into 6th place

Examining the 12-month percentage changes we find:

1. San Francisco +8.91%
2. Miami +8.58%
3. Las Vegas +7.70%
4. Dallas +7.67%
5. Denver +7.48%
6. Tampa +6.77%
7. Portland +6.58%
8. Seattle +6.01%
9. Los Angeles +5.11%
10. Atlanta +4.92%
11. San Diego +4.90%
12. Boston +3.95%
13. Charlotte +3.29%
14. Detroit +2.58%
15. Chicago +1.99%
16. Phoenix +1.94%
17. Washington DC +1.85%
18. New York +1.51%
19. Minneapolis +1.47%
20. Cleveland +0.61%

For annual appreciation Phoenix is well below the 20-city average of +4.31% in 16th place. We saw our appreciation rate slow down earlier than other cities, just as we saw our initial recovery start earlier than the rest of the country in 2011.

The whole country now looks to be in the process of stabilizing at close to the general inflation rate. We don't expect to see any major shifts over the next 12 months.

What December Slowdown!

Cromford Daily Observation:

December was a huge month for luxury homes sales - the best December since 2006 with 109 closed transactions across Greater Phoenix for homes priced at $1 million and above. This was an increase of 10% over December 2013. Only 2 of the closed sales were distressed and these were short sales.

By price range, comparing December sales for single family homes across Greater Phoenix:

• $500,000 to $600,000 - highest number of units sold through ARMLS since 2006
• $600,000 to $800,000 - highest since 2006
• $800,000 to $1,000,000 - highest since 2006
• $1 to $1.5 million - same as 2012
• $1.5 to $2 million - equaled the previous record set in 2006
• $2 to $3 million - highest since 2007
• Over $3 million - 1 fewer than last year

The ultra-high end was not quite as impressive as recently, but 2014 was the best full year since 2008 with 84 closings for homes priced over $3 million.

Once again we did not see any resales over $10 million, the highest price paid being $9,750,000 for a home listed at $10,995,000

There are 11 optimists listing homes over $12,500,000, which is the highest price ever paid for a resale home in Greater Phoenix. There are 4 homes listed over $20 million. Finding a buyer for a re-sale over $12.5 million is a huge challenge. Buyers with this sort of money to spend usually build new. Such a new sale doesn't in the records appear because the recorded transaction transferring ownership of the parcel to the buyer usually occurs while it is an empty lot. Payment for the construction of the home is not a recordable event as no transfer of real estate takes place, only improvements on the existing lot. This makes new ultra-high-end custom home sales very difficult to track for price, completion date and sq ft. The assessor's data on sq. ft., is usually wildly different from the builders plans submitted.

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Of the month of December 2014 luxury single family sales over 1 million mentioned above, here's how the market share breaks out by dollar volume, by broker.

Market Update - For My Numbers Guru's...

Market Summary for the Beginning of 2015

The average person will assume that November was a fairly normal month and that December was full of holidays. Not true. Instead there were only 17 working days in November and 22 in December. That is a 29% increase in the number of days in which title companies could close sales and county recorders could file deeds. As a result November's numbers looked terrible at first sight while December's looked amazingly good. But the primary reason sales were up 29% in December over November is that days to record sales were up 29%.

When we adjust for the differently sized months we still find there was some real improvement in the market for sellers. December's sales were slightly stronger than expected, as we forecast in last month's summary. But by far the biggest factor that changed was that supply fell much faster than normal during the month.

Whatever the cause, sellers have a few sound reasons to feel hopeful as we head towards the spring selling season which, like the warm weather, starts very early in Phoenix.

Here are the basic ARMLS numbers for January 1, 2015 relative to January 1, 2014 for all areas & types:

• Active Listings (excluding UCB): 22,604 versus 23,091 last year - down 2.1% - and down 8.1% from 24,593 last month 
• Active Listings (including UCB): 24,918 versus 25,319 last year - down 1.6% - and down 9.1% compared with 27,427 last month 
• Pending Listings: 4,410 versus 4,667 last year - down 5.5% - and down 19.8% from 5,497 last month
• Under Contract Listings (including Pending & UCB): 6,724 versus 6,895 last year - down 2.5% - and down 19.3% from 8,331 last month
• Monthly Sales: 6,496 versus 5,837 last year - up 11.3% - and up 29.9% from 5,000 last month
• Monthly Average Sales Price per Sq. Ft.: $131.62 versus $123.48 last year - up 3.2% - and up 1.8% from $129.30 last month 
• Monthly Median Sales Price: $197,000 versus $185,500 last year - up 6.2% - and up 2.6% from $192,000 last month

Pricing was surprisingly strong in December with the median up over 6% from the prior year and $/SF up over 3%. However these gains are very small compared with the previous 2 years. Much of the advance is due to continuing improvements in the mix in favor of higher priced homes. We must also remember that seller concessions do not get reflected in the prices recorded.

There was little to dislike in the December numbers and that fact that sales volume exceeded December 2013 by more than 11% is definitely encouraging. 2014 was a lackluster year with low supply and even lower demand and it looks like demand is starting to show a few mild signs of life. Even so, we are starting the year with a very low number of homes under contract by normal standards. The big question is what will happen to supply. If it arrives in bulk over the next 3 months then buyers will retain the advantage they enjoyed during 2014. If, as seems more likely based on what we saw in the last 4 weeks, supply grows relatively slowly, then sellers will regain their advantage and prices could start to see some upward pressure building again.

On the second day of the month it is too early to make the call on supply, but by the middle of January we should have some real data to indicate how the year is likely to develop.

Supply is already well below normal and if demand returned quickly to normal we could see a replay similar to conditions in 2012, except that ordinary owner-occupiers would be dominant instead of investors.

Arizona Housing Forecast 2015

What will affect us directly…

Interest rates – the big one. Everyone has been expecting rates to rise as the Feds slow the printing presses – printing money has been floating mortgage rates on a sea of cash keeping interest rates ‘artificially’ low. Yet the latest rumors suggest rates will stay low until at least next summer.

Supply – new construction in Arizona is lagging. Well-respected local private economist Elliot Pollack blames much of the slow housing recovery in Arizona on the lack of rebound in construction saying we’ve only gained ‘about 8 percent of the construction jobs we lost – normally by this time we’d have gotten back about half…’

Demand – new construction may be lagging, but resale listings have kept pace with what has been lack luster demand. However, over the fourth quarter we’ve seen improvement. Local housing guru Mike Orr recently observed that the dollar volume in sales is now out pacing 2013 and ‘is currently outranking 6 of the last 10 years…only beaten by 2005, 2006 and 2012.’  (Cromford Report) See chart below:

More help on the way: The recent loosening of lending standards should help those younger, first-time ‘millennial’ buyers who would like to buy, but have delayed a home purchase, in part, because of stringent loan criteria.

At the other end of the buying spectrum it’s been a banner year in the luxury market sector, as high net worth folks diversify.

5-Year Forecast

Forecasting by the smart guys…

I don't claim to know everything.  Through this humility I've been able to predict very accurately by following those individuals that ARE that smart.

Institutional buyers of mortgage-backed securities have sophisticated forecasting tools at their disposal for risk management e.g. ‘bank grade’ automated valuation models, or AVM’s.

Their best in class algorithms not only closely approximate individual property values, but also provide 5-year forecasting, based on a host of factors.

The price forecasts below be are based on models developed by Collateral Analytics (CA), a leading company in the risk management business. Forecasts are driven primarily by employment growth and home price affordability, which are the two most important factors in housing markets (Collateral Analytics).

Collateral Analytics (CA) AVM has consistently had the highest ranking for accuracy in the industry.

Russ Lyon Sotheby’s International Realty (my broker) currently has an exclusive on the use of CA’s ‘bank grade’ tools tailored for the residential market in Arizona.

Below is an Arizona cross-sampling of CA’s 5-year forecast charts for select zip codes and cities within Core Based Statistical Areas (CBSA) – a geographic area defined by the U.S. Office of Management and Budget (OMB) based around an urban center of at least 10,000 people and adjacent areas that are socioeconomically tied to the urban center by commuting (Wikipedia).

By the way, we can generate these ‘bank grade’ AVM’s and 5-year CBSA-Zip Forecast charts for your property of interest anywhere in Arizona where MLS data has been integrated into Collateral Analytics database. Note some locations are still in process.

In the Forecast Charts below, the CBSA, city and respective zip code 85248 are indicated along the top. Dates track along the bottom horizontal axis. In this 15-year look-back and 5-year look ahead, the median price trend is shown on the vertical axis.

Chris Tiller, MBA

Russ Lyon Sotheby's

7135 East Camelback Road , Suite 360
Scottsdale, AZ 85251
Office: 480.287.5200
Cell: 602.561.1346
Free Home Estimate

December 28 - Looking at the monthly dollar volume chart for all areas & types (measured weekly / shown below) we see that 2014 lagged behind 2013 from January through early September, but since then it has gained ground. The monthly dollar volume currently stands at $1.4 billion versus $1.282 billon last year. The trend is looking increasingly positive as we progress through the fourth quarter.

Thanks to the strong performance of the luxury sector, for week 52, 2014 is currently outranking 6 of the last 10 years and is only beaten by 2005, 2006 and 2012.

December 27 - The single family monthly sales rate is higher than last year at this time in the following cities:

• Apache Junction
• Avondale
• Buckeye
• El Mirage
• Fountain Hills
• Gilbert
• Glendale
• Goodyear
• Mesa
• Paradise Valley
• Peoria
• Phoenix
• Queen Creek
• Scottsdale
• Sun City
• Sun Lakes
• Surprise
• Tolleson

This is a much more imposing list than the cities where the monthly sales rate is lower than 2013 at this time:

• Anthem
• Arizona City
• Casa Grande
• Cave Creek
• Chandler
• Gold Canyon
• Laveen
• Litchfield Park
• Maricopa
• Sun City West
• Tempe

In many cases, the 2014 number is only a small amount above the 2013 number, but a win is a win. The best advantages are seen in:

• Paradise Valley (39 versus 26)
• Fountain Hills (46 versus 36)
• Avondale (106 versus 71)
• Gilbert (370 versus 304)

The weakest situations are in:

• Anthem (27 versus 41)
• Maricopa (80 versus 112)

Overall the demand situation is showing some improvement though it is still far below what we would consider normal for the Greater Phoenix market.

30 Day Luxury Jump - Russ Lyon Dominating Once Again.

My Cromford Report Observation ~

December 17 - 

The last 30 days have seen a lot of expensive homes closed. We have seen 28 sales for $2,000,000 or more, of which 8 were for more than $3,000,000.

In the same period in 2013 we only saw 15 such sales. Only 4 were for more than $3,000,000.

Clearly the super luxury market is continuing to do very well compared with the last several years. This is powered by lenders' desires to write jumbo loans and an economy that is returning excellent profits for companies and investors.

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Chris T Comment: Todays the 18th and I get 29 closed over $2M from November 17 to today. Of those 58 sides, RLSIR had 23 (40%) - 10 of the sales and 13 of the listings. GO TEAM!!!

Closed Since Nov 17

Sold Price	City	Zip
$9,750,000	Scottsdale	85255
$5,700,000	Scottsdale	85262
$4,700,000	Scottsdale	85255
$3,750,000	Paradise Valley	85253
$3,550,000	Scottsdale	85255
$3,275,000	Flagstaff	86001
$3,200,000	Phoenix	85018
$3,200,000	Scottsdale	85251
$2,775,000	Scottsdale	85255
$2,738,250	Paradise Valley	85253
$2,724,700	Paradise Valley	85253
$2,675,000	Scottsdale	85266
$2,600,000	Paradise Valley	85253
$2,600,000	Scottsdale	85254
$2,550,000	Scottsdale	85266
$2,502,730	Paradise Valley	85253
$2,500,000	Scottsdale	85260
$2,500,000	Scottsdale	85266
$2,450,000	Paradise Valley	85253
$2,400,000	Scottsdale	85262
$2,300,000	Scottsdale	85255
$2,300,000	Scottsdale	85255
$2,300,000	Scottsdale	85262
$2,300,000	Scottsdale	85254
$2,300,000	Paradise Valley	85253
$2,265,000	Paradise Valley	85253
$2,050,000	Phoenix	85016
$2,000,000	Scottsdale	85262

Hey Millennials'....Buy a House. Here's Why.

Does anyone remember the days when 5% annual appreciation was considered really good?  These days it appears that some consumers now perceive anything under 10% as horrible, and reason enough to keep renting.  As our market returns to normal it may be beneficial to help future homeowners, specifically the millennial generation, visualize where they could be in 5 years with a “horrendous” 4% appreciation rate.  For the following example, we chose a $175,000 purchase with 3% down since it falls in line with where a first-time home buyer might start. 

Date	1/1/2015		1/1/2016	1/1/2017	1/1/2018	1/1/2019	1/1/2020
Purchase Price	$175,000	Future Value @ 4% Annual Appreciation	$182,000	$189,280	$196,851	$204,725	$212,914
3.5% Down Payment	$    6,125	Beginning Loan Balance @ 4% Interest	$166,153	$163,069	$159,858	$156,517	$153,039
Loan Amount	$168,875	Net Equity	$15,847	$26,211	$36,993	$48,208	$59,875

Home ownership in these circumstances gives the borrower a net equity of almost $60,000 after 5 years. Not bad compared with renting a property for the same 5 years. We assumed that the seller paid all the closing costs (which is quite a reasonable assumption these days).

The secret ingredient is leverage. The borrower puts only 3% down but gets to keep 100% of the appreciation. With interest rates as low as they are today, the millennial generation will probably want to kick itself in ten years time for the missed opportunity today.

Even with no appreciation the borrower gets net equity of $22,000 after 5 years, because a chunk of the monthly check goes to pay down the outstanding loan balance. However property taxes and maintenance will eat into that.

Realistically, 4% appreciation is over twice as high as inflation and a very satisfactory rate for the realistic homeowner.