What about inventory's impact on the market?

We have been seeing drops in inventory for the low end for a very long time and active counts were again down by 26% at the end of December. This shortage of supply has made it hard to keep sales volume growing and indeed quarterly sales slipped by 2%. In the mid-range, supply was down slightly but sales volume grew by 35% so there was still upward pressure on pricing. At the high end over $500,000 we saw increased supply, but sales volume jumped by 48% so here too we saw much stronger appreciation than we were experiencing 12 months ago.

Overall we saw a very healthy increase of 7% across the entire market. However we now see all price ranges participating, not just the low end. In fact the high end slightly out-performed the mid-range.

The top ZIP codes for appreciation in average $/SF between 4Q 2015 and 4Q 2016 were:

1. Mesa 85201 +16.9%
2. Mesa 85204 +13.4%
3. Mesa 85213 +11.6%
4. Mesa 85210 +10.4%
5. Chandler 85249 +9.5%
6. Gilbert 85233 +9.0%
7. Gilbert 85298 +8.6%
8. Queen Creek 85142 +8.3%
9. Sun Lakes 85248 +7.8%
10. Mesa 85208 +7.7%

The weakest appreciation was seen in:

1. Phoenix 85044 -0.4%
2. Mesa 85202 +1.3%
3. Mesa 85205 +1.9%
4. Gilbert 85297 +2.0%
5. Phoenix 85045 +2.3%
6. Phoenix 85048 +2.8%
7. Mesa 85206 +3.1%
8. Gilbert 85296 +3.4%
9. Tempe 85283 +3.5%
10. Tempe 85281 +3.6%

ACTIVE LISTING COUNT LONG TERM GRAPH BELOW

Is Arizona in a Bubble? 1.11.2017

As clients start their search in the new year everyone seems to be surprised at the prices and interest rates they will be facing.  The natural first question is...

"Are we in a bubble?!?"

This is a fair assessment but as always I follow up this question and the "how's the market?" question with..."It Depends".

Which city makes a huge difference in appreciation.  Even within each city specific communities and subdivisions have much different year over year changes.  Couple this with price range, amenities, upgrades, stories etc. and you'll get a very different answer from me.

The broad brush is that today's median prices are about 20 to 25% below the peak of the market (2006). There are notable exceptions e.g. PV remains 30% below the peak, while 'next door' Arcadia has cruised past the peak by 10%! But if live in these markets this is not news. As always, location and price range are the major variables.

Sample Median Price trends from select communities:

Glendale

Chandler

North Scottsdale

Paradise Valley

Scottsdale (Downtown)

Arcadia

You will come to your own conclusions based on the market segments you work. We can definitely see that in the lower price ranges prices are trending up at a modest pace; then you have the sizzling hot fashionable locations of downtown Scottsdale and Arcadia where price almost doesn't seem to matter; and then the mid-upper range north Scottsdale / Carefree / Fountain Hills that seem relatively flat, but stable.

With inventories relatively balanced against supply we would expect more of same going into 2017 and our high season. But we shall see.

December Market Update - One for the record books!!

How does December 2016 compare to all the other Decembers we have measured over the years?

• Monthly Sales Count = 7,191 - 5th highest (after 2010, 2004, 2011 and 2009)
• Annual Sales Count = 90,027 - 3rd highest (after 2005 and 2004)
• Average Sales Price = $282,067 - 4th highest (after 2006, 2005 and 2007)
• Median Sales Price = $225,000 - 4th highest (after 2006, 2005 and 2007)
• Monthly Average Price per Square Foot = $144.79 - 4th highest (after 2005, 2006 and 2007)
• Annual Average Price per Square Foot = $141.43 - 4th highest (after 2006, 2007 and 2005)
• Dollar Volume = $2.028B - 2nd highest (after 2005)

So, thanks to the 5th strongest sales count and the 4th strongest pricing, we just had the second best December for dollar volume in the last 16 years.

Cromford Daily Observation

Nice Market Trending - Demand

​

Cromford Daily Observation - For anyone who wants to see a positive signal in demand, take a look at the daily chart for annual sales:

Ignore the short term zigs and zags and focus on the distinct change in the slope from mid October onwards. This is because 2016 has been stronger than 2015 for sales closed since mid October

Kindest regards,

Interesting trends in real estate...the single life.

While the data below is from the Valley (as is pretty much all Cromford Report data), the trend is national, so I'm distributing statewide. 

Cromford Daily Observation - Several reports have suggested that single female buyers are becoming a larger part of the housing market. This is one of the few demographic subjects where we have good data. When we examine deeds and affidavits of value, we cannot tell the age, race, religion, sexual preferences or much else about the buyer and seller. However we can tell if the property is being purchased by an unmarried, divorced or married man, unmarried, divorced or married woman or a married or unmarried couple, of whatever combination of sexes. These facts are mentioned right there in the wording of the deed. These days it is no longer valid to assume that a married couple is of opposite sex, but statistically speaking the numbers of same sex couples making home purchases is still small.

So can we see any trends in the numbers for Maricopa and Pinal counties? We decided to exclude distressed sales and focus only on normal sales, new homes and the flip part of a fix and flip.

1. The percentage of sales to single women, or married women purchasing as their sole and separate property has indeed increased as follows:

• 2011 - 22.5% of all purchases
• 2012 - 22.6%
• 2013 - 22.7%
• 2014 - 23.5%
• 2015 - 24.0%
• 2016 - 24.8% (to the end of September)

2. The percentage of sales to single men, or married men purchasing as their sole and separate property has also increased:

• 2011 - 32.3%
• 2012 - 33.7%
• 2013 - 34.4%
• 2014 - 34.2%
• 2015 - 34.9%
• 2016 - 34.9%

The growth for single men seems to have stalled since 2013 however, which is when the growth in single women buyers started to grow. There is a slightly faster growth for single women over single men, but it is not dramatically different. I would conclude that the reports about increasing numbers of single female buyers are valid.

3. The percentage of sales to couples has declined as follows:

• 2011 - 45.2%
• 2012 - 43.8%
• 2013 - 43.0%
• 2014 - 42.4%
• 2015 - 41.1%
• 2016 - 40.2%

This is a clear trend. Sales to couples remain the largest sector, but it is in a steep declining trend. This corresponds to a decline in birth rates that we have already commented on.

Another trend we observed is that couples with the wife mentioned first increased from 2.5% to 3.7% of purchases. Couples with the husband mentioned first dropped from 42.7% to 36.6%. Not quite sure what that tells us, but I am sure Cromford Report subscribers will have some interesting theories.

Two last points worth discussing, which is not mentioned, is the age of these single individuals.  I wouldn't jump to the conclusion that this is solely a younger generation putting off marriage.  We are also seeing a large increase in divorced and widowed buyers not remarrying prior to a new purchase.  The digital age has allowed these older generations to connect on a social level much easier, thus by passing the old mindset of needing a partner.  Even if coupled it is very common to see the baby boomers remain unmarried despite living their lives as such.

Now, the trillon dollar question is two fold.  Will this continue and will the millennials come full circle and flock to suburbia once they realize carrying a car seat, groceries and kids up the stairs of their urban lofts is no longer conducive to their needs as a family.  The delay of parenting hasn't yet answered whether the actual preferences of parents has changed including backyards, quality schools and safer neighborhoods.  Time will tell.... 

My prediction? Over the short term (10 years) and on a macro scale we will see a massive constriction of growth to a select few cities with low cost of living, tech hub's and public transit i.e. Portland, Phoenix etc.  On a micro level all cities will see an increase in renter demand, smaller sq/ft homes, urban concentration, decrease demand for large homes and golf course communities.  In the long term (10+ years) I believe millennials will slowly begin to start families and their lifestyles will change.  The coffee shops, art galleries and loft lifestyles will be changed in for suburban back yards, safer neighborhoods, better schools and single story homes. 

Remember what you were "in to" 10 years ago?  I would imagine it has changed drastically since then.  Millennials grow tired of routine and stagnation.  To think this lifestyle will be trending in a decade is short sighted in my opinion.

Until next time...

AZ Real Estate Market Update - Appreciation #'s vs. Other Cities

It is the time of the month for the S&P/Case-Shiller® Home Price Index® numbers and this month's release covers sales between May and July 2016. Month over month changes look like this:

1. Portland +1.16%
2. Chicago +0.92%
3. Denver +0.89%
4. Detroit +0.83%
5. Phoenix +0.78%
6. Tampa +0.73%
7. Dallas +0.68%
8. San Diego +0.65%
9. Boston +0.64%
10. Minneapolis +0.64%
11. Los Angeles +0.58%
12. Seattle +0.56%
13. New York +0.55%
14. Las Vegas +0.52%
15. Cleveland +0.50%
16. Miami +0.41%
17. Atlanta +0.39%
18. Washington DC +0.37%
19. Charlotte +0.35%
20. San Francisco -0.02%

Phoenix is much higher up this list than it has been for many months. Portland and Denver continue their very strong run, while Chicago and Detroit have improved to join them. Seattle and San Francisco are showing unexpected weakness compared with the recent past.

The year over year table looks like this:

1. Portland +12.40%
2. Seattle +11.19%
3. Denver +9.42%
4. Dallas +8.33%
5. Tampa +7.76%
6. Miami +7.05%
7. San Diego +6.03%
8. San Francisco +6.01%
9. Los Angeles +5.50%
10. Las Vegas +5.39%
11. Detroit +5.34%
12. Charlotte +5.33%
13. Atlanta +5.28%
14. Phoenix +5.19%
15. Minneapolis +4.99%
16. Boston +4.20%
17. Chicago +3.71%
18. Cleveland +2.45%
19. Washington DC +2.02%
20. New York +1.74%

Phoenix is looking less impressive in this longer term view. Portland, Seattle and Denver are the top three as usual. These are all primary destinations for millennials.

____________________________

So why Portland, Seattle and Denver? If you Google the question you find that there is a well-documented and discussed trend over the last several years of millenials targeting 'mid-size' cities they consider 'hip' places to live and where they would like to work.

I suppose the local equivalent in the Valley might be Arcadia, for those who can afford it. 

I wonder if our local chamber of commerce and other associations in the business of attracting (young) people to Arizona cities are paying attention to this - the opportunity to 'market' the amazing lifestyle appeal are fair cities, especially for those who would prefer the sun over cloudy Portland and Seattle (from one who traded 320 days of overcast for 320 days of sun with eyes wide open) and the frigid mile-high city. What am I missing?

September AZ Housing Update : )

Market Summary for the Beginning of September

Just as we predicted last month, August was a very robust month for sales, up almost 14% from August last year in stark contrast to the uninspiring numbers in July (down over 3% from July 2015). We have already seen countless headlines about weak sales in July and no doubt we will see as many stories about the very strong recovery in August once the numbers are widely distributed.

However all these headline serve to do is illustrate that reporters (and even some real estate analysts) have a hard time properly understanding the effect of the Gregorian calendar on monthly real estate numbers.

• July 2015 had 22 working days
• July 2016 had 20 working days (10% fewer)
• August 2015 had 21 working days
• August 2016 had 23 working days (10% more)

All the variation in monthly sales counts in July & August are due to the above facts and had nothing to do with conditions in the real estate market which remained very similar throughout the period. It is amusing to see all the analysts trying to explain the July numbers with "low inventory" and "poor affordability" the favorite excuses. Nope. The correct reason was "there was a weekend at both ends of July". It will be interesting to see what explanations are used for the August bounce, because inventory has moved lower still and affordability did not improve at all.

If we combined July and August in both 2015 and 2016 we get 43 working days in both years and the numbers match properly again. Then we see that the two month sales count rose 4.6% over last year. We have been seeing a similar volume improvement in the ARMLS numbers all year. Nothing unusual has gone on in July or August. However sales have increased much more than this among new homes, just as they have all year. New homes are poorly represented among ARMLS listings since about 90% of them sell outside of ARMLS. In public recordings however, we are seeing new home growth rates far in excess of the growth rates for re-sale homes.

Anyway, here are the basic ARMLS numbers for September 1, 2016 relative to September 1, 2015 for all areas & types:

• Active Listings (excluding UCB): 19,186 versus 19,101 last year - up 0.4% - but down 2.7% from 19,711 last month
• Active Listings (including UCB): 23,173 versus 22,413 last year - up 3.4% - but down 2.6% compared with 23,801 last month
• Pending Listings: 6,331 versus 6,259 last year - up 1.2% - but down 7.0% from 6,824 last month
• Under Contract Listings (including Pending, CCBS & UCB): 10,318 versus 9,571 last year - up 7.8% - but down 5.3% from 10,897 last month
• Monthly Sales: 7,993 versus 7,031 last year - up 13.7% - and up 2.9% from 7,771 last month
• Monthly Average Sales Price per Sq. Ft.: $138.95 versus $132.33 last year - up 5.0% - and up 0.3% from $138.49 last month
• Monthly Median Sales Price: $227,800 versus $209,900 last year - up 8.5% - and up 1.2% from $225,000 last month

We can see that the jump in closed sales during August is compensated by weaker under contract and pending numbers at the start of September, just as we would expect for a long month, and exactly the opposite of what we saw in July. Again the implication is that the jump in August's sales volume has no real significance.

Inventory in the higher sales ranges has fallen sharply over the last 3 months, as it tends to do every year. This means remaining sellers have much less competition. So far this has not resulted in much improvement in sales prices because it takes a very long time for lower inventory to feed through into pricing. In addition it is usual for inventory to rise just as strongly between October and March so we do not think the luxury market has escaped its problems just yet. If we end up with more luxury inventory in April 2017 than we had on April 2016, then luxury home pricing is likely to continue its current weak trend.

We are seeing a little more inventory at the affordable end of the market in certain areas. If it continues this should have a moderating impact on the high appreciation rates we have been seeing below $200,000. Buyers should also see a mild reduction in the number of competing offers for the homes they want. However the effect is currently only weak and could possibly peter out quickly.

The mid-range continues to enjoy healthy supply and healthy demand plus volume increases far in excess of the low or high ends. I see little to concern us in the market between $200,000 and $500,000 at the moment and for the next few months.

The only major concern for a housing analyst over the medium term would be a major reduction in housing demand due to some form of deportation program for undocumented residents. Whether voluntary or compulsory, any major reduction in population that happens suddenly would have a very noticeable and serious impact on the housing market. The effect would be similar to a fatal epidemic (like the Spanish Flu of 1918) resulting in increased vacancies and loss of equity for investors and homeowners alike. For unaffected tenants the effects would be mostly positive of course, as rents would probably fall quite sharply. I would expect valuations at the lower end of the market to be hit the most if this event were to take place in 2017 or 2018. Whether or not it is likely to happen in that time scale, or at all, I am unable to judge.

Over the longer term I am concerned about the weakness of population numbers for people under 20. The huge increases in population counts for people 65 and over is not compensatory. Any economy will find it hard to grow with declining population numbers from one generation to the next. Just ask Japan how that works. Current fertility rate trends are very negative and not being helped by the spread of the Zika virus. The potential economic effects of Zika could be serious if it becomes widespread in Arizona, notably for tourism but also for the economy as a whole.

So we have some medium and longer term threats to watch out for, but in the short term the vast majority of our local housing market is looking unusually positive and stable.

Sourced from the Cromford Report