Tuesday, July 19, 2011

June 2011 Housing Market Reports

The June 2011 housing market reports for Maricopa County and its cities have been posted on our website. You can view local market statistics, trends, charts, and commentary from various reliable sources within the housing industry.

Real estate is local. National facts and figures may not pertain to the Phoenix area. What’s happening in one part of the country may be very different than what is happening here. Even what is happening in one part of the Valley may be very different than what is happening in another part of the Valley. Keep up with the local Phoenix area (particularly the Northeast Valley) real estate market by visiting our website.

We are currently in a “seller’s market” with less than a 4 months supply of inventory of homes for sale. Even so, the news media continue to talk about the forthcoming “shadow inventory”, which in fact has been shrinking steadily since the end of last year in the Phoenix area. Click here to see an easy-to-read chart

So, what does this mean for buyers and sellers? Housing prices should start to go up. Prices may remain stagnant for awhile until the job market improves, but eventually (some experts predict by the end of this year) the law of supply and demand will kick in and housing prices will rise.

Please click on the links below to see:

Maricopa County Housing Market Updates

AZ Real Estate & Business News

Our Listings for Sale

Our Listings for Lease

Search for Listings on the Actual, Live MLS System!

If you have any questions or would like any help, call Pete at (480) 229-6468

Friday, July 15, 2011

Are Prices Going Up or Down?

From The Cromford Report - July 9, 2011

Are Prices Going Up or Down?

I don't think we have ever had such a confusing set of pricing data so it's not surprising that opinions on price direction are all over the map. Even the facts are all over the map, which is a much rarer condition.

I'm going to wade into the issue and try to explain what I see going on. Hopefully it will shed light rather than adding to the confusion.

Before I start, let me make it clear that market direction and price direction are not the same thing. Sometimes the market gets worse while prices rise. This happened between April 2005 and August 2007. Throughout this period the market deteriorated - supply was increasing and demand falling and although prices reached a peak in June 2006 they did not start to decline significantly until September 2007 (see here). In contrast, since November 2010, when the market was in poor shape, supply has been falling while demand has been rising, but prices have shown little to no interest in responding by moving higher.

Nevertheless the improvement in market conditions is very substantial. Let's look at some key indicators for all areas & types:

1.The Cromford Market Index™ is higher now than at any time since October 2005.

2.The inventory of active listings is lower now than during the buoyant market of July 2003 and a far larger proportion of the current inventory has a contingent contract than was the case in 2003.

3.Monthly sales rates are setting new record highs.

4.Recent contract ratios are in the low to mid 90's, the highest we have seen since September 2005.

5.Listing success rates are approaching 75%, the highest recorded since October 2005.

6.Pending foreclosures and REO inventories are declining faster than at any time since 2005.

7.Foreclosures are off to a very slow start in the first week of July.

I could go on...

But let's get back to prices. The first thing to point out is that much depends how you measure them. First we have to choose between averages and medians. Why do we have two different measures? Because neither is entirely satisfactory. Average price, which you obtain by adding all the money spent on homes and dividing by the number of homes sold, can sometimes be unduly influenced by a relatively small number of large and expensive luxury homes. So instead, analysts often refer to the median sales price which is hardly affected by luxury homes at all. The median sales price is the price of the home that sits half-way between the lowest and the highest priced homes when you arrange them in an ordered list by price. You can add fifty multi-million dollar luxury homes and the median sales price won't move much, and possibly not at all. The disadvantage of the median sales price is that if you have a huge number of extremely cheap homes being snapped up by bargain hunters, it can drop to alarmingly low levels completely unrelated to the value of the bulk of the houses in the area. This is what happened in the first half of 2009 when investors were snapping up low-priced REOs in West Phoenix so fast that the median sales price for the City of Phoenix fell to $60,000 in March 2009 from $95,000 in January. By October 2009 it had recovered to $100,000. So while the median is insensitive to the high end it is sometimes over-sensitive to bargain buying at the bottom of the market.

It follows that we have to treat both average and median sales prices with a good deal of caution. At the Cromford Report we tend to focus on average sales price per sq. ft. which dilutes the disproportionate effect of luxury homes a little, but certainly not completely. It also goes a long way to avoid the problems associated with medians when REOs are selling like hot cakes. However $/SF is still highly susceptible to changes in the market mix, or "blend" as Tom Ruff likes to call it. This is especially true of changes in the blend at the high end of the market.

Today the average $/SF for monthly sales across all areas & types fell to a new extreme low of $80.32. We know it was $84.11 on June 9, so that's a big drop of 4.5% in a single month. Yet the monthly median sales price went up by 1.8% over the same period. Apparently prices are going up and down at the same time. Hitting a new bottom, at the same time as rising. Can this be true? You see what I mean about the facts being all over the map?

The facts are not really to blame. We must remember that averages and medians are not only different, they are not even closely related and often move in different directions, especially over short periods like months. It is only over the long term that they tend to follow similar trends.

To find out what has really happened, let's break down sales into 5 broad price ranges to see if we can detect what changed in the 30 days between June 9 and July 9.

List Price Range, Sales per Month June 9, Sales per Month July 9, % Change in Sales per month, Monthly Avg $/SF June 9, Monthly Avg $/SF July 9, % Change Monthly Avg $/SF

Under $100K 4,488 4,539 +1.1% $43.48 $42.88 -1.4%

$100K to $200K 3,325 3,560 +7.1% $71.48 $71.14 -0.5%

$200K to $400K 1,547 1,607 +3.9% $104.28 $102.63 -1.6%

$400K to $800K 406 446 +9.8% $154.00 $154.39 +0.2%

Over $800K 154 121 -22.4% $279.92 $238.51 -14.8%

Voila! The problem jumps out at us. It's in the range over $800,000.

The average $/SF in the price range above $800,000 fell nearly 15%. This is very unusual. Sales volume also fell over 22%. The average sales price for homes listed over $800,000 fell nearly 20%. This drop in volume and price from the luxury home sector had a huge effect on the overall average sales price and the average price per sq. ft, but it had no effect on the median sales price. Remember that the median sales price is essentially immune to any changes in the luxury sector. In fact the median sales price improved because of the growth in the price ranges between $100K and $800K.

Let's home in on the price ranges over $800,000 and see if we can identify more detail about the price changes

List Price Range, Sales per Month June 9, Sales per Month July 9, % Change in Sales per month, Monthly Avg $/SF June 9, Monthly Avg $/SF July 9, % Change Monthly Avg $/SF

$800K to $1M 44 49 +11.4% $192.30 $184.16 -4.2%

$1M to $1.5M 51 37 -27.4% $231.18 $236.26 +2.2%

$1.5M to $2M 25 24 -4.0% $281.38 $243.26 -13.5%

$2M to $3M 18 8 -55.4% $356.33 $365.48 +2.6%

Over $3M 16 3 -81.2% $428.08 $451.17 +5.4%

Now we can see that average pricing for luxury homes did NOT really fall by 15%. In fact the monthly average $/SF in 3 of the 5 sectors went up. The main cause of the large fall in average $/SF was the huge drop off in sales volumes over $2M - down from 34 to 11. Buyers of high end luxury homes had been active during the spring and seemed to have stopped buying as soon as the hot weather set in. The sudden absence of 23 sales over $2 million has a huge effect on average price and $/SF measurements, not just on the luxury sector, but on the market as a whole.

So where are we really?

Well from my perspective, prices aren't really going up or down much at all. They are still bumping along in essentially the same price range they have been in since October 2010. In situations like this, changes in the blend can make all the difference in whether the average or median goes up, down or stays flat. Our advice is not to pay too much attention to these movements. They will gain their rightful insignificance over time.

When a real price trend forms, we will know about it for sure, because all the price indicators will then be moving in the same direction with obvious momentum.

And when that happens you will hear about it here first.

Note: By the way, you may have noticed that we did not use median sales prices in reviewing price ranges. You may also be wondering why. It's because median sales prices offer no useful information at all when applied to a price range. The price range has already been limited by definition so all you will discover is that the median sales price is pretty much in the middle of each selected price range. It will stay in roughly the same spot no matter what happens to the market. Hence our advice is: don't waste any time calculating medians when dealing with price ranges. Averages are not much better. You really need to study the average price per sq. ft. (or median price per sq. ft.) if you want to derive useful pricing information about price ranges. An alternative approach is to create ranges by living space sq. ft. instead - if you do this then median price and average price become meanignful measures again.

Saturday, July 9, 2011

July 2 - Market Summary for the Beginning of July

What an amazing month was June!

According to the current ARMLS data, 2,216 homes closed on June 30 across all areas and types, the largest total we have ever recorded for a single day. It beat the previous record set on June 30, 2004 by nearly 57%! Not only that, but the total for the calendar month of June was 11,141, also a new all time record for sales through ARMLS. We know that the total sales recorded by the counties may have been a little higher during the summer of 2005 because so many transactions were completed outside of ARMLS in those days (mainly new homes and FSBOs). However in June's total we are not including the homes purchased at trustee sales which were very few in 2005 and likely numbered over 1,500 last month. However you look at it, June 2011 sales volume was enormous.

The make-up of these ARMLS sales was also exceptional. Short sales and pre-foreclosures totaled 3,057 across Greater Phoenix, up 49% from May. Lender owned properties were up only 3.4% at 4,508, while normal sales were up only 3.8% at 3,416. These three counts don't quite add up to 11,141 because there were 160 "out-of-area" sales too, lying beyond the borders of Greater Phoenix.

Because so many of these closed transactions were short sales, we have to expect some volatility in these numbers over the next few weeks. The flexmls system automatically closes pending transactions when their COE date is reached. Sometimes a snag occurs in real life and a sale fails to close when expected and has to be manually reversed later. This is far more likely to happen with short sales than other types because of the large number of approvals and documents needed to successfully close escrow. As usual our sales counts will be constantly monitored and corrected as newer statistics emerge on a daily basis.

The exceptional number of short sales had another impact. With normal sales dropping from 34% to 31% the monthly average price per sq. ft. fell just under 1% from $82.55 to $81.75 between June 1 and July 1. REO pricing per sq. ft. went up 1.0% and normal pricing went up 1.1%, but short sales and pre-foreclosure pricing went down a huge 4.7% across Greater Phoenix.

Here are some key figures for all areas & types:

Monthly Sales: 11,141 is 13% higher than May 2011 and 21.7% higher than in June 2010, when sales numbers were still getting a boost from the government tax credit.

Pending Listings: 12,224 on July 1, down 7.9% from June 1 but up 16.1% compared with July 1, 2010.

Active Listings: 28,837 on July 1, down 8.0% from June 1 and down 30.0% compared with July 1, 2010.

So supply continues to drop while demand is extremely strong. However, during the summer months we expect demand to remain much stronger among investment buyers than among regular buyers. Particularly at the upper end, buying interest tends to fall off during the third quarter. For example in the range above $3,000,000 there were only 3 homes under contract on July 1 whereas there were 11 on June 1. If this trend happens in 3Q 2011 we could see average prices fall due to the changing mix favoring the lower end of the market. It seems counter-intuitive that prices could weaken when supply is dropping fast and demand is so strong. However we must remember that public sentiment toward housing is still very negative and most people have not noticed the change in the balance of the market. In late 2005 and the first half of 2006, demand was weak and supply growing like Topsy, but prices continued to rise and were still extremely high at the end of 2006 because public sentiment toward housing remained very positive until the moment prices could no longer hold their artificially elevated position. At the moment the market balance is reversed but prices are hardly reacting at all. It is possible to theorize that the longer this situation lasts the sharper the ultimate correction is likely to be. We will have to wait and see.

There are those who still believe a large "shadow inventory" of distressed homes is looming over us and is going to cause another collapse in pricing. To address this question, we have developed a chart showing the "shadow inventory" counts for single family homes in Maricopa County. You can find it here. The chart shows that the "shadow inventory" has been declining since November 2010 and is relatively small compared to the monthly sales rate. Of course successful short sales contribute to this decline in the "shadow inventory". We did not include loans that are delinquent but not in foreclosure in our graph, but instead we recommend an expert on these: Jay Brinkmann, Chief Economist of the Mortgage Bankers Association. You can find his press release on 1Q 2011 delinquencies here.

In contrast to the sales transactions, the foreclosure numbers for June were relatively unexciting. In Maricopa County we counted 4,477 new Notices of Trustee Sales, similar to both April and May but 27% below June last year. We counted 4099 trustee sales, the lowest monthly number since the Bank of America moratorium in December 2010. This total is also 14% lower than June 2010. Both counts are symptomatic of a foreclosure tsunami that peaked in 2009 and is now gradually ebbing.

From The Cromford Report

Monthly Average $/SF Overtakes the Annual Average

June 23, 2011 - Monthly Average $/SF Overtakes the Annual Average

When a market is falling the monthly average $/SF for sales transactions is consistently lower than the annual average $/SF. When this ceases to be true we have a signal of a market that is attempting to turn round. On June 23 we see a monthly average of $83.85 and an annual average of $83.74. The difference is only slight but like the olive leaf carried by Noah's dove, this is a promising sign that price declines have abated.

We can certainly say that pricing for sales closed between May 23 and June 22, 2011 was on average higher, on a price per sq. ft. basis, than sales between June 23 2010 and June 22, 2011. We saw a similar thing occur in November 2009 confirming price rises that unfortunately did not hold once the tax credit ran out. This signal turned negative again in July 2010 and has stayed negative until the last three days.

If market pricing continues to improve this positive advantage for the short term average over the long term average will likely hold. Stock traders will recognize this kind of signal from their market. For stocks prices turn round frequently, but for residential real estate these signals tend to stay either positive or negative for months if not years.

From Cromford Report

Saturday, May 7, 2011

Market Summary for the Beginning of May

Market Summary for the Beginning of May
The Cromford Report May 3, 2011

Almost all the market indicators for Greater Phoenix have been strongly improving since the fourth quarter of 2010. Let's look at what has happened since then using the numbers for all areas and types of ARMLS residential resale listings.

•Active Listings (Total): Peaking on November 20 at 45,960, supply has since declined by over 25% to 34,364

•Active Listings (excluding those in AWC status): Peaked on November 21 at 39,813, has since declined by over 28% to 26,764

•Pending Listings: Reached a low point of 8,695 on January 2, has since risen 55% to 13,467

•Sales per Month: Reached a low point of 6,195 on January 31, has since risen 49% to 9,237 today.

•Sold % List Price: Reached a low point of 94.23% on December 31, has since risen to 95.57% today.

•Days Inventory: Peaked at 188 on November 21, has since fallen 28% to 135

•Months Supply: Rose to 6.8 on October 6, has since fallen 48% to 3.5

•Listing Success Rate: Reached a low point of 53% on January 31, has since risen to 69%

•Cromford Market Index: Hit a low of 85.2 on September 28, has since recovered strongly to 123.1

•Contract Ratio: Low point of 38.0 on January 1, now more than doubled to 78.7

All of these led us to conclude we were participating in a strong recovery, but until April sales prices stubbornly refused to follow suit and merely stabilized. However during the last ten days of April average price per sq. ft. started increasing in most (but not all) sectors.

We can now declare January 22, 2011 to be an official pricing bottom for the overall ARMLS market (all areas & types), with average sales price per sq. ft. at a low level ($80.74 per sq. ft.) we are unlikely to see again. As a reminder we experienced another initial bottom in $/SF prices on April 6, 2009, followed by a rebound that lasted over a year but collapsed along with the expiry of the tax credit incentive in 2010. Those waiting for the second bottom just missed it. It is not impossible that we see a third bottom at some point. However prices are unlikely to weaken while the indicators above continue to improve. At the moment we are looking at a W shaped recovery pattern and prices are starting to move up the second upward leg.

We should point out that the sales price per sq. ft. for lender-owned homes is still making fresh lows this week. This is not bringing down the overall $/SF because lender owned homes are gradually falling as a percentage of the total while normal sales are taking a greater share. For example in April 44.6% of sales were REOs compared with 46.8% in March. Normal sales increased their share from 34.0% to 35.7% while short sales, whose sales $/SF prices have been rising slightly, increased from 19.2% to 19.8%.

Those looking for bargain buys among the single family detached REOs should note that the list price average is now $71.22 per sq. ft. up from its low point of $68.77 per sq ft just six weeks ago on March 21. Short sale and pre-foreclosure single family detached list pricing has held steady for several months at around $79 to $80, while normal list prices for these homes have surged from $185.96 on September 26 to $196.53 today.

The recent increase in average sales pricing was quite sharp and was emphasized by greater participation from the luxury market. It is a little known fact that $/SF pricing for homes above $300,000 has been moving gently higher since October/November 2010 and sales volumes are on the rise. We should expect increased price volatility over coming months as the mix of sales varies. Remember that August is historically a weak month for pricing.

We will report which sectors have shown the greatest price gain shortly, along with those sectors that have yet to move higher.

In the world of foreclosures, the big news is the rapid fall of new notices of trustee sale. April delivered only 4,418 new notices in Maricopa County of which 4,200 were residential. This is the lowest monthly total since December 2007, nearly three and a half years ago. Completed trustee sales in Maricopa County fell back from the March high as expected, but at 4,709 (4,513 of which were residential) they far outstripped the new notices for the first time ever. This signals a significant phase change in the foreclosure tsunami as the activity starts to decline more rapidly. We are now seeing huge reductions in the pending foreclosure counts, with active notices at the end of April reading 32,203 which contrasts with 51,466 at the end of 2009 and 41,478 as recently as the start of 2011.

Not quite everything is good news. The monthly sales total for April is currently standing at 9,366. Normally this would be very impressive, but after March's 9,995 this suggests demand has reached a peak and fallen back just a bit, and this is reflected in the recent decline of the Cromford Demand Index™. It is the continued reduction in supply that is most encouraging and inventory now stands at just 3.5 months. To put that into context, the average between 2001 and 2011 has been 5.9 months with a minimum of 0.5 (in March 2005) and a maximum of 20.6 (in January 2008). It looks as though the Cromford Supply Index™ will shortly fall below 100 for the first time since November 2005. If you are buying right now, do not go out there expecting to find the widely reported "glut of foreclosed homes for sale". That disappeared several months ago.

The pending $/SF is also not behaving very well. This is due to the unusual market we are in. Short sales constitute 29% of pending listings but only 20% of sales and they tend to remain pending for long periods, often failing to close at all. Normal listings are only 27% of pending listings but comprise nearly 36% of sales, and they tend to close fast. These factors conspire to make the average list $/SF of pending listings significantly lower than the actual $/SF of monthly sales. The mix represented by the pending listings is not currently a true reflection of what will close escrow and that gets increasingly the case as you look out further into the future. Price forecasts (including ours) that are based on measuring pending listings are therefore coming in more pessimistic than they would normally and we recommend that you should be wary of them until the market reverts to a more normal situation.

The big question now is: will higher prices lead to weakening of demand or will the sharp reduction in supply cause buyers to get more aggressive in their offers to ensure they don't miss out on the last chance to capture homes at bargain prices?

For the answer - watch this space!

Wednesday, April 20, 2011

Increase in Home Sales

Increase in Home Sales

04/15/2011 By: Heather Hill Cernoch

Freddie Mac forecasts a 5 percent increase in 2011 home sales over 2010, according to its U.S. Economic and Housing Market Outlook for April.

The report also contends that refinancing will likely account for a smaller share of loan applications later this year as wealthy borrowers decrease and mortgage rates increase.

“Expect to see a bit of spring in homes sales activity during the second quarter,” said Frank Nothaft, VP and chief economist at McLean, Virginia-based Freddie Mac.

Nothaft continued, “Sales contract signings for existing homes were up in February, positioning the market for a bounce up going into the traditional home-buying season.”

The expected pick-up in home sales is due to recent positive employment reports, the Market Outlook reveals. Unemployment declined for the fourth straight month to 8.8 percent, and net employment increased by 216,000 jobs. Real estate employment was up by 10,000 jobs since last November.

The report also calculates that the share of adjustable-rate mortgage loans will be 7 percent in 2011 compared to the 5 percent 2010 average.

Freddie Mac compiles data on major economic and housing and mortgage market indicators and offers forecasts based on those indicators.

Wednesday, April 6, 2011

Market Summary for the Beginning of April

The most impressive thing about the month of March 2011 was the huge unit volume of closed sales. We are currently showing 9,901 closed sales on ARMLS for all areas and types. That is the 5th highest monthly total ever recorded on ARMLS and the second highest sales volume ever for the month of March. The only months which have surpassed it were June 2005 (10,213), August 2005 (10,002), June 2004 (9,973) and March 2005 (9,949). Please see the long term sales chart to see how significant this number is.

Meanwhile demand is accelerating while supply is falling quickly. This is reflected in the Cromford Market Index™ and can be see here in graphical form.

Supply is falling in almost every geography and price range but is most noticeable at the price ranges below $150,000 and in the outskirts of the valley, particularly in Maricopa (city), Queen Creek, Anthem, Casa Grande and Buckeye, This largely due to enthusiastic buying of homes built in the last 15 years which can be found for sale at a discount of 70% or more compared with their price at the time of construction.

Trustee sales in Maricopa County hit a high number of 5,226 in March, due to the trustees catching up from the Bank of America moratorium in November last year. Notices of trustee sales were only modestly up from February at 5,397, which is not an impressive number given that March contained a lot more working days for lenders than February. As a result the number of homes pending foreclosure dropped sharply during March to the lowest number since March 2009.

Third parties buying at trustee sale made a new record with 1,379 purchases (26.4% of the auctions). This is by the far the largest number of properties ever purchased at trustee sale. Another 3,842 properties got no bids and went to the beneficiary to become REO inventory. This may help slow the fall in the REO inventory listed for sale of ARMLS.

Lenders seem to have noticed the enthusiasm of buyers and having allowed the average list $/SF of REOs to fall between April 1, 2010 ($87.56) and March 20, 2011 ($68.84), they are now increasing them again and the average list $/SF has popped up 3.5% in just the past 2 weeks. Asking prices for short sales and pre-foreclosures seem to have stalled at around $79 to $80 per sq. ft. Normal listings have been increasing in list price for some time, reaching a low of $185.93 on September 24 and rising by 4.5% over the last 6 months to hit $194.37 today.

While average sales prices are very slightly higher in March compared with January and February, there is still no clear sign of a significant trend forming. The median sales price has been stuck at $110,000 for three month now., again with no sign of a major move either up or down over the short term.

With the balance between supply and demand changing quite quickly for the better over the last four months, we are down to an overall inventory level of 4.2 months based on the monthly sales rate. This can be regarded as a "normal" reading for the time of year (it is below the 4.5 we measured in 2002 at the same point in our last "normal" year). This goes a long way towards explaining why prices have stabilized once again.

Currently the trend is for supply to fall further and demand to increase, and if this continues then at some point it is likely to lead to prices moving higher. How soon and how much, it is too early to say. However it is not too early to say that prices are unlikely to fall to any significant degree while this situation persists. Last year the disappearance of the tax credit at the end of April caused the market to deteriorate suddenly in May and pricing fell sharply between July and September. At the moment we see no indication of a similar interruption to the recovery process that is now under way.

© 2011 Cromford Associates LLC

The data used to create the Cromford Report™ is obtained from public records and obtained under license from the Arizona Regional Multiple Listing Service, Inc (ARMLS). Cromford Associates LLC and ARMLS expressly disclaim and make no representations or warranties of any kind, whether express, implied or statutory, as to the accuracy of the data used or the merchantability or fitness for any particular purpose.