no hassle listing blog

“This is now an exceptionally strong market with no sign at all of the weakness we were seeing between September and February.”  Michael Orr of the Cromford Report

If you are someone who prefers headlines over articles, the above quote summarizes the valley’s current market.  For those who prefer more details, read on.

We entered 2019 with sluggish demand that had taken root in the final quarter of 2018.  All signs and numbers supported the fact that we were headed for a balanced market.   That is until March of 2019 when demand awoke and began reversing trends with vengeance.  So what is driving this demand?  We can only speculate but there are certainly some likely suspects.

Interest rates  Interest can impact the market as they directly affect affordability.  By November of 2018 Interest rates hit an average 30-year mortgage high of 4.94%.  Fast forward to March and rates had come down almost 1%.  As of this writing they are in the 3.75% range.  That increases buyer’s buying power considerably and certainly seems to be fueling this demand.

Rental rates  When it is cheaper to buy than to rent, the first time home buyer market jumps.  This is incredibly impactful as the first time buyer drives the housing market – creating a domino effect allowing for their home seller to in turn purchase their next move up home, and so on with an average chain of seven sales. It is easy for headlines to skip the rental market and focus solely on the resale market but the valley’s rental market is noteworthy.  To quote the Cromford Report:

“In June, the average monthly rent per sq. ft. was $1.01 for listings closed through ARMLS. This [is] the first time we have recorded a figure over $1.

In June 2006 the average monthly rent was only 71 cents per sq. ft., so rents have increased by 42% since then. In comparison the average purchase price per sq. ft. has moved from $188.53 to $172.02 since June 2006, a fall of 9%.So average rent has increased 42% while purchase prices have fallen 9% since June 2006 on a cost per sq. ft. basis.”

Job market  The valley‘s long term job creation averages around 40,000-50,000 new jobs yearly.  However 2018 saw a jump in new jobs to 86,800 according to labor statistics. In fact only Orlando had greater job growth in 2018.   Jobs bring people and people need housing.  Simple.

Affordability We may get eye rolls with arguing for affordability in a market that has seen such a strong recovery in pricing and appreciation since 2011.  But it is worthy to note that Phoenix is the 5^th most populous city in the country.  Our median sales price of $279,000 is unheard of in cities of our size.

What about supply?  We would be remiss to not comment on the other half of the supply/demand equation.   Supply hasn’t been abundant for years, so it is easy to dismiss low supply and focus solely on volatile demand.  But factually, June was notable for the low numbers of sellers coming to market.  As Michael Orr of the Cromford Report shares (emphasis added):

“The most unusual change during June was the 8.5% drop in active listings … which lurched from 5.3% higher than 2018 on June 1 to 4.1% below 2018 on July 1. Much of this decline was due to the low number of listings activated during June – 8,731 is our current count, the second lowest number for June since 2001 and down 11% from June 2018. On top of a very busy month for contracts and closings this has caused the supply to tighten dramatically….This is the greatest imbalance in favor of sellers that we have seen in almost 6 years.

Not surprisingly this is pushing up pricing.  As the Cromford Report further reports:

…The monthly median sales price of $279,000 is a new record high. The annual median sales price is also at a new record high at $268,000.

But before you celebrate (or begin having sleepless nights over another “bubble” in housing) there is a secondary set of numbers that typically are more accurate on tracking value.  Read on…

Average price per sq. ft. is nowhere near setting a new record, because the homes being sold today are much larger than those being sold at the last peak. The monthly average $/SF record is $190.05 set in May 2006. We edged up very slightly to $172.30 from $172.01 during June.

There are no indications we are in a bubble.  Rather, we simply have a very strong sellers’ market underway.  Will it last?  History says no.  Supply and demand are a seesaw that affect each other.  Short supply causes prices to rise.  As prices rise, demand tends to falter allowing for a rebalancing of supply.  The question is when.  As always, we will continue to report the market trends as they unfold.

Russell & Wendy Shaw

(mostly Wendy)

2019 began with an unremarkable start. Not surprising given that the last two weeks in December saw a large drop in listings under contract (a drop of 18.5% compared with the first two weeks of December – and down 10% for the month compared to December 2017).  To quote Michael Orr of the Cromford Report “In every respect, December was a weak month for demand, the weakest December we have seen since 2014 for sales … We have not seen listings under contract this low on January 1 since 2008. Clearly buyers are unenthusiastic about buying homes compared with just a few months ago.” In fact, for those who follow our market updates, we had reported that buyer demand first began wavering as early as July 2018.  Rising interest rates combined with higher housing prices impacted affordability, putting a gentle damper on demand.  But, before we all panic, there is counter balance on dropping demand.  The valley is blessed with positive net migration (i.e. population growth) which is still exceeding the current supply. So the real question is what will win in the spring buyer season?  Buyers diminished appetite or the inflow of new buyers?  Stay tuned, we will have that answer for you in a month or two.

Now on to the other half of the equation, supply.  The number of active and new listings coming to market – is equally unremarkable.  In fact the dearth of active listings has been the saving grace in keeping the market in favor of sellers despite dropping demand.  According to the Cromford Report’s numbers – supply is at about 2/3 of what is required for a balanced market.  Juxtapose that to the demand index which at the moment is only 12% less demand than a balanced market.  So the market remains still slightly in favor of sellers – even if weaker than 2019.

Does a weaker seller’s market mean that prices are on the edge of dropping?  No.  In fact buyers waiting for that may have a bit of a wait.  A balanced market (which again, we are not in yet, much less a buyer’s market) does not cause prices to drop but rather appreciation to slow down and keep more in line with inflation.  Admittedly affordability has taken a bit of hit – but we still are remarkably affordable when compared to other large metro areas.  The Cromford Report sums up the current market succinctly:

I have started to see a few writers claim that Phoenix is becoming a buyer’s market. I think this is a huge stretch. It is possible that we have forgotten what a buyer’s market really feels like. We have seen a noticeable downturn in demand but that alone does not constitute a buyer’s market.

In a buyer’s market, supply is higher than demand and currently we still have very low supply and little sign of a significant increase on the horizon. The weaker demand is still more than enough to match the current level of supply. Consequently sales prices still have upwards momentum, although this has eased a little since last spring.

I also hear talk of lower prices, but this talk is not referring to closed sales prices. It refers to the fact that many sellers are adjusting their expectations and bringing list prices more in line with market conditions. This is not resulting in closed prices going lower than last year, as we would expect in a true buyer’s market. In fact the average price per sq. ft. for listings under contract continues to hit new highs.

We have become used to a hot, growing market that strongly favors sellers and now that it is cooler, contracting in volume and moderately favoring sellers, we have a tendency to over-react and make more of the change than it really deserves. We have to stay calm and realistic and be guided by the numbers. These numbers look like a cooling off, not a downturn. We experienced a similar, though more severe, cooling off in 2013-2014, but the last significant downturn took place between late 2005 and 2009 and was followed by a 2 stage recovery from 2009 through 2013. There was also a mini-downturn in 2010-2011 which interrupted the recovery but had little lasting significance in hindsight…

Although the market is cooler and smaller than last year, it is not in any significant trouble.

What does this mean if you are a seller?  In 2019 you likely need to be more realistic on pricing and you may need to offer more assistance to buyers in need of help with closing costs.  If you are a buyer, you may have a bit more strength in negotiations than in years past – but don’t be fooled in to thinking that waiting will save you money.

As always, we are here to answer any questions about your particular housing concerns.  We are happy to help.

Russell & Wendy (mostly Wendy)

Happy New Year!  We hope that you had a wonderful holiday season.

2018 closed with a bit of a whimper in the valley as buyer demand, after years of unflinching strength, finally wavered.  Demand began to drop in July – rather precipitously by October – before settling in to a gentle landing to end the year.  Despite lessened demand and the dreary national headlines to the contrary, 2019 begins in the valley with sellers still retaining the upper hand.  To summarize the market conditions, no one says it better than Michael Orr of the Cromford Report:

“The reality in Greater Phoenix is that we have shifted from a strong seller’s market with high volumes to a moderate seller’s market with slightly lower volumes. In due course this is likely to adjust appreciation rates from the 8%-10% level to more like 6%-8%. If the CMI** drops below 120 I would change our prediction to 4%-6% but at the moment there is little sign of a fall much below 130. At a CMI of 100 we would expect appreciation. Of course things could change at any point but it would need a new factor coming into play.

The housing market has seen 3 factors put a slight dent in demand:

1. Mortgage interest rates are at a much higher level than in 2017, though still far below long term averages.
2. The cost of home ownership has risen faster than rents.
3. The tax law changes since 2018 have removed many of the tax benefits of owner-occupied housing relative to renting.

We definitely do not have anything approaching a crash or a slump, which would require a large increase in supply. Supply remains weak because many existing homeowners are more reluctant to move. Doing so would require them to give up their existing cheap loan and take out a new more expensive one. They are tending to stay put, which is good news for the likes of Home Depot and home remodeling and redecorating companies.

Other parts of the country are reporting weaker markets at the upper levels, but in Greater Phoenix, the luxury market is looking strong. Supply of higher end homes is down from last year and demand is holding up rather well. Of course the luxury market in Arizona is priced like the mid-range market in many parts of California. Population flows are favoring Arizona too, so it looks as though Phoenix will have one of the leading housing markets over the coming year, even though it is likely to be somewhat less active than 2018.”

So what is the take-away for sellers and buyers in this market?  Despite lessened demand, buyers are still exceeding the chronically low supply leaving most sellers in a gentle seller’s market.  The weakened demand is however contributing to more price reductions and a greater likelihood of sellers paying buyer concessions during contract negotiations.  For buyers, any plan of waiting for lower interest rates and lower prices will likely result in a very long wait. Even balanced markets typically appreciate at the level of inflation – and it is not likely to be in a balanced market in the first quarter of 2019, perhaps not even in the year. Therefore buyers will still be better served shopping in this gentle seller’s market than waiting for a buyer’s market to arrive.

Of course, neighborhoods and price points vary in their supply and demand.  For details on your specific area, please contact us.  We are always here to help!  Thank you for all your support in 2018.  Here’s to a wonderful 2019.

Russell & Wendy Shaw

(Mostly Wendy)

**Cromford Market Index; definition: is a value that provides a short term forecast for the balance of the market. It is derived from the trends in pending, active and sold listings compared with historical data over the previous four years. Values below 100 indicate a buyer’s market, while values above 100 indicate a seller’s market. A value of 100 indicates a balanced market