Supply and Demand Seesaw

The seesaw of supply and demand is our best barometer of the health of the housing market – so naturally we closely watch it.  We have been in a seller’s market for such an extensive period that like most veteran agents, we are expecting a correction.  A rebalance of the market we hope will come in the form of a gradual increase in supply due to a lessening of demand; ultimately resulting in a balanced market.

In fact some early signals seem to indicate supply is building in most price points.  Here are some numbers from the Cromford Report:

“October marks the 4th month in a row that supply has continued to rise between $200K – $400K, which is good news for many buyers as it provides them with more choice and fewer competing offers.  However, for those buyers with budgets under $200K, this trend in supply doesn’t apply to them and their choices are still extremely limited.. 

As usual, nothing is quite that simple.  Supply comes from homes already on the market (not yet sold) and new listings being added (or built).  But at the same time the supply seems to be increasing – the first weeks of October showed a dearth of new listings coming to market.  In fact, new listings hit historic lows for any previous October.  The Cromford Report further explains:

We are examining the first week of October in more detail to study how new listing counts dropped unexpectedly. We counted 2,017 new listings in Greater Phoenix during the first full week which is down dramatically from the same week in 2017. The overall decline is 23% year over year and this is the lowest number of new listings we have ever seen for the first week of October. The previous record low was 2,343 in 2014….

For whatever reason, sellers are surprisingly rare this month. Even if we change the measurement week to Oct 3 to Oct 9, the picture does not change – new listings down 25% from 2,520 in 2017 to 1,885 in 2018. This latter total is once again the lowest we have ever recorded for those dates.

What is happening?  We can only speculate about why October has had such a low supply of new sellers.  Certainly consumer sentiment is a factor.  A large stock market “correction” can affect the market.  Politics can of course play a role.  Also, interest rates affect not only buyers but sellers too.  Again, the Cromford Report points out:

Mortgage rates tend to increase when the economy is strong…. People usually worry about higher rates discouraging buyers and while that is a reasonable concern, I am also of the opinion that higher rates discourage sellers, because in most cases they are going to move somewhere else and pay a higher rate too. If they have the option to stay put, they may choose to do so when rates are increasing.

 … Freddie Mac reported an average of 4.63% during September for the 30 year fixed. This is the highest we have seen since May 2011, more than 7 years ago. Of course in 2011 this seemed like a very low rate because we had experienced rates over 6% almost continuously between 1970 and 2008, with occasional short periods in the mid 5s.

Now we have a lot of homeowners with loans bearing rates of 3.5% to 4.25% taken out over the past 7 years. To move to a new home, they will need to pay off that cheap loan and take out another at closer to 5%. This effect is likely to be a drag on the supply of re-sale homes for a long time to come. It is likely to be good news for remodeling companies as many home owners decide to preserve their cheap financing by staying in place and spending their upgrade money on improving and modernizing their existing home instead.

Of course we cannot ignore the demand side of the equation.  A gentle lessening in demand appears to be underway – which ultimately effects supply.  When fewer buyers buy, supply typically begins to rise.  Which piece of the equation will affect 2019?  Will the lessened demand help shift the market towards balance or will sellers be reluctant to sell causing supply to remain scarce?  Either way, we will continue to monitor it and comment on it.

In the meantime, we want to give our heartfelt thanks for our wonderful friends and clients who place so much trust in us.  We are grateful every day.  We wish you all a wonderful holiday season.

Russell & Wendy Shaw

(Mostly Wendy)

Welcome to 2018

We hope you all had a wonderful holiday season!  Now that we are off to a fresh new year it makes sense to note where the market currently stands.

Supply

Undoubtedly our serial readers are already well aware that the 500K and under range has been in a “sellers” market for all of 2017.  What most may not know is that inventory usually sees a build up in the fall as demand tapers off.  Fall 2017 saw a very minimal increase in inventory and in the under 200k single family supply is so paltry as to seemingly be headed for extinction. Entering 2018, active Listings are down 12% from this time last year.   There appears to be no relief on the horizon.  As our favorite real estate market watcher the Cromford Report states:

It is easy to get complacent about the low inventory and assume that this is somehow the “new normal”. The long term decline in active listings just keeps going and we have now reached the point where days of inventory is the lowest we have seen for week 50 since 2004 (at the height of the bubble). …To try to get a handle on what life is like in the regular market, let us focus on homes priced at under $500,000 in Greater Phoenix. The inventory for this segment is 52 days. If we use $250,000 as the price limit we have just under 40 days of inventory. These are not normal readings and we start to wonder how low can these numbers go.”

This means buyers are going to have an even tougher time buying than last year in any price range other than luxury.  For most sellers, they should enjoy competition from buyers and stronger pricing.

Demand

Demand has remained relatively stable and unremarkable especially compared to its counterpart supply.  Demand was on a weakening trend in the 3rd quarter but that seemed to shift upwards mid-November and certainly provided a busier than normal December.  An interesting side note is that buyers are now primarily in-state buyers (i.e. local house changers) .  The Cromford Report notes :

 “… migration into Arizona is weaker than it was during the 2000-2007 era. In 2004 we saw 30,564 purchases by out of state buyers. 2017 year to date is 16,443 …The total sales count is lower and the percentage of sales going to out of state buyers has dropped from 20% to 16%…The flip side of this is that in-state demand has increased from 80% to 84%. Areas that appeal most to in-state buyers have seen stronger appreciation.”

Appreciation

Supply and demand ultimately dictate appreciation.  It should come as no surprise that appreciation was greatest in the lower price ranges due to low supply.  Turning back to the Cromford Report we can see exactly how true this is:

”After peaking on July 28 at 8.6% the appreciation rate for all areas & types went into a declining trend until November 9 when it bottomed out at 3.6%. It then changed course and over the last 5 weeks has risen sharply to reach between 7% and 7.5%…. Such a rapid change in direction is quite unusual.

The overall appreciation rate based on annual sale price per square foot in Greater Phoenix is 6.2%.  However, supply and demand are not the same by price range. The greatest appreciation rates are under $200K due to a lack of new construction that would typically balance out the supply shortage.  Sales under $200K are 33% of all sales this year, so their rate has a large effect on the overall average.  New multi-family and single-family homes are being added to the $200K-$500K price range to accommodate increased demand, but it’s still not quite enough.  The market is balanced between $500K-$1M, while supply is still higher than demand over $1M despite a 10% rise in 4th quarter contracts.  As a result, appreciation rates are as follows by price range:

  • Under $200K:  7.7%
  • $200K-$500K: 3.5%
  • $500K-$1M: 1.7%
  • Over $1M: 0.1%”

Agents

We rarely talk about real estate agents – although they certainly can impact the marketplace in subtle ways.  It may be of interest that there was a 6.6% increase in the number of real estate agents since last year as rookies continue to enter the field. While agents certainly don’t set the marketplace (supply and demand does) they certainly can influence the buying and selling experience. Agent skill impacts the counsel clients receive on market behavior or not; negotiate the highest market value or not.  They should be the client’s biggest advocate and legally in fact have a fiduciary relationship to the client.  As the institutional investment companies are swarming the valley (Offer Pad, Open Door, etc.) sellers can learn the hard way the impact that a missing real estate advocate has in terms of reduced proceeds.  Particularly disturbing is the institutional buyers’ offers of “no commission sale” while charging fees in excess of 9% – far beyond what might be charged as a commission.  Add in the typically lower than market value and imaginary “repair costs” and sellers are paying dearly for that lack of representation.  Lower than true market value sales can impact appraisals and subsequent neighboring sales – a sobering thought for all of us vested in defending neighborhood values.

As 2018 continues to progress we will endeavor to keep you apprised of the emerging trends.  Of course every home sale has its own concerns, so please don’t hesitate to contact us for a customized analysis of your neighborhood.  Here’s to a wonderful 2018!

Russell & Wendy Shaw

(Mostly Wendy)

How’s The Market?

Real estate affects everyone here in the valley – even those who don’t buy or sell. So being a Realtor, I get to see firsthand the level of interest the subjectTravis graphic for July attracts. The second most common question I get asked is “How’s the market?” (The most common one being “Are you that guy on TV?”)

For whom?

For the 800k seller in north Scottsdale? Or the 250k seller in Avondale? The answers are very different. Buyers in the 800k range have many homes to choose from. Juxtapose that to Avondale which currently has the hottest seller market in the valley. Glendale is just behind Avondale -but still a red hot market for sellers. Hot seller markets are simply markets that have lots of buyers – and too few sellers. It is always supply and demand.

The sticking point is that supply and demand numbers are not universal to an area or price point. So when the news reports “it’s a red hot seller’s market” take a moment and look at the valley as a series of sub-communities – each with their own numbers.

To quote directly from Michael Orr’s Cromford Report:

“Multiple offer situations are increasing. If buyers are wanting to spend more than $500,000 then they are in luck – supply is much more plentiful above that mark, though a few very popular areas like Arcadia have relatively slim pickings. During May even those upper price ranges saw a downward trend in active listing counts, but not enough to cause any real problems for most buyers. If today’s normal demand can cause supply to drop as much as it did in the last month, then buyers are going to have an even harder time if demand were to grow. This is especially true for the entry level market which is desperately short of homes for sale or rent.

The price trend is now very different for the low end, where strong appreciation is likely, and for the high end where a gently drift sideways is more likely, except in those areas where inventory is unusually low…

We note that the monthly median sales price has increased much faster than the monthly average price per sq. ft. The low end of the market is not pulling its usual weight due to the painfully low levels of supply in so many areas. This generates insufficient sales to keep the median down at its natural level. Prices are not really improving as much as the median suggests, except in a few very affordable areas, which may not remain so affordable for much longer…

The growing sense of justifiable optimism in the housing market tends to bring out ever more ridiculous articles in the media, usually forecasting doom and gloom ahead. Some even pretend to use mathematics to justify their case.

As John Kenneth Galbraith said (or was it Ezra Solomon; we don’t even know the past for certain), “The only function of economic forecasting is to make astrology look respectable”.

We will continue to stick to reporting the present and very short term forecasts. Right now the Greater Phoenix housing market is experiencing more than usual upward price pressure due to a chronic shortage of affordable housing to buy or rent. The majority of new development is focused on the mid-range or luxury markets, not the affordable market, for understandable business reasons, so there is no imminent solution to this shortage of affordable homes.”

Wondering if it a good time to sell for your price and neighborhood? Most likely the answer is yes. As always, the best answer is a researched answer. We simply need an address to give you a real answer to that question – anytime.

Better is still…well, better!

Happy 2015! However tardy, we had to add our best wishes for a wonderful new year.  2015 has been a year long awaited by the real estate industry – as january for travismany speculated in the last few years that real estate would boom in 2015.  So will 2015 in fact be the gangbuster year dreamed of?  Given the tumultuous past we have navigated, we are loathe to make predictions.    As Yogi Berra so famously stated “The future ain’t what it used to be.“ But, we are seeing early signs of improvement in demand.

As we mentioned in past articles, the lack of demand in our market (and frankly across the country) has been the story of 2014.  Oddly enough, the saving grace was that supply was also constrained at the same time.  Buyers didn’t (or couldn’t) buy and sellers were scarce and did not put their homes on the market at expected levels. So 2014 became a low volume market – meaning lower than “normal” levels of home changing occurred. The signal we have been watching for is improvement in demand.  Apparently Santa was listening because in December the first signs of improvement in demand began to trickle in.  To quote our favorite real estate guru Michael Orr “When comparing 2013 and 2014 we can see that 2014 has been weaker than 2013 for most of the year but has recently improved. The difference is not great but I find it convincing evidence that a slow improvement has started.”  Locally, the first few weeks of December showed the highest number for home sales for the same period since 2006.   Trends by their nature must extend past a few weeks but these are the early signals (we hope) of what is to come.

Another possible factor behind demand picking up is the lack of rental supply.  Finding homes to rent under $1000 monthly has become truly a challenge and at some point this lack of rentals will cause either more low end apartments to be built or cause renters to become buyers.  Could the recent improvement in demand be the first signs of renters becoming buyers?  We certainly hope so.

Lending seems to be the primary culprit behind 2014’s lack of demand.  Add to that an economy still struggling to right itself, and the debt load carried by most consumers, and it’s not too hard to see why demand has been constrained.  We feel confident that it is a matter of time until the lending community responds to the lack of programs for buyers.  In fact, we are starting to see the first signs of the lending issues being addressed.  Fannie Mae and Freddie Mac announced a program for first time home buyers that allows for a 3% down payment and lends up to $417,000 (currently FHA is 3.5% down and only lends up to $271,050 in the valley).  Add in the remarkably low interest rates (currently at less than half the historic average of 8.5%) and lending certainly is poised for improvement.  At the end of the day, lenders must lend to make money.

A possible additional bonus to the local market is the Super Bowl.  Whether imagined or real as a real estate boon, approximately 90,000 additional people are heading to Phoenix.  There can be little downside for our market to have that many valley visitors.

If demand truly begins to pick up steam, we could see 2015 convert back to a seller market. Of course, the one lesson the last ten years has taught us is nothing is for certain. No matter what happens, we will strive to keep you aware of the ever changing market. Here’s to a great 2015!

Better Late than Never

2014 began with a whimper as demand from Buyers waned to historically low levels.  Sellers, who seemed to be missing in 2013, showed up but buyers seemed to be unaffected by the increased selection of homes.  Market watchers kept looking for signs of the buyer drought ending to no avail – until now.  Finally buyers have begun buying again.  Whew, let’s all take a breath.

“Buyers” as a category form two sub-categories – investors and owner occupants.  In previous articles we mentioned that the Hedge firms who had been buying for a few years here have largely ended their buying.  But investors also include the “fix and flip” groups as well as individuals buying a home or two for their personal investments.  We see that investors are buying at the lowest levels in years – a good sign in our opinion.  To quote the one and only Michael Orr of the Cromford Report:

“Except for those unusual periods, which were dramatically affected by government intervention, the last time we saw investor buying activity lower than 16.2% (the current level) was December 2008.”

This tells us that the category of buyers currently in recovery is the owner occupant buyer.  This is a positive sign.  Although the change is only newly in place, if it continues for the next few months it likely will keep our market from swinging to a strong buyer market and prevent pricing erosion.

Interestingly, buyer demand has varied dramatically according to price range.  Predictably, in the 200K and under price range both supply and demand are down.  Supply is down due to the distress product evaporating and the resulting price rises that accompany diminished distressed sales.  The dropped demand at that price come from investors leaving (as this was their preferred price point) as well as first-time buyers opting to rent rather than purchase (either by choice or necessity).

Comparing the low end housing to the high-end and you find a dramatically different story.  As Michael Orr comments:

“For Greater Phoenix in March we had 109 sales of homes priced over $1,000,000. This is the highest March number for million dollar homes since 2008. For homes priced at or below $1,000,000 we had 6,503 sales which is the lowest March number since 2008. This divergence between luxury home sales and the rest of the market is quite striking. However there are still plenty of homes over $1,000,000 for sale so supply is not an issue. It must also be remembered that a home priced at $1,025,000 this year may have been $975,000 last year.”

Needless to say, demand will be the most critical area to watch this year.  Demand will determine which direction our currently flat pricing will take.  A word of caution, don’t be mislead by potential news reports that state our “median” price is rising.  Due to the increase in high end sales and the sharp decrease in low end sales – rising median pricing could be falsely interpreted as “the market price” is rising.  At this time, pricing is flat.

When demand is weak in housing for an extended period, the population must go somewhere – and in this case it means rentals.  Demand for single family rental housing has seen a sharp increase.  Eventually this will be good news for the housing market as first time home buyers leave rentals when owning is cheaper than renting.  We are not there yet, but the signs are pointing to that as a future possibility.  Here is what the Cromford Report says:

The scarcity of single family homes available to rent is getting extreme. Other types of rentals are not so hard to find for rent, but single family homes have dried up, probably because so few new rentals are being created compared with 2010 through 2013.

On January 1 we had 4,377 active single family rental listings. Today we have 2,391. That is a 45% drop in less than 3 months. On March 1 we had 2,806 so they have dropped 15% just in the last 30 days…. if inventory remains as tight as this it is likely that landlords will take the opportunity to push single family rental rates upwards.

So the watchword for now is “demand”.  It is a situation we will continue to closely monitor and so keep our wonderful past, present and future clients fully informed.

Will This Be a Happy New Year?

2014 is not starting off with a bang. At least not yet. The 4th quarter of 2013 was one of the lowest for pending sales in many, many years (2008 to be exact). This has contributed to a dramatic shift from what was a red hot seller’s market into a balanced market and even – in many areas of the valley – a buyer’s market.

To my knowledge no major economist is predicting anything dire for the valley. Truthfully, it is not necessary to know what they are saying to see what is happening with residential real estate prices. There are only four factors that regulate the price of housing. Supply and demand, monitored by fear or greed. There are many factors that contribute to which direction the market or a market segment is heading. Probably the most important number that determines the state of the market is the current absorption rate – how long the current supply would last if the rate of sales stayed the same and no new inventory came on the market.
A perfectly balanced market is six months – actually, a range of 5 to 7 months. With a six month supply there is no price movement and neither buyers or sellers have an advantage. If we go back many years and look at what is a “normal” level of inventory we see that it is 4.5 months. A 4.5 month supply will create very gentle upward pressure on prices, about the amount necessary to keep housing in step with normal inflation. Get down to a three month supply and you can see the prices rising – it’s a “seller’s market”. Less inventory than that is a “red hot seller’s market”. Around an eight month supply you have a “buyer’s market”. These numbers are true in any market, any market segment, and in any geographic area.

As you can see, from the current chart (chart 1), the months’ supply varies considerably depending on the price range. This number also varies greatly based on geographic location. The current number for the valley (all price points and areas) is 4.9 months supply. On the inset (chart 2) you can see the recent range of the valley wide months’ supply has gone from a 5.9 months in Jan 2011 to a low of 2.2 months supply for June 2012.

One interesting observation is that the “failure rate” for listings in the MLS tends to go up sharply when the inventory level rises (i.e. homes that don’t sell). Home sellers who have highly experienced agents who can accurately read the market do not suffer from their home not selling. It is possible to successfully market a home in any market.
So what will the spring buying season bring this year? Doom and gloom or a balanced market? Truthfully, we don’t know. We suspect balanced. But, the first sign of market strength (and yes weakness) is pending sales. If we see increasing sales this spring, the cooling phase of the market is over. If not, then we are likely to have a very subdued spring season that could last more than just a season.

Weak or strong, as always, you will know just as soon as we do.

Yes, Virginia. The Market is UP!

As 2013 approaches the halfway mark, the local market trends continue to strengthen their path.  As agents, we continue to be amazed at what a strong real estate recovery is underway in the valley.  But, as always, there is what the market is doing and then what people think the market is doing.  Public sentiment remains mixed despite the (to us) obvious recovery.  So perhaps human reaction is ultimately more interesting than any real estate market will ever be!  Nonetheless, let’s look again at the numbers comparing now with the same time last year.

Active Listings: 20,670 versus 21,841 last year – down 5.4%.

Pending Listings: 10,658 versus 11,964 last year – down 10.9%.

Monthly Sales: 8,162 versus 8,187 last year – down 7.4%.

Monthly Average Sales Price per Sq. Ft.: $113.10 versus $93.57 last year – up 21%.

Monthly Median Sales Price: $167,000 versus $130,000 last year – up 28.5%.

What does this mean?  New listings to the market, are down.  Sales are down from last year, but this is directly connected to the constricted supply rather than low demand.  There are simply more buyers than there are homes for sale.  This connects to the rising prices which are heading up again due to the unsatisfied demand (although not at the same pace of last spring).

Of great interest is the mix of what is selling.  While single family sales are down as are condo/townhome sales, in contrast mobile home sales are up 7%.  Why?  Mainly because the mobile homes new to the market are up 17% over last year’s first quarter.  This demonstrates the effect supply has on sales.

Distressed supply continues to disappear. The number of active REO (Bank Owned) listings across Greater Phoenix is down 18% in just the last month and is now down 93% from the peak in January 2009. Short sales are down 12% in the last month and are also down 93% from their peak in May 2010.  In fact, normal sales are back around a 73% market share (the highest amount since February 2008) and short sales at 16% and REOs at 11% (their lowest share since December 2007).

All of these statistics should tell you one thing, this IS the recovery.  In fact the market is healthy and what is left of the “distressed market” is so small as to be nearly irrelevant.  With that said, Hart Research Associates did a survey of 1433 interviewees during February and March of this year.  They were asked:

“Thinking now about the housing crisis that started in 2008 when many people and families defaulted on their mortgages and lost their homes, do you think the housing crisis is pretty much over, that we are still in the middle of it, or that the worst is yet to come in terms of the housing crisis?”

  • 58% think we are still in the middle of the housing crisis
  • 20% think the housing crisis is pretty much over
  • 19% think the worst is yet to come
  • 3% were not sure

Of course the facts are very clear, but 80% of the public have not yet accepted those facts. The housing crisis actually started in 2006 but the public did not really notice until 2008. By April 2009 homes in the City ofPhoenixhad pretty much lost all the value they were going to lose. From reputable analysis sources we can see that most (but not all) parts of the country were well into recovery during 2012. The majority of the general public will probably not really acknowledge the recovery until 2014 or maybe even 2015.

Unfortunately, this mental mindset is sidelining sellers who want to sell but are not certain they can. How do you know if you have equity again and can sell?  Short of an appraisal or a market analysis by your agent, there is a rule of thumb that works in the majority of the cases.  If you bought your home before January of 2004 or after September 2008 (or bought a foreclosure) – you probably now have equity.

These factors are combining to create a housing shortage for this year.  Net migration is up and the builders simply are not building enough volume to meet demand.  In the short term, it would appear sellers have plenty to smile about and buyers are likely to feel some frustration in their efforts to buy.

As always, we remain committed to keeping you informed and helping you through this ever changing market.  As always, we tip our hat to the wonderful Michael Orr of the Cromford report for his accurate market statistics.

Housing Bubble 2.0?

As we reported in last month’s issue, the market shifted (again) and January began with the lowest supply of listings coming on to the market.  This understandably has been putting pressure on pricing as supply is not abundant.  This has prompted a new rumor (I guess the persistent “shadow inventory” rumor eventually had to be abandoned) to surface.  Let’s call the new rumor “Housing Bubble 2.0” as one pundit referred to our market.  The theory goes that as prices move up we are re-experiencing a bubble such as 2005 which is doomed to be followed by a crash similar to 2007.  Before that rumor causes anyone too much heartburn, let’s go to the facts.  For facts on Real Estate in the greater Phoenix market, there is no one who documents the numbers like Michael Orr of the Cromford Report:

“Most housing analysts use data to support their observations. Those analysts tend to agree that housing is becoming a bright spot in a broader though slow economic recovery. This is particularly true in the Phoenix area, where our economy is improving a little faster than most and the housing market has been improving much faster than any other in the country. However there are also large numbers of commentators who are not data driven but tend to rely heavily on their personal theories, largely based on sentiment or political viewpoints. They tend to take one aspect of the market and amplify it out of proportion to derive their conclusions. One example of this is an article by Lauren Lyster based on the views of David Stockman, who describes the current situation as “Housing Bubble 2.0”. This is a ridiculous description of a market in which the median home price is lower than the median replacement construction cost, even excluding land values.

The observations by David Stockman have only a tentative connection with reality. His logic is flawed because, unlike the real housing bubble in 2004-2006:

  • investors in 2012-2013 are not borrowing money to buy homes – they are predominantly using cash
  • investors are buying homes to rent out for several years, not to flip after a short term rise in prices
  • we have a real housing shortage because new construction has been so low for the last 5 years while      population continues to expand
  • the pool of home buyers is being fueled by younger buyers leaving their parents’ homes at last
  • people need these homes to live in, they are not just trading commodities like they were during 2005

It is also not true that first time buyers and move-up buyers are missing. On the contrary there is a strong presence of such buyers in the market. However they often find it difficult to qualify for loans and are frequently outbid by investors when trying to purchase homes.

In 2004 and 2005 the signs of a bubble were obvious but the vast majority of people chose to ignore them. In 2012 and 2013 the signs of a bubble are absent, but many people choose to invent them.

The key issue remains – where is the new supply coming from to keep pace with demand? January 2013 saw fewer new listings added to the ARMLS database than in any January since that database was first built in 2000. The weaker sales rate in January disguised this effect but sales will not be weak from now on. The peak buying season is just about to start and we simply have too few homes available.”

We simply cannot improve on what Mr. Orr has to say.  We only add, that it is a very easy time to be a seller.  For those sellers sidelined from selling, it may be time to jump back in while competition is fierce for your home.  For buyer’s who missed the market low, they should take heart in the fact that homes are still below replacement cost.  In short, there is something to smile about.

Russell & Wendy Shaw

Prices are up!

We have waited since 2006 to be able to write that headline.  Yes there have been little spurts of improvement during those years (remember the tax credit of 2009?) but nothing that was headline inducing or that in hindsight really signaled much of anything other than tax breaks do work.  But this market is different and truly is making news – and some of the news is even accurate!  For those who prefer we bottom line it, the price per square foot of homes sold has moved upward at an average of 24% since September 2011.  Price per square foot is the most accurate short term tracking number.  24% is a rather amazing number by any standard, but particularly so as the national news is still reporting declines in housing values for our area.  As Mark Twain said there are “lies, damned lies, and statistics” – so what is really going on?

Remember that housing is a local issue, not a national issue.  So any discussion of our marketplace by necessity must be confined to our marketplace. So let’s look at what is a fact, the price per square foot is up by an average 24% since September.  That is a fact.  What does that mean for the home seller or buyer in this market?

First to the seller:  the message here is that the market has improved greatly and for those sidelined from selling due to value issues, it may be time to check current pricing in your neighborhood.  Does that mean every home has gone up 24%?  No.  As could be predicted, price point has something to do with the movement in values.  The lower prices (let’s say $500,000 and under) show the really significant price appreciation.  Above 500K we see a different picture with price per square foot showing both less of a drop and less upward movement as well.

Also, another factor that is slanting the numbers a bit is the dropped numbers of homes coming to market. This is one of the factors contributing to the price rise – reduced supply.  In our opinion this is the untold story of the market.  New listings coming on the market continue to hit record lows since 2011(when that statistic first began being kept).  The dropped supply is actually affecting the number of sales – Phoenix single family homes are down 18% compared to 2011 the same time of year.  Mesa sales are down 10% and Glendale is down 15%.  However, Scottsdale is up 5% over last year.  Because Scottsdale homes are more expensive on a per square foot basis, this is affecting the monthly average appreciation just by virtue of throwing higher priced homes in to the mix!  So although appreciation is on average 24% since September, that number may be a little bit higher than “reality” given the drop in lower priced sales and the increase in the higher priced sales.

To state the obvious, the best way to determine your current market value for your home is to request a Market Analysis from a competent agent (I highly recommend us).  Even then with supply and demand in flux and pricing shifting, the value is a moving target these days. A “range of value” for your home is probably the best you will do on determining pricing without actually placing your home on the market.

To buyers:  prices today are likely lower than tomorrow’s values.  If you are a buyer, be prepared for the frustration that goes with rising values, limited supply and a strong seller market.  Currently, most homes are receiving multiple offers and cash offers are abundant and often winning over financed offers.  Asking prices in the lower price ranges in particular, are just starting points for the offers as most offers will be above list price.  Those who say “I don’t want to play a bidding game”  need to understand that avoidance of this market and the competition for homes means that you are willing to pay more down the road for the benefit of being the sole bidder.

Rising prices at some point will dampen demand – the real question is how high and how long until we hit that point.  That is the million dollar question.  As the future market unfolds we will attempt to answer it for you.  As always, we are here to help you with the challenges this market presents.

 

Russell & Wendy Shaw

(Mostly Wendy)