{"id":811,"date":"2018-06-04T23:22:26","date_gmt":"2018-06-04T23:22:26","guid":{"rendered":"https:\/\/nohasslelistingblog.com\/?p=811"},"modified":"2018-06-04T23:23:12","modified_gmt":"2018-06-04T23:23:12","slug":"811","status":"publish","type":"post","link":"https:\/\/nohasslelistingblog.com\/?p=811","title":{"rendered":"The Magic Triangle: Supply, Demand, and Price"},"content":{"rendered":"

Probably the hardest thing about routinely writing on the subject of the local real estate market is that it really doesn\u2019t change overnight \u2013 thankfully – despite erroneous comparisons to the stock market. \u00a0Short term trends in real estate are relatively predictable \u2013 largely because supply is not highly volatile. By contrast, demand has the potential to be far more volatile \u2013 anyone remember Desert Storm?\u00a0 Demand went to zero overnight and then returned in two weeks once it was clear this was really not a war but a \u201cmilitary action\u201d.\u00a0 Despite the dearth of provocative headlines, it is still worthwhile to take a look at the market now that we have reached the half-way mark. \u00a0Especially since market activity seasonally peaks in May, and gradually declines as we approach the end of the year.<\/p>\n

Supply<\/u><\/p>\n

So where do we stand on supply?\u00a0 The short answer is supply is very low, although not all areas and price points are affected equally.\u00a0 Even though supply is the more stable of the two market factors, in May it made a rapid shift in the under 200K range.\u00a0 As Tina Tamboer of the Cromford Report notes:<\/p>\n

\u201cSupply under $200K has continued to drop rapidly, but the $175K-$200K range has accelerated its decline over the past month far more dramatically than any other price range. After being consistently 30-35% below last year, the active supply level dropped a whopping 18% in a 3-week period putting the current count for this group 44% below last year.\u201d<\/em><\/p>\n

Gulp.\u00a0 That is one heck of a supply shift.\u00a0 Looking at Greater Phoenix, overall inventory is running at about half of what would be considered normal.\u00a0 Not surprisingly, the lowest priced areas have the weakest supply \u2013 with only a few exceptions.\u00a0 The Cromford Report did an interesting study of the most constricted supply mid- May:<\/p>\n

\u201cHere are the 10 ZIP codes with the lowest days of inventory as of May 16:<\/p>\n

Phoenix 85035 – 17<\/p>\n

El Mirage 85335 – 18<\/p>\n

Mesa 85202 – 21<\/p>\n

Phoenix 85033 – 22<\/p>\n

Mesa 85203 – 23<\/p>\n

Gilbert 85296 – 24<\/p>\n

Youngtown 85363 – 24<\/p>\n

Phoenix 85037 – 24<\/p>\n

Phoenix 85009 – 25<\/p>\n

Mesa 85210 \u2013 25<\/p>\n

25 is an extremely low reading for days of inventory. All of the above are in West Phoenix, West Mesa or the El Mirage \/ Youngtown area, with the exception of 85296, which is rather more expensive\u201d\u2026..<\/p>\n

\u201cFor supply, it is the range below $500,000 that was most affected with months of supply down from 2.1 to just 1.5 and a 31% drop in active listings. The range between $500,000 and $1 million was down 16% in active listings pushing our months of supply lower from 5.7 to 4.1. Over $1 million there was a drop in supply, but only by 5%. There is currently just under a year of supply over $1 million.\u201d<\/p>\n

Although a year\u2019s supply over the million dollar mark may sound hugely excessive (especially through the lens of the under 500K price range) we well remember years where that price point had 7 years of inventory! \u00a0So this price point has shifted dramatically.\u00a0 But as mentioned in the zip code study above, not all areas are experiencing the same shortage of supply.\u00a0 Anthem for example, in December was experiencing a lack of supply and seller\u2019s held the power \u2013 only to see now, 6 months later, a fully balanced market.<\/p>\n

Demand<\/u><\/p>\n

Demand is up 7% overall from last year \u2013 but just like supply \u2013 different price ranges have been affected disproportionately.\u00a0 Surprisingly the largest jump in demand came from the high end of the market (homes over $1 million).\u00a0 Sales in that range jumped 32% – juxtapose that to the under 500K market which saw a 5% drop in the quarterly sales due simply to inadequate supply to fill demand.\u00a0 When supply is low enough to constrict sales, it is very hard to see subtle shifts in demand. If the number of buyers standing in line for a home drops from 10 to 3, how does one staticize that?\u00a0 The Cromford Report religiously tracks supply and demand \u2013 and noted in April that a slight weakening of demand surfaced:<\/p>\n

\u201cOf course, with supply remaining very low, it is difficult to detect weaker demand in the real world. Only a careful day by day study of the numbers reveal the weakening trend. The trend has not lasted long so far, but if it continues for a few months then it could become more significant. It could then show up as fewer homes under contract and lower closings. We are not sounding an alarm here, just keeping a close watch on data signals \u2026\u201d<\/p>\n

Price<\/u><\/p>\n

As long as demand exceeds supply, prices will continue to rise.\u00a0 This inevitably results in alarmists saying we are in a \u201cbubble\u201d once again.\u00a0 The best answer to fear is facts.\u00a0 Take a look at the monthly average price per square foot compiled by the Cromford Report.<\/p>\n

\"\"<\/p>\n

You will note that if you eliminate the wild swings both up and down, we are in a reasonable appreciation range \u2013 and the trend line looks nothing like the parabolic curve of the 2005 market.<\/p>\n

At some point \u2013 rising prices (and possibly rising interest rates) will<\/u> dampen demand, as it is supposed to do. Reduced demand will allow supply to climb and then the market will balance.\u00a0 Does that mean prices will then drop?\u00a0 No, balanced markets tend to see price rises within the range of inflation.\u00a0 The inflation rate for 2017 was 2.1% and 2018 is averaging 2.5% Remember too; price is a trailing indicator \u2013 often lagging 3- 6 months behind the market.\u00a0 For those readers who are understandably jittery given the pricing plummet of 2008, take heart.\u00a0 While we do anticipate a balanced market on the horizon \u2013 that could be a year or two out and it will take more than a balanced market to see marked price changes.<\/p>\n

In the meantime, we will watch the trends and keep you informed.\u00a0 Slow moving ships are easy to watch.<\/p>\n

 <\/p>\n

Russell & Wendy (mostly Wendy)<\/p>\n","protected":false},"excerpt":{"rendered":"

Probably the hardest thing about routinely writing on the subject of the local real estate market is that it really doesn\u2019t change overnight \u2013 thankfully – despite erroneous comparisons to the stock market. \u00a0Short term trends in real estate are relatively predictable \u2013 largely because supply is not highly volatile. By contrast, demand has the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,4],"tags":[],"class_list":["post-811","post","type-post","status-publish","format-standard","hentry","category-real-estate-market","category-market-stats"],"_links":{"self":[{"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=\/wp\/v2\/posts\/811","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=811"}],"version-history":[{"count":3,"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=\/wp\/v2\/posts\/811\/revisions"}],"predecessor-version":[{"id":814,"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=\/wp\/v2\/posts\/811\/revisions\/814"}],"wp:attachment":[{"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=811"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=811"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nohasslelistingblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=811"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}