no hassle listing blog

The market is remarkably stable at this time despite some headlines in the past few months implying otherwise.  The “Most Improved” award goes to the luxury market – with Scottsdale, Paradise Valley and Carefree all posting great improvements thanks to higher demand and lower supply (quite a reversal from the 2^nd quarter).  No matter how interesting the luxury market is – 93% of the sales occur at 500K or below.  Therefore a much broader
look is required.   Michael Orr of the Cromford Report gives a very succinct summary of the market:

“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.

… in the short term the vast majority of our local housing market is looking unusually positive and stable.”

In a stable market, it would seem easy to properly sell a home.  Yet, surprisingly, we find the same mistakes being made by sellers no matter the market.  Because we are in the position to hear these horror stories, let us give you a quick “Reader’s Digest” version of a few pitfalls to avoid.

 

Accept a solicitation offer. 

The latest trend in exploiting sellers comes from “direct to seller” investors.  We’ve all received postcards and solicitations from the “We will buy your house” gang.  Whether well-funded by Wall Street (Open Door) or simply a local investor, the basic formula is the same.  The promise is to save you money and time – “no commissions” “sell as-is” and the promises go on and on.  The devil is in the details.  Commissions just get renamed “fees” and “as-is” just means swapping unhandled condition issues for large price deductions.  Often times the initial offer drops precipitously as inspections are done and the close date approaches.  After all, in any negotiation the party who needs the deal loses.  In this case, the losing party is the seller weeks from closing who suddenly finds themselves forced to agree to last minute changing terms.

These investors are using the fact that many sellers are unaware that they can sell a home “as-is” through a traditional brokerage sale. Competition from multiple buyers (even if only multiple investors) will best protect seller’s price.  The fact is investors who solicit benefit by the lack of competition for a home and misleading terms at the expense of the seller.

 

Not list your home on MLS (i.e. believe that both you and buyer can “save the commission”).

The primary reason sellers attempt to sell their home “For Sale by Owner” or use a “Limited Service” real estate company is to “save the commission”.  Although we fully understand the impulse (who doesn’t want to “save” money?) the statistics tell a different story.  The most recent study of this was posted in ARMLS Stat:  “When we test our model against MLS sales only, properties that were sold using a real estate agent via the MLS sell between 8.5% and 9.0% higher than properties not listed on the MLS.”  Is it because agents just “know more”? Hopefully your agent in fact does know more (promise us you will select an experienced agent) but that is not the reason.  Go back to our first point – it is competition for a home that protects value. That is the purpose of MLS – to employ the 35,000 +/- agents and their buyers to compete for the home. Secondarily, imagine for a moment why a buyer would select a “By Owner” home?  Since buyers don’t pay the commission – why would they care if the home is sold by a broker or by owner?  They would only care if they could “save the commission”.  But isn’t that the very reason the seller is selling by owner to “save the commission”?  How do two people save the same commission?  Additionally, if you have only one buyer looking, have you really received “top dollar’ from the market – or just that buyer’s top dollar?

 

Bad Pricing.  Thanks to the internet, sellers and buyers have more instantaneous and, sadly, erroneous information at their fingertips.  This bad information has led to both underpricing and overpricing of homes.   Establishing pricing through an AVM (automated valuation model – for example Zestimates) while fun and interesting, is by no means is an accurate way to determine market value.  Algorithms cannot take in all the factors that make up pricing – site selection, competition, property condition, variances in square footage, supply/demand shifts, etc.  Ask yourself why after all these years lenders still require an appraisal – where an actual person (gasp!) views the home and compares it to other sales.  There is simply no substitute for judgment.  Overpricing a home in the critical first three weeks can be a problem not easily overcome with reductions in the subsequent weeks and months.  Buyers can view “days on market” and make assumptions about whether this is a “good home” since no one else has purchased it, or exploit the seller’s increasing desperation as the marketing time extends.

 

Hire an agent you can’t fire.  This may be the least obvious of the errors, but it is an error.  Why would this matter?  Many sellers may be unaware that once they list with an agent, they cannot cancel the listing agreement –even if they are unhappy.  Being tied up in a 6 month listing agreement with the wrong agent (bad agent, bad marketing, improper preparation of the home, etc.) can not only rack up days on market but can eliminate the opportunity to sell during prime market periods waiting for the listing to expire.  Some agents will “agree to cancel” for a fee.  The best protection for you is obtaining the right to cancel at no charge as part of the listing agreement.

While there certainly are other errors we could elaborate upon, we tried to hit some of the most common.  Want to know more?  As always, we are here to discuss your particular concerns.

 

 

 

 

As we enter the last quarter of the year, we begin reflecting on how 2016 has compared to 2015.  It has been a remarkably similar year to 2015 – with only some minor variations.

The biggest challenge of the 2016 market has been the intensely low inventory in the $175,000 and under market.  The situation began in earnest in 2015 and has only accelerated.  Any buyer shopping in the $100,000-$125,000 price point for single family properties can share their own tale of misery – as the inventory in that range has nearly evaporated.  As we have mentioned in articles past, supply is the harder side of the equation to move – demand being far more mercurial.  Unless we get some institutional owners (hedge firms, investors, etc.) to part with their rental inventory – we see no immediate solution to our entry level, single family home supply issue.  As in years past, buyers in that price range are currently faced with only a few options:  remain a tenant, increase their buying power (i.e. cosigners or increased down payment/income) purchase a condo, purchase a mobile home, or go out of demand areas to lower priced housing.

Demand has also improved over 2015 – but not dramatically (frankly, we are not unhappy about avoiding “dramatic” trends after the rocket ride of the last 10 years). As our guru, Michael Orr of the Cromford Report opines:

“We are now at the point where inventory hits its minimum level in most years. New listings are arriving only 3% faster than last year and we have seen quite a lot of cancellations, especially at the higher price points. We will be looking to see what sort of inventory growth we get between now and the next peak at the end of November.

Demand is currently holding up, some 5% higher than we would consider normal. However the market conditions are probably going to be determined by changes in the supply.“

We have begun to see the occasional headline warning of an impending drop in demand.  Let us offer some thoughts on the matter.  First, supply and demand are a balancing scale – meaning that when demand exceeds supply – prices go up.  Prices going up, cool off demand.  Cooling demand increases supply.  In other words, this is exactly what is supposed to happen – supply and demand move up and down in a balancing act.  Additionally, our market has uniquely segmented behavior specific to price ranges, rather than the more traditional geographic segments.  Demand has already fallen in the high end – attributed perhaps to an aging population who are downsizing, the stock market, and hot temperatures (buyers with funds flee the valley in the summer).    The mid- range market has been mostly flat, and the low end has been appreciating due to the low levels of supply.  Most importantly, real estate markets are local – not national.  So any broad statement about “the real estate market” should be met with some skepticism.  Here is Michael Orr’s brilliant analysis of our market place:

“In the recent couple of years the market trends have been determined far more by price range rather than the traditional location (location, location). This is contrary to normal market behavior. We are not used to our fastest appreciating markets being those with the worst performing schools and the highest rates of crime. However a few numbers will easily prove my point: The figures below are for all property types within Greater Phoenix.

I highlighted in red the price ranges which went backwards in dollars adjusted for inflation (which was 1.01% this year and 0.12% 12 months ago).

I am not sure why the $800,000 to $1M range should be doing better than those either side of it. It is faring as well as the $400,000 to $500,000 range. The rest of the ranges from $500,000 upwards have not performed so well over the past 24 months. The range between $1M and $1.5M shows the weakest trend here. 

In terms of unit sales through ARMLS, the price ranges at or below $500,000 comprise 93% of the total market while those above $500,000 comprise only 7%. So it is fair to say that the market as a whole is keeping housing assets appreciating well ahead of inflation. This becomes even more true as you head down market.

The picture changes when we look at supply rather than demand. Among the active listings on ARMLS within Greater Phoenix today, listings over $500,000 comprise 24%, and those of $500,000 or less only 76%.”

If there ever was a case for avoiding Zillow’s erroneous zestimates, the above would prove the point.  Markets are nuanced, and there is no substitute for looking.  As always, we will do our best to keep you informed on the real trends in our marketplace.

The trends that were forming in the first quarter of 2016, now are affirmed. As usual, the two most important laws of economics – the laws of supply and demand – are the driving force behind the trends.   Demand – the more fluid and fickle of the two- is up. In fact demand has returned to levels not seen since 2013. Supply, the slower moving component, has fractured into distinct market segments. No one captures this market snapshot better than Michael Orr of the Cromford Report when he states:

 

Below $275K we therefore see continued strong appreciation, short times on market and low cancellation and expiry rates.

From $275K to $350K we see very healthy market conditions with new supply and closed sales both up significantly from last year.

From $350K-$400K the growth in supply was strong, but sales growth was much weaker than average, suggesting there may be a few problems developing for sellers. However from $400K to $500K the percentage growth in new listings was matched by the growth in closed sales. I would describe this sector of the market as normal, healthy and growing, with no major shortages of buyers or sellers.

From $500K to $800K new supply outstripped the growth in sales, so even though there was a healthy increase in volume we see more competition building between sellers.

From $800K to $1M the increases were balanced but we do see 3 times as many new listings as we see closed sales. This is likely to mean higher cancellation and expiry rates and long times to sell ahead. It also means minimal upward pressure on pricing.

The issue for sellers with homes priced over a million is that the number of new listings outpaced sales by at least 3.4 to 1. This is not unusual for this segment, where new listings comfortably exceed closed sales at all times. The bad news is that sales were slightly down (-1.4%) from last year, primarily due to surprisingly poor performance by the segment from $1M to $1.5M. Yet new listings were up almost 15% for homes over $1M. This is a good situation for luxury home buyers, but it is not very good news for sellers who would like to see some appreciation. The current market environment over $1 million is consistent with a flat to slight downward trend in prices, long times on market and high rates of cancelled and expired listings. There are some very fashionable locations (close to urban centers) where this does not apply, but the bulk of the luxury market has reasonably good demand but excessive supply. Because of the good demand, agents will be happy with the transaction volume, but sellers are likely to be disappointed with the sales prices that can be achieved, and how long it takes to achieve them. These sellers hear about prices rising both locally and nationally, but unfortunately it does not apply to them.

 

The question of why inventory has jumped so markedly in the 500K+ range has garnered some attention lately. National analysts have begun speculating on this trend, much as they did last year when bemoaning the apparent lack of interest in home ownership by millennials (a theory we do not subscribe to).

A theory put forward by several national analysts, particularly Stephen Kim of Barclays, is that a long term secular change is under way. They believe a wave of empty nesters is seeking to downsize, and now that the market has recovered from the crisis of 2006-2009 they are planning to do so in growing numbers. If a large number of baby boomers want to sell their suburban luxury homes at the same time, we are going to see an imbalance of supply and demand. ..We are seeing a rise in discretionary renting, where older homeowners sell their large homes and move into smaller rental homes. They appear to prefer upgrades and amenities to square footage. They are probably using their home equity as a source of funds to enjoy their retirement.

Although we are no analysts, the jump in supply does not seem particularly shocking to us. To our minds, this is the same “coiled spring” theory that demand operates on – so why not supply? When demand is artificially held down for an extended period of time, the recoil once released is greater than expected. So too, we believe, does supply follow the same “coiled spring”. The homeowners who lost their homes in the greatest volume were those in the lower end of the market. The higher end homeowners faced with negative equity – simply had to wait out the market. Having waited for years for appreciation to make home selling an option again, that coiled spring released numerous sellers back in to the market. At least according to our theory.

 

Whatever the reason, supply and demand continue to be an interesting equation in our housing market. No matter the reasons, we will do our best to keep you informed on housing trends. As always, we appreciate the continuing confidence of the clients we are so lucky to serve.

February showed some signs of life for homes going under contract after surprisingly lackluster activity levels in January. But as we warned, trends take time to form, and so a good or bad month does not make a year. 2016 had been heralded by most to be a likely breakout year. Demand was expected to leap due to the continuing rise in rental rates, the boomerang buyers returning to the market (those who lost their homes and return to buy after credit recovery), Millennials beginning to buy, and the valley’s overall positive net migration. Despite the compelling reasons for a demand surge, the indicators so far have been underwhelming. Demand has remained in a pretty neutral range, neither retreating nor advancing significantly. The number of homes under contract is higher in 2016 than in the same time in 2015 by approximately 8%. That would be encouraging if that % was growing rather than eroding.

Interestingly the purchasers are much more dominated by local buyers – up by about 18%. Buyers with out of state addresses are running 8% less as they did in 2015. Anyone tracking the weakened Canadian dollar will understand why very few Canadians are buying these days – down 64% compared to January 2015 (but they are wisely selling – up 26% from a year ago).

The new listings to market are up over 2015 by 6.2%. This is higher than 2014 and 2013 as well – notoriously low years for homes coming to market. The low rate of homes coming to market in the last 3 years was the market’s saving grace (at least for sellers) given that demand was also lower than normal. With demand in neutral, a continuing arrival of new inventory is starting to shift the balance of the market in some areas and price points. Michael Orr of the Cromford Report offers this interesting breakdown by cities:

The active listing count has increased in all the major cities, as is normal for the time of year, but the largest percentage monthly increases are in:

• Goodyear 17%

• Scottsdale 17%

• Tempe 15%

• Surprise 15%

• Avondale 12%

• Chandler 12%

 

These increases give buyers a lot more choice. Scottsdale now has more active listings (including UCB) that at any time since 2011.

Queen Creek stands out by having the smallest increase of less than 2%, unusually low for the time of year.

Among the secondary cities the fastest growing active listing counts are in:

• Apache Junction 28%

• Sun City 20%

• Buckeye 18%

• Sun Lakes 16%

• Anthem 16%

• Cave Creek 15%

• Sun City West 14%

• Maricopa 12%

• Paradise Valley 10%

• Tolleson 10%

 

The inventory in the 55+ active adult areas is growing significantly faster than usual. Sun Lakes has the highest number of active listings (including UCB) since early 2011. Cave Creek beats this by having the largest number of active listings since 2010.

Conspicuously slow growth in active listings can be seen in:

• Litchfield Park -1%

• Laveen 0%

• Casa Grande 2%

 

Despite these geographically supply shifts, we cannot overemphasize that price point is still a major factor in the supply/demand analysis. Below 200K, we still see very constrained inventory with multiple offers being the norm. Even with demand in neutral, it is outpacing and exceeding supply. We see no relief in sight at the moment.

We will continue to watch 2016 and report the trends that affect our clients. As always, we are here to evaluate your particular neighborhood and provide a supply/demand analysis so you can make informed decisions.