Sinatra and Thelma

Sinatra is a tuxedo cat and he is handsome, fluffy, snuggly and very social.  He is a mature gentleman with a birthdate of 12/23/2012.  Sinatra prefers wet food over dry and he will come running when a treat bag rattles.  His treat of choice is Temptations, and he has been known to send volunteers out to the store when the shelter runs low.  Sinatra also has a way with the feline ladies.  Thelma is his tabby, long-haired girlfriend.  If you are looking for two cats, Thelma is also available and her birthday is 5/26/16.  Sinatra loves to be up high, so if you have cat trees or shelves, Sinatra will make himself right at home!  Home Fur Good open Thursday, Friday and Saturday from 11am – 4pm and is located at 10220 N. 32nd Street in Phoenix.  Home Fur Good can also be reached by phone at 602-971-1134 or by emailing Info@homefurgood.org.  You can also check out the website at HomeFurGood.org.

Is the Housing Market Losing its Steam?

Recently national housing statistics have made headlines regarding the diminishing demand of homebuyers.  This is understandably unsettling to homeowners in the valley who recall all too well the housing crises where supply and demand went topsy turvey.  As interesting as it may be to listen to national housing statistics, they are generally antidotal.  Even in the midst of the housing crisis of the “Great Recession” there were markets that saw little downturn – proving that real estate markets are local. Is the valley in the midst of dwindling demand?  The short answer – a slight abating of demand is possibly underway.  Is it so great to affect pricing or cause any significant impact to our market?  No.  This is due to the largely chronic lack of supply.  Perhaps some numbers can better put this in perspective.

Demand The first thing to understand is the seasonality component of real estate – i.e. different times of the year perform differently.  Headlines can rather easily claim “buyer demand is down” simply by comparing April’s numbers to September’s numbers. Buyer activity reaches its peak in April and then increasingly slows through the rest of the year.  To have meaningful comparisons year over year numbers should be examined.  One key measurement of buyer demand is contracts.  We can then see for instance, that contracts have dropped 26% from the April peak this year, compared to a 20% drop in 2017 over the same time period.  That can lead us to the conclusion that a slight weakening in demand may be underway.  Slight being the keynote concept.

Supply Like demand, supply also follows a seasonal pattern.  Listings typically hit their low point in August and then rise until Thanksgiving (with a large exodus of cancelling listings at the end of the year).  In 2018 we hit the low point a bit early – July – and supply has been drifting upwards since.  But before we hit the alarm button, the overall numbers put this in perspective.  Here is an interesting analysis made in June of this year by the Cromford Report :

The total number of active listings … is 19,736 today for all areas & types across the ARMLS database. This is just slightly above June 15, 2011 when we saw 19,696. We have to go all the way back to October 2005 to find another 15th date (19,715) with lower active listings.

Active listing counts have been on a declining trend since April 2014 when we hit a short term peak of 30, 506. We would consider somewhere between 30,000 and 35,000 to be sufficient for a balanced market. The all-time record high for a 15th date is 58,195 in November 2007.

Between 30,000-35,000 active listings would be considered a balanced market.  As of this writing the active listing count is at 19,860 – not even close to a balanced market (and remember, that even balanced markets do not cause price drops – they just stop or slow appreciation).

Of course, different areas and types of properties are reacting differently on supply levels.  As Cromford comments:

There are some areas that have seen a dramatic rise, often from abnormally low levels. Florence is probably the best example. At the end of June we had just 100 active listings without a contract, but since then the count has shot up 38%. The trend does not affect mobile homes, but single-family listings have jumped from 71 to 111, an increase of 56% in just 8 weeks. A similar but smaller event has occurred in Casa Grande and Coolidge. The only areas outside of Pinal County with a jump like this (albeit more moderate) are Litchfield Park and Surprise.

The Answer -So what is the take away of all this?  If demand is showing early signs of lessening, and some areas are seeing increasing supply – when is the tipping point?  The answer is contained in the supply numbers.  Again, to quote  Cromford :

 Fluctuations in demand are unlikely to have much impact on the market until we see an increasing trend in listing counts. This was the first sign of a slowdown in April 2005 and will be the first sign of a slowdown if and when we get one in the future. It came suddenly and unexpectedly in April 2005 and it may do the same at any time. However, nobody paid any attention in 2005 and I am assuming we are all older and wiser now. Any unusual activity in the listing counts will show up in the daily Tableau charts which we create and study each and every day.

We too watch the listing counts.  When we see shifts, you will hear it from us.  Until then, do not believe the headlines.  As always, we are here to help you with any questions or concerns specific to your home or neighborhood.

Russell & Wendy Shaw

(Mostly Wendy)

Kobuk

Five year old Kobuk is ruggedly handsome with an aloof independent side.  He has been with Home Fur Good since January after being discovered at county.  Kobuk is listed as an English Sheepdog mix weighing in at 68 pounds.  Kobuk is people selective, however, once you enter his circle of trust, he will be the bestest friend you could ever have.  Kobuk likes to lean on his people for their attention and affection.  He loves toys, especially those he steals away from other dogs.  Kobuk has a very playful side, but with the stress and activity of the shelter he does not let his guard down often enough to show it to everyone.  With time and a little patience Kobuk will show you his inner puppy ready to romp and goof around.  You can visit Kobuk, Thursday, Friday and Saturday at Home Fur Good, located at 10220 N 32nd Street in Phoenix.  You can contact the shelter at info@homefurgood.org or by calling 602-971-1334.

Is it like 2006 all over again?

Given the strong recovery the Phoenix housing market has posted, it is understandable that comparisons are still being drawn to 2006 (the peak of our housing market).  We have commented in the past that we are not in a “bubble”.  But a recent commentary by the Cromford Report on pricing really caught our eye.  It is not surprising to us that the press routinely shares erroneous housing market information often using statistics to make a poorly examined point.  Homeowners would be well advised to have a skeptic’s heart when accepting the media’s research.  As British Prime Minister Benjamin Disraeli so famously said (and Mark Twain popularized) “There are three kinds of lies:  lies, damned lies, and statistics.”  The latest premise is that housing prices have exceeded the prices set in the 2006 market. Uh… not exactly.  As no one says it better than our guru Michael Orr of the Cromford Report, here are his comments (with only bolding by us for emphasis) that explain the facts about the housing numbers:

“The local press has been headlining that sales prices for homes in Maricopa County have hit an all-time high. This is a very misleading statement that I take strong issue with. Although the median sales price has recovered to 2006 levels, the conclusion that sales prices in general are higher than June 2006 is completely wrong.

There are very few homes that would sell in 2018 for more than they would have sold for in 2006. The vast majority of homes in the valley have not recovered the value they had in 2006 and are still quite a long way from doing so. If home sellers believe they can sell their home for more than it was worth in June 2006, they are going to be bitterly disappointed, unless they live in the heart of Arcadia or a few isolated parts of South or Central Scottsdale. These media stories make life hard for agents trying to set reasonable asking prices when taking new listings.

The first problem is that the stories in the media are comparing the monthly median sales price for May 2018 with that for June 2006. The homes that sold in May 2018 are a very different collection from the homes that sold in June 2006, so this is an apples to oranges comparison. Let us compare the two sets of homes:

  1. June 2006
    • number of affidavits describing the property as a single-family home = 10,715
    • median sales price = $280,000
    • percentage of homes that were new builds = 28%
    • average sales price = $357,067
    • average home size = 1,840
  2. May 2018
    • number of affidavits describing the property as a single-family home = 9,987
    • median sales price = $285,000
    • percentage of homes that were new builds = 14%
    • average sales price = $354,727
    • average home size = 2,007

We can see that the sales mix is very different between June 2006 and May 2018. In June 2006 we had twice as many new homes as in May 2018 and the average homes size in 2018 is over 9% larger than in 2006. The average price per sq. ft. is much lower in 2018 than 2006.

A second problem is that affidavits of value are woefully inaccurate about property types. Hundreds of townhomes and condos are mis-classified as single-family properties every month. Therefore any numbers quoted for single-family homes in May are likely to be wrong until the affidavits have been checked and corrected, which takes several weeks.

In general, median sales prices are often misused and should NEVER be the basis for comparing the values of homes or comparing new home prices with re-sale prices.

A much more reasonable measurement is average price per sq. ft. which, though not perfect, adjusts for the difference in the average home size. In June 2006 the average price per sq. ft. of single-family homes sold in Maricopa County through the MLS was $193.65 while the average for May 2018 was $170.02.

We therefore estimate that the average single-family home in Maricopa County has a 14% rise in price to achieve before it reaches its value in June 2006. Individual homes will obviously vary quite a bit.

While the median sales price has recovered to the level of June 2006, the value of the average home has certainly not achieved this. Do not let your clients be misled.”

So we accept his missive to not let our clients be misled and hope this article helps to that end.  The 14% mentioned above is an average and every neighborhood has its own “number”.   As always, we are happy to answer any of your concerns or questions about your specific neighborhood.

Russell & Wendy Shaw

(Mostly Wendy)

The Magic Triangle: Supply, Demand, and Price

Probably the hardest thing about routinely writing on the subject of the local real estate market is that it really doesn’t change overnight – thankfully – despite erroneous comparisons to the stock market.  Short term trends in real estate are relatively predictable – largely because supply is not highly volatile. By contrast, demand has the potential to be far more volatile – anyone remember Desert Storm?  Demand went to zero overnight and then returned in two weeks once it was clear this was really not a war but a “military action”.  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.  Especially since market activity seasonally peaks in May, and gradually declines as we approach the end of the year.

Supply

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

“Supply 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.”

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

“Here are the 10 ZIP codes with the lowest days of inventory as of May 16:

Phoenix 85035 – 17

El Mirage 85335 – 18

Mesa 85202 – 21

Phoenix 85033 – 22

Mesa 85203 – 23

Gilbert 85296 – 24

Youngtown 85363 – 24

Phoenix 85037 – 24

Phoenix 85009 – 25

Mesa 85210 – 25

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”…..

“For 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.”

Although a year’s 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!  So this price point has shifted dramatically.  But as mentioned in the zip code study above, not all areas are experiencing the same shortage of supply.  Anthem for example, in December was experiencing a lack of supply and seller’s held the power – only to see now, 6 months later, a fully balanced market.

Demand

Demand is up 7% overall from last year – but just like supply – different price ranges have been affected disproportionately.  Surprisingly the largest jump in demand came from the high end of the market (homes over $1 million).  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.  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?  The Cromford Report religiously tracks supply and demand – and noted in April that a slight weakening of demand surfaced:

“Of 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 …”

Price

As long as demand exceeds supply, prices will continue to rise.  This inevitably results in alarmists saying we are in a “bubble” once again.  The best answer to fear is facts.  Take a look at the monthly average price per square foot compiled by the Cromford Report.

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

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

In the meantime, we will watch the trends and keep you informed.  Slow moving ships are easy to watch.

 

Russell & Wendy (mostly Wendy)

This two-year-old, gorgeous, long haired, fluffy cat is Thelma

She has been with Home Fur Good for over a year and it is time for her to find a home of her own.  Thelma is independent, she prefers to watch humans just beyond reach until she gets to know them.  She came to the shelter with her two siblings, Tanman and Louise.  Yes, all three of them are still looking for homes.  Thelma is very cat social, she is most comfortable when she has feline buddies to pal around with.  The perfect home for Thelma will have existing cats for her to play and lounge about with.  If you are really looking to make Thelma happy, you could adopt her and her siblings.  Home Fur Good is located at 10220 N. 32nd Street in Phoenix.  The shelter is open Thursday, Friday and Saturday from 11-4.  You can call HFG at 602-971-1334.  Visit the website at www.homefurgood.org.

Sellers Continue to Hang on to the Power

While some areas of the nation are at long last reporting a slowing of sales, the valley’s market is continuing to power forward both in rising sales and appreciation.  Real estate has always been area specific, so while national trends are interesting, they are not particularly meaningful when interpreting a local market.  New listings to MLS in the first quarter of 2018 for Maricopa and Pinal County under 400K are logging the lowest numbers for a first quarter since the Cromford Report began tracking in 2001.  Not surprisingly given the low supply, appreciation is higher than it’s been in the last several years.  To quote the Cromford Report:

“The annual $/SF for all areas & types is 7.3% above this time last year. The increase last year was 5.2%, with 5.5% the year before that while 2015 gave us 5.3%. Back in 2014 we were still experiencing the coiled-spring effect and $/SF had jumped 17.7%.”

Given the amount of market strength most sellers have (particularly under 400K), it would seem improbable that sellers are still managing to give away thousands, right?  Well history has a terrible habit of repeating itself – so just like in the past (anyone remember 2005?) – overheated seller markets don’t just cause trouble for buyers.  Yes, seller markets can still cause problems for sellers.

Here are a few of the top mistakes we currently see sellers making:

 

  1. Thinking that having one buyer is a success story. As sellers and agents so often say “we just need one buyer” – and of course there is some truth in that. But one of the perks of a seller’s market is the potential of multiple offers.  Too many sellers (and their agents who should know better) take the very first offer that they receive.  That may be a great strategy in a buyer’s market. The premise “your first offer is often your best” – is based on the fact that long days on the market create the perception the property is over-priced or has condition issues making it harder to defend value to buyers.    By contrast, in a strong seller’s market taking the first offer eliminates the option of multiple offers.  From our years of experience, creating the opportunity for multiple offers is how we really maximize your profits.  Agents who don’t do this (which sadly is the majority) or “for sale by owners” who find one buyer are likely giving up thousands of dollars.

 

  1. Thinking the new business models of online offers or investors are paying “fair market’ value. It is interesting to us, given that we have seen about every business model in our 40 years of practicing real estate, that this business model of online offers is getting a lot of hype. Admittedly they have tapped in to the public’s desire for Amazon type selling.  But at the end of the day, they are investors who don’t represent the homeowner.  Their pitch says things like “commissions are too high” while charging “customer experience fees” averaging 12% – far more than any commission.  Or they say “this is a competitive offer” while eliminating any competition – costing sellers 10-30% in unrealized net dollars.  Also, while telling sellers there is no need for them to go on the market, these same investors always put their homes on the market when they resell them.  Shouldn’t that be a dead giveaway as to how to get top dollar? It would be far more accurate if they said “we are investors who want to buy your home for less than it is worth and then re-sell it for a profit”. But then, that wouldn’t look like a sexy new business model would it?  Take away the online component, and this is the same old investor model that has existed since we began our careers.

 

  1. Thinking that preparing your home for sale is a long and expensive process. Most sellers overthink and over prepare for the home sale process. The truth is that many homes can be sold in their current condition.  We sold a house that had the garage caved in and was tagged by the city as unlivable until repaired.  We had multiple offers, sold it in 4 days, obtained over list price, and the seller made no repairs.

 

  1. Thinking that you have to show your home 24/7. Depending on the price range, we have had “weekend only” sellers or even “one weekend only” sellers. This is a supply and demand equation.  The higher the demand and the lower the supply, the smaller the window for showings required to sell. Many sellers can allow one full weekend of showings, review the multiple offers on Monday and be under contract by Tuesday.

 

  1. Thinking that all agents are the same. Oh heck, we’ve taught you better than that, haven’t we? One of the pitfalls of a strong seller’s market is the amount of inexperienced agents it attracts.  Even the “experienced” agent does around 6-10 deals a year.  If you subscribe to Malcolm Gladwell’s theory of 10,000 hours of experience are needed to get expert at something, most agents will be retired before they hit 10,000 hours.  In the last year alone we helped over 300 sellers sell.

 

  1. Failing to be aware of market value. The problem with either improving or declining markets is that history is not repeating itself. Therefore using only past sales will not tell you where the market is now.  In evaluating pricing, we examine the supply/demand ratio in your neighborhood which determines value.  Even then the market can move more quickly than can be seen.  Demand can be very volatile while supply is not. That is why exposing the home to the most buyers possible secures the highest price – it accommodates demand volatility.

 

  1. Thinking that commissions are where the most money is saved or lost. Shakespeare said “A rose by any other name would smell as sweet”. Perhaps, not the best analogy when discussing the second most dreaded word in the English language “commissions” (the first being “taxes”).  The truth is that the seller is going to pay someone to sell their home.  Sellers will either pay by hiring a professional, paying “seller experience fees” to an instant offer company, or selling to an investor who “charges nothing” but takes a minimum of 10-30% off the price. Rather than quoting Shakespeare, perhaps the better quote is “there is no free lunch”.  With that said, are we still an advocate for a flexible commission structure?  Sure – we too love to save money.  Just don’t give away way more than the cost of a commission in an attempt to avoid commissions.  Instead make sure you are paying for the best representation money can buy.

Thank you for allowing us to share our thoughts on what pains us the most – watching sellers give away their hard earned equity.  As always, we are here to serve you.

Russell & Wendy Shaw

(mostly Wendy)

Brooklyn Is One Smart Doggie Looking For Her Fur-Ever Home

She is a one year old, 45-pound, Pitbull mix.  Brooklyn has gone through Basic Obedience Class.  She knows the basics cues like sit, down and loose leash walking.  Brooklyn is treat motivated and aims to please, so training comes easily.  Brooklyn loves to hike and has started her own peak bagging list.  She is dog selective, enjoying larger dogs that like to rough house.  Brooklyn would be happy in a family with one parent or one full of kids, she only wants to be an active member.  Home Fur Good is located at 10220 N. 32nd Street in Phoenix.  The shelter is open Thursday, Friday and Saturday from 11-4.  You can call HFG at 602-971-1334.  Visit the website at www.homefurgood.org.

Is History Repeating Itself?

The other day a REALTOR® friend of ours commented “this market feels just like 2005…well not really, but almost”.  Did she have a point?  Of course, there are similarities – particularly as inventory is rapidly evaporating in the low price points just like in 2005.  But is this really “just like 2005”?  No it really isn’t.  For good or bad we have been through a number of real estate cycles (Russell entered real estate in 1978 and Wendy in 1982) so it is natural to compare the present with the past.  But memory is often faulty and I think she is forgetting the real roller coaster ride of 2005.  A couple of facts pulled from the Cromford Report archives for 2005 numbers vs. today’s number illustrate the point:

Days of Inventory stood at 28 (at this writing, currently 84)

Months of supply was 0.9 (currently 3.4)

Annual appreciation rate was 27.9% (for 2017 – 6.5%)

Dollar volume was up 43.9% annually (currently up 6.8%)

Listing success rate was 84.3% (currently 80.9%)

If we subscribe to the belief that those who don’t know their history are doomed to repeat it, then perhaps it is worth looking further at a quick synopsis of the market from 2002- 2017 from the archives of the Cromford Report:

“Changes in the annual appreciation rate (measured using the annual average $/SF) give us a good indication of whether the market has been heating up or cooling down. This is using closed sales prices so it is a trailing indicator rather than a leading indicator. By using the annual average we get a fairly non-volatile reading. The trends tend to stay in place for quite some time. By looking at the weekly chart for annual appreciation we can detect when those trends change direction. Here is what we have seen so far:

  1. Appreciation was below 2% and weakening in early 2002, but the trend turned around in the second quarter and reached 4% by the end of the year.
  2. The appreciation continued to increase slowly during 2003 reaching 5.6% by the end of the year.
  3. Appreciation started to go crazy as the market heated up during 2004 thanks to the widespread availability of easy credit. It exceeded 12% in December 2004.
  4. The bubble was in full expansion mode during 2005 with appreciation exceeding 36% at the end of 2005.
  5. Appreciation peaked at 37.2% in March 2006 and then collapsed down to 11% by the end of the year, as the bubble burst.
  6. The bubble continued to deflate reaching -5% in December 2007.
  7. The foreclosure wave took depreciation to new depths reaching -28% in December 2008.
  8. The appreciation rate hit a historic low in the summer of 2009 at -36.5% but then started rising again.
  9. During 2010, the appreciation rate climbed to slightly positive at 0.6% but this trend ran out of steam during the fourth quarter of 2010.
  10. 2011 saw appreciation slide back down to -9% by 3Q but signs of new life emerged at the end of the year.
  11. In 2012 appreciation charged from -9% all the way up to 20%.
  12. Appreciation peaked at 25% during the spring of 2013 and started to drift slowly down again.
  13. 2014 saw appreciation drop from over 20% to less than 9%.
  14. In 2015 the downward trend stopped in September at 4.1% and started rising slowly again, reaching 4.4% by the end of the year.
  15. During 2016 the appreciation rate improved to 5.4% by the end of the year, though all of that improvement occurred during the first 3 months of the year.
  16. In 2017 appreciation hit a maximum of 6.5% in September and has drifted slightly lower since then, currently at 6.3%

…We should emphasize that when the rate of appreciation falls, prices are still rising, they are just not rising with quite so much speed. Only when the rate of appreciation goes negative are prices actually falling compared with the previous year. At the current 6.3% (3rd Q 2017) we are a long way above that point.

So no, this market is not like 2005 – thankfully.  It took a market like 2005 to create a market like 2008, and we are all better off without such unhealthy market extremes.

As always we are happy to comment on your particular neighborhood or situation.  We are always here to help.

Russell & Wendy

(Mostly Wendy)

Supply – a “Tale of Two Cities”

Supply continues to be the story in the valley (or lack thereof).  But it really is a tale of two cities – if the cities were price points – the 200K range vs. all other price ranges.  Single family homes under 200K seem to be the wooly mammoth quickly headed for extinction.  Understandably entry level buyers and their agents are bemoaning the lack of inventory in that coveted price range.  Perhaps there is a need for a bit of a reality check. Phoenix is the 5th largest city in the US. The rankings currently are:

  1. New York
  2. Los Angeles
  3. Chicago
  4. Houston
  5. Phoenix

Phoenix has enjoyed a reputation of “affordable housing” due to its large land mass.  Whenever more houses were needed, builders had plenty of land to build them.  A steady source of new supply kept pricing low.  This brought about the “drive until you qualify” phenomena as the valley expanded ever outwards. Builders are happy to build but land, labor and material costs make them unable to bring single family housing to the market in the price range most needed. When we look at the valley in the context of cities such as New York or Los Angeles – do most buyers in those cities expect single family housing to be available at 200K?  No.  So it may be that we simply are struggling to come to grips with our big city status.

In any case, let’s take a look at where we stand in the early stages of 2018.  The year began with 14% fewer homes for sale than in 2017.  We are currently seeing a slight improvement over 2017 for the number of homes entering the marketplace (up 1.4%) – but it is early and the improvement is very small.  To quote Michael Orr of the Cromford Report:

“So the good news for buyers is that we do have slightly more homes coming onto the market. The bad news is that this is not enough to ease the supply shortage. In fact it is not even enough to compensate for the higher sales rate in 2018 over 2017. Closings are so far up 3.2% year over year so a 1.4% increase is less than half what is required to replace homes sold.

Looking specifically at Greater Phoenix we have 6,859 listings with a list date of Jan 1 through Jan 21, 2018. Compared with last year we have seen

  • 26% fewer new listings under $200,000
  • 5% more new listings between $200,000 and $300,000
  • 5% more new listings between $300,000 and $400,000
  • 12% more new listings between $400,000 and $500,000
  • 21% more new listings between $500,000 and $1 million
  • 5% more new listings between $1 million and $1.5 million
  • 36% more new listings over $1.5 million

So perversely, but not unexpectedly, we are getting the largest percentage increases at the high end of the market where more supply is not really needed. Below $200,000, where supply is already extremely thin, the new listing flow has dropped even further from last year’s rate….

However the 2% of the market over $1 million benefits from having 12% of the active listings – six times its fair share. Consequently buyers have a much easier time if they are planning to spend $1 million or more and sellers are rarely in control of the negotiations. This is why you see some spectacular price cuts in the high-end market and a sales pricing trend that is flat to slightly lower. We should emphasize that this applies to the re-sale market and not the new home market…”

If you are a seller – the price point you are in will affect your “home selling experience.  Typically, the lower the seller is on the pricing scale – the higher the odds of multiple buyers competing for your home.  When demand is out of balance with supply, in favor of sellers, multiple offers occur and there is upward pressure on pricing.

This would all appear to be good news for sellers, right?  Well yes, but a strong seller market can hide mistakes that cost sellers thousands of hard earned equity.  For example, sellers can decide to “go it alone” by either selling the home to a friend or neighbor or to a “we buy houses company”.  To many that looks like success – one buyer and the home is sold without placing it on the market.  To us in the business, that looks like a disaster. How can you know for certain what a “competitive” offer is without competition? Any home has a range of value.  What pushes homes to the top end of that range?  Competition.  Capitalism is based on that very concept.  Competition (thru marketing) is how we as agents create bidding wars for the home.

Sadly it isn’t enough to create the competition, once created one must know how to handle it.  How an agent handles multiple offers separates the men from the boys.  This again is where thousands can be made or lost.  Make sure that whomever you hire knows how to get the highest and best out of each offer and to successfully exploit that competition.

It is important to note that supply and demand imbalances will correct with time. In fact, we are already seeing lowered demand than last year. The cycle basically goes like this: tight supply increases pricing; increasing prices dampen demand; lowered demand creates more supply; more supply lowers prices.  So the pendulum of supply and demand (and thereby pricing) self corrects with time.  When will that correction begin and supply begin building?  We don’t know but we will be watching for it and will keep you alerted to any shifts. Wondering about something we didn’t address here?  Contact us.  As always, we are happy to answer your specific concerns.

Russell & Wendy Shaw

(Mostly Wendy)