Last week, I had the good fortune to listen to Mike Orr’s presentation at the Arizona Regional MLS Technopalooza. I’ve been a subscriber of Mike’s Cromford Report for sometime, but haven’t had a chance to learn from him directly.
One of the most interesting insights he shared was that some of the metrics we commonly use are tainted by the extremes of the market. For instance, average home price can be forced higher because of high-end luxury home sales. Median home price is biased by the number of foreclosures selling. Mike said that he relies on average price per square foot to more accurately gauge market conditions.
Mike also shared this following chart and said that historically the List price of Closed transactions runs parallel to the actual Sales $ / sf price. You can see that the green and red line are about the same distance apart, and with the sales price running about 95% of the list price. Even though this chart only shows the past 60 days, Mike indicated that it is a long term behavior.
Click chart to see larger, clearer view
Now, if you look at the blue like which is the listed price per square foot of Pending sales (homes currently under contract), you will see that in early March the numbers began to plateau. Mike said that he assumes that once these properties start closing, we will see an increase in Closed prices.
He went onto say that he believes that we have finally hit the bottom of the market, and went so far as to say it occurred on April 6th. Time will tell, but as you can see from this chart and the dramatic rise in home sales, we have more good news for the Phoenix real estate market.
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There is a risk to generalizing about a market. It’s good to track the median price for a given MSA, but if you look at the luxury home market it’s just at the start of a massive influx of distressed properties which is driving prices down. The only market doing any good is the starter home market and distressed properties. We’re far from a bottom as a metro area.
Artur, You are very correct in the potential for errors when making generalizations, so much so that I wrote a brief post about it – The Danger of Generalizations.
I’m not sure that I agree with you regarding the bottom of the market, but only time will tell us the answer to that question.