Phoenix Real Estate Market Summary – July 2010

Mike Orr, founder of the Cromford Report, does a fabulous job of looking at the details of the Phoenix real estate market.  So thorough that , with his permission, I’m sharing his full report for July 2010.

I’ve taken the liberty of underlining what I see as the highlights of his very detailed information and our current real estate market.

Market Summary for the Beginning of July
Cromford Report – July 4, 2010

The overall market continues to deteriorate. If we compare some key indicators with the same time last month and last year we see that:

1. Active listings are up slightly (1.7%) from June and 11% higher than last year.
2. Pending listings are down 17% from June and 18% lower than last year.
3. Listing success rate is down to 63.5% compared with 65.5% last month and 62.7% last year.
4. Sales price % of list has fallen to 96.07% from 96.22% in June and 96.11% last year.
5. Days inventory rose from 156 to 159 in June, but was 177 last year.
6. Months supply rose from 4.3 to 4.7 in the last month but was 4.1 last year.

Only the change in pending listings could be regarded as a major movement, but the changes are mostly negative and we have witnessed the Cromford Market Index™ falling to 99.5 from 108.7 last month and 115.2 on July 3, 2009. We now have a market where supply is roughly equivalent to demand. The period when demand outstripped supply lasted from May 18, 2009 to July 1, 2010. The significant danger now is that this trend will continue, and we think this is most likely at the bottom end of the market. If the Cromford Market Index™ continues to fall at the current rate for several months, then the outlook is not rosy. However, if it stabilizes between 90 and 100 then this range can be considered perfectly normal and the market is likely to stay stable. Individual cities that show the weakest Cromford Market Index™ readings (as of July 1) include:

• Maricopa (67)
• Chandler (85)
• Cave Creek (88)
• Sun City West (88)
• Sun City (91)
• Queen Creek (91) – (includes San Tan Valley)
• Gilbert (92)
• Laveen (94)
• Scottsdale (95)

A clear exception to the trend can be seen in Paradise Valley where the Cromford Market Index™ has improved to 101, its highest reading since March 2006. Here supply has fallen quite quickly in recent months while demand has improved, largely due to more realistic pricing by sellers.

Monthly closed sales were 9,261 in July and 9,029 in June, so these are still strong due to the large backlog of contracts signed by April 30. However the monthly sales number has fallen 3.5% below the equivalent 2009 level, and looks to be headed lower for July and August.

A piece of good news is that the deterioration in the Greater Phoenix market seems to be less than that reported in most other parts of the US. The National Associates of Realtors® (NAR) reported that their national Pending Home Sales index fell to 77.6 in May, down 30% from April. The decline was lowest in NAR’s west region where it fell 20.9%. We reported a 13.65% decline in pending listings between April and May.

The market for lender owned properties has deteriorated the most:

1. REO active listings are up 15% over June 3, 2010 and 24% over July 3, 2009.
2. REO pending listings are down 17% from June and 39% lower than last year.
3. REO listing success rate is down to 92.3%, compared with 94.0% last month and 91.2% last year.
4. REO sales price % of list has fallen to 98.09% from 98.38% in June and 99.15% last year.
5. Days inventory rose from 44 to 53 in the last month and was 41 last year.
6. Months supply rose from 1.4 to 1.8 in the last month and was only 0.9 last year.

Buyers have clearly reduced their appetite for lender owned properties, but the trustees are still generating REOs at a fairly constant rate when measured over a three month period. The result is that the contract ratio for REOs on ARMLS has fallen from a peak of 163.87 on June 18, 2009 to only 68.31 on July 3, 2010. The trend is still downwards so we can expect future weakness in the REO market, especially compared with the frantic buying of 2009. Average list price per sq. ft. for active REOs has fallen from $87.56 on April 1 to $81.72 on July 3. Average $/SF for active REO listings is now lower than this time last year though still higher than April 2009 when it averaged about $78 per sq. ft. Median sales prices for REOs have fallen back from $105,000 in early June to $99,000 now. The lowest recorded median sales price for REOs was $88,640 on April 24, 2009, so we are still well above that low point.

Significant good news is that banks are issuing fewer new foreclosure notices. The new notice count for June 2010 was the lowest monthly number since April 2008. Since there are fewer properties going into foreclosure while the rate of trustee sales remains flat, the inventory of pending foreclosures is falling fast. We can see in the following chart that the peak (just over 51,000) was reached at the end of 2009 and since March the fall has been accelerating, We now have 42,586 properties in Maricopa County pending foreclosure, down about 17% in six months. This tells us that the foreclosure tsunami is finally starting to flow back out.

If we look more closely at short sales, we see that the situation is looking more mixed. Compared with last month, active listings are up a little, while pending listings are down a little. However the monthly sales rate is at a new high point of 2,341. Listing success rate and sales price % of list are both improving, but the contract ratio is down from 123.4 last month to 108.3. This is still a very healthy number and higher than the 104.8 we saw at the same time last year. Overall, short sales are doing pretty well and better than many people expected at this time last year.

For normal listings, the active listing count is still falling, but the pending listing count is falling faster. The monthly sales rate is also falling, as is the listing success rate and the sale price % of list. However all of these measurements remain higher than last year. This suggests a temporary lull in the market rather than a major change in direction. It seems natural that the expiry of the tax credit would cause a temporary lull. Is something else happening? We don’t yet know for sure.

The media is once again full of phrases like “collapse”, “plummet”, or even “carnage”. Talk of “mild to moderate deterioration” does not make good headlines, but it is an accurate description of what is currently happening in Greater Phoenix. Before we panic, let us remember that pending listings are still at the second highest level ever for July (lower than 2009 but higher than 2005). See chart below for confirmation. Of course the new home market is still very quiet, but contracts for resales, and especially short sales, are still doing very nicely, even after the tax credit expiry.

We shall have to wait until the effects of the tax credit have worked their way through the market. By the end of August we should be able to confirm whether there is additional underlying weakness in demand and, if there is, examine its possible causes by investigating the locations and price ranges most affected.