Market Headlines

• The market is very strong below $100,000 and in good shape up to $200,000.
• Above $200,000 the market continues to deteriorate slightly.
• Average sales price per sq. ft. is rising for homes under $200,000 and stable up to $400,000.
• Above $400,000 there is potential for further price weakness unless demand improves.
• The overall average and median sales pricing is now on an upward trend.
• Foreclosure activity is declining and REO inventory is falling fast, especially at the lower price levels.

Overview

The demand for homes between $50,000 and $150,000 is particularly strong as investors chase homes to add to their rental portfolio. Demand from owner occupiers remains relatively weak. The supply from foreclosures has fallen and short sales are becoming a more important part of the picture.

Homes over $400,000 are suffering from lower demand that balances the relatively low supply. Buying interest in homes over $3,000,000 is dramatically down compared with the spring.

A clear and significant upward trend has developed in prices of homes below $200,000, particularly those owned by lenders. In contrast pricing for homes over $400,000 are trending lower. Because of the high sales volumes at the low end this sector is starting to win the struggle and push overall pricing higher.

At this time the period from second half of August to the first half of September represents a low point in pricing from which we are now climbing out. Unless we get a major change in the market this slight upward trend looks likely to continue.

Foreclosures

Despite a small bump up in August as Bank of America release a large batch of notices, new notices of foreclosure continue to be filed at the lowest levels we have seen since 2007 and trustee sales are well down from the peak in March and declining. We have fewer homes in foreclosure than at any time since the middle of 2008. There is no evidence that this trend is going to change direction, though it is likely to be less pronounced during the last three months of 2011 than it was during the first nine.

For the complete report, by price range, read:

The Cromford Report™ – Monthly Market Review – Sep 28, 2011

Buyers have started making offers over list price, and now I’m seeing escalation clauses, where a buyer will say something like “will pay $xxx over highest offer, up to $xxx,xxx”.  I even saw one this week, with no ceiling.

If you look at what’s going on in the market for cities like Phoenix, Scottsdale, and Chandler, you can see that we do have a dwindling supply of homes.  In Phoenix, the number of homes for sale has dropped significantly and is now lower than the latter half of 2006, although inventory has remained stable throughout the summer.

You can see that Scottsdale is experiencing a similar trend, although not to the extent of Phoenix. Inventory levels still remain just above the 2006 figures.

In Chandler, the pattern is a bit different historically, but housing inventory is still decreasing, and rapidly approaching the levels seen in the latter portion of 2005.

The number of Tempe homes for sale has also decreased this year, and is now less than this same time of the year in 2006.

The town of Paradise Valley hasn’t followed same trend you have seen in these other Phoenix-area cities.  This town did not reach an all-time high home supply level until earlier this year, where in the other cities, highs were noted in either 2007 or 2008.  Home supply is dropping and is just now approaching last year’s levels.

Buyers need to know what they are getting into when they are looking for a home.  Besides lining up financing, and starting their on-line home search, it’s important to know that there’s a lot of competition, especially for foreclosures, and even for short sales.  Diligence, creativity, flexibility, and patience are needed to find the right house, craft a winning offer, and complete the sale. 

Finding the right house has always been a game of give and take.  In today’s market, even more so. Buyers may need to expand  the areas that they are willing to living in, or decide to sell their current home first, so they can consider purchasing a short sale.  Some will decide to expand the price range they are shopping in, and others may decide that certain features like a pool or garage are not imperative.  Whatever the choices made, buyer need to understand what today’s real estate market look like.  It’s not exactly a housing shortage, but in many Phoenix metro cities, the shelves aren’t fully stocked either.

Each month about this time we look back at the previous month and analyze how pricing has behaved and report on how well our forecasting techniques performed. We also give a forecast for how pricing will move over the next 30 days.

On June 17 we gave a 30 day forecast that average sales $/SF would rise and be within the range $86.12 to $89.64 with a 94% confidence. Our midpoint prediction was $87.88.

As of July 17, the average $/SF for monthly sales across all areas and types was $89.09 up 2.7% from $86.73 on June 17. Note that the latter figure has been adjusted slightly from $86.81 since June 17 due to additions and changes to ARMLS recorded sales data since then. The actual figure of $89.09 is above our midpoint forecast but still comfortably within our 94% confidence range.

Today the pending listings for all areas & types shows an average list $/SF of $89.81. This is 2.9% below the average list $/SF for homes sold in the last month ($92.53), which suggests that average sales pricing will not increase further in the next 30 to 50 days but is more likely to fall. The relationship between these measurements can be seen clearly on the list price per square foot chart. .

Our mid-point forecast for August 16 is currently $87.78, and we have a 94% confidence that it will fall within ± 2% of this mid point, i.e. in the range $86.02 to $89.54. The confidence level for ±3% is 99% and for ±4% is 99.9%. Note that our current forecast is within 10c of last month’s.

The implication is that overall average sales $/SF on August 16 is expected to lie between -3.4% and +0.5% of the $/SF on July 17. Thus the odds favor flat to decreasing prices over the next 30 days. This should not be surprising since we have already recorded an average 8.5% increase for monthly sales $/SF since the confirmed low point on April 6. and it appears to be time for some consolidation. Median sales prices reached a confirmed bottom of $115,000 on April 30, and have risen 8.7% to $125,000 since then. Monthly average sales price has recorded a 11.2% increase since April 6. This is higher than the $/SF because the average home size of homes sold has also increased.

The detailed picture is still very complex, as it often is when a market reaches an inflexion point. We also see some interesting changes since mid June. We have seen pricing for normal transactions start to fall while pricing for lender owned properties have continued to rise strongly. Short sale pricing appears to be attempting to stabilize but it’s not quite there yet. Short ales have clearly strengthened while normal sales have weakened. Luxury home prices still have some way to go in a downward direction while most homes under $350,000 are generally moving upward or flat. The trustees were much busier in June than in March through May, so we currently have a larger supply of REOs in July, more in balance with the huge demand from buyers. Thus the low priced REOs are no longer falling as a percentage of the overall mix and this removes one of the factors that has been driving the average $/SF higher. List $/SF prices for REOs are now up 13.4% since their low point of $77.17 on March 23, but this seems to have had barely any effect on buyers’ enthusiasm. The supply of REOs is still tight enough to cause multiple bid situations on almost every home.

So we see the market “catching its breath” over the next month. Clearly it would be unrealistic for average pricing to continue to increase at the rate of 8 to 9% every three months, and we should probably regard the last three months as a “bounce”. The key factors to watch out for are:

1. Will REOs resume their downward movement as a percentage of sales, which means higher-priced properties become a larger contributor to the averages?
2. Will the sales of properties over $500,000 continue to grow as they have over the last three months?
3. Will the rise in pricing of REOs be overwhelmed by the fall in pricing of normal properties. This mathematical struggle is finely balanced and could fall either way over the next few weeks?
4. Will short sale pricing stabilize as success rates improve and demand rises, or resume falling as it did in the first five months of the year?
5. Will we follow the usual seasonal pattern of declining volume from July onwards, or will the $8,000 tax incentive that expires in December drive more first time buyers into the market?

We certainly live in interesting times.

Note that our last 6 forecasts have all proven to be slightly too pessimistic. We have to go back to December 2008 to find a month in which our $/SF projection was higher than the actual. If this happens again in August we may have to adjust our price forecasting model slightly.

Around August 16 we will to check the accuracy of these projections and report back again.

Over at Click2AZ.com, I recently wrote A Shortage of Homes for Sale in Phoenix?:

As of April 5th, homes priced in the range of $175,000 were clearly in the seller’s market range, which is typically defined as 5 months or less of inventory.  Homes priced in the range of $175,000-$275,000 (and maybe $300,000) are in the range, called a balanced market. All the higher price ranges, show a buyer’s market.

One month later, May 5th, shows a changed market. Homes priced in the range of $225,000 are clearly in the seller’s market range. while homes priced in the range of $225,000-$350,000 are experiencing a more balanced market. All the higher price ranges, show a buyer’s market.

In another week or so, we’ll see how things look, but I expect the lower end of the market to show an even lower supply of homes for sale, and hopefully, we’ll see that there’s been more activity in mid and upper ranges of the market.

Yet, with extremely tight lending standards for jumbo loans ($417,000 and higher), we may hit a ceiling.  I hear lenders, buyer, and real estate agents all indicating this higher end of the market will be impacted until there are some changes made, but it does sound like there may be some signs of hope.

Scottsdale is particularly impacted by the jumbo loan situation.  With an average home price of $611,678, and a median price of $437,500 (based on annual sales data), a significant portion of our market relies on these larger loans for financing. Many of the home purchases in the lower price ranges are cash or FHA financing, but other options are needed for many Scottsdale home purchases.

As of April 5th, homes priced in the range of $175,000 were clearly in the seller’s market range, which is typically defined as 5 months or less of inventory.  Homes priced in the range of $175,000-$275,000 (and maybe $300,000) are in the range, called a balanced market. All the higher price ranges, show a buyer’s market.

One month later, May 5th, shows a changed market. Homes priced in the range of $225,000 are clearly in the seller’s market range. while homes priced in the range of $225,000-$350,000 are experiencing a more balanced market. All the higher price ranges, show a buyer’s market.

In another week or so, we’ll see how things look, but I expect the lower end of the market to show an even lower supply of homes for sale, and hopefully, we’ll see that there’s been more activity in mid and upper ranges of the market.

Yet, with extremely tight lending standards for jumbo loans ($417,000 and higher), we may hit a ceiling.  I hear lenders, buyer, and real estate agents all indicating this higher end of the market will be impacted until there are some changes made, but it does sound like there may be some signs of hope.

Stay tuned.

2005 was a record year for real estate sales.

Sales dropped off in 2006 (red line).

But that was only the beginning. In 2007 (purple line), sales continued to drop, significantly.

2008 (olive line) shows that after a few weeks of record low real estate sales, a gradual and continued increase in sales lasted through September where it basically plateaued.

After the seasonal drop at the beginning of the year, sales for 2009 have continued to increase and have now very rapidly surpassed the record year of 2005.

It will be interesting to see how sales figures hold up with the decreased inventory we now have.

Tomorrow, I’ll do this same exercise for price, so you can see why I’ve been calling our market "vibrant" and "distressed".  They both hold true.