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January 15 - Mid Month Pricing Update and Forecast

Mid Month Pricing Update and Forecast

Each month about this time we look back at the previous month, 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.

For the monthly period ending January 15, we are currently recording a sales $/SF of $157.68 averaged for all areas and types across the ARMLS database. This is up 1.1% or $1.65 from the $156.03 we now measure for December 15. Our forecast range midpoint was $155.13, with a 90% confidence range of $152.03 to $158.23. The actual result was a lot stronger than the mid-point but still within the confidence range. It is very common for January's reading to be lower than December's, so the fact that it is not in 2018 is an indication of the current strength of most sellers' negotiating position.

On January 15 the pending listings for all areas & types shows an average list $/SF of $161.40, up 1.2% from the reading for December 15. Among those pending listings we have 95.1% normal, 1.8% in REOs and 3.2% in short sales and pre-foreclosures. This mix is almost the same as last month. REO activity remains low at the moment compared to historic rates, though short sale activity remains slightly elevated as an after-effect of the housing crash.

Our mid-point forecast for the average monthly sales $/SF on February 15 is $159.14, which is 0.9% above the January 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $155.95 to $162.31.

We are therefore predicting a similar rise over the next 31 days to the one we just experienced between December and January. So far in 2018, with 14 days of new listings to go on, we have seen a 1.3% decline in new supply over the same period in 2017. Obviously this not going to rebalance the market in favor of buyers.

January 3 - Market Summary for the Beginning of 2018

Market Summary for the Beginning of 2018

Starting with the basic ARMLS numbers for January 1, 2018 and comparing them with January 1, 2017 for all areas & types:

  • Active Listings (excluding UCB): 16,697 versus 19,397 last year - down 13.9% - and down 9.4% from 18,422 last month
  • Active Listings (including UCB): 19,606 versus 22,313 last year - down 12.1% - and down 11.0% compared with 22,019 last month
  • Pending Listings: 4,728 versus 4,885 last year - down 4.3% - and down 16.2% from 5,579 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 7,583 versus 7,801 last year - down 2.8% - and down 17.4% from 9,176 last month
  • Monthly Sales: 7,187 versus 7,133 last year - up 0.8% - but down 0.4% from 7,216 last month
  • Monthly Average Sales Price per Sq. Ft.: $156.44 versus $144.68 last year - up 8.1% - and up 1.0% from $154.91 last month
  • Monthly Median Sales Price: $245,000 versus $225,000 last year - up 8.9% - and up 0.04% from $244,900 last month

Starting the year with 14% fewer homes for sale than last year is more bad news for buyers. Even with a fresh batch of listings arriving over the next few months, they will have only about 65% of what we would consider normal to choose from. Bidding wars will continue to be the norm for the lower half of the market and are likely to get even more intense.

Demand is nothing special. December's sales were barely able to record an increase over December 2016 and listings under contract are down almost 3% compared with last year. To be fair, supply is so low below $200,000 that the usual number of sales below this figure is impossible to achieve. If there were more supply then sales would increase. However the trend is strongly in the opposite direction, so I would not hold my breath.

The annual sales rate stood at 95,883 on January 1, up from 89,885 a year earlier. However, it had reached 96,339 on December 2 and is now struggling to make any advance. Any growth in this number is probably dependent on more supply coming from somewhere.

The current imbalance between very low supply and normal demand generates substantial upward pressure on pricing. The average $/SF is up over 8% from a year ago and the monthly median sales price is up almost 9%. These are strong appreciation numbers given that inflation remains tame, but last year had a smaller imbalance than we have now. The Cromford® Market Index stood at 155.4 on January 1, 2018 up from 144.5 12 months ago. Both supply and demand are lower now than they were this time last year, but supply has dropped much further than demand. So unless there is a major shift in direction, it makes sense to expect prices to rise faster in 2018 than they did in 2017. In theory this should lead to further cuts in demand.

There is another factor at play in 2018. Mortgage rates have been on a distinct upward path for the last 4 months, especially the 15 year and ARM rates which have moved up faster than the 30 year rate. I anticipate that homeowners will increasingly prefer the terms of the loan they already have to the terms they could get on a new loan. This is likely to reduce both supply and demand but be beneficial to companies that specialize in modernization and refurbishing properties.

All the comments above apply exclusively to the market below $1 million which accounts for 98% of units sold. However the 2% of the market over $1 million benefits from having 12% of the active listings - six times it's 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, where pricing has a trajectory all of its own.

December saw a significant change from the rest of 2017 - supply dropped faster than expected and it is fairly unusual for December sales to come in lower than November, especially as December had one more working day than November. Unless this was a fluke (unlikely) then 2018 is going to be a interesting year. While owners and sellers can celebrate the rising prices, many players in the market should be concerned that a downturn in transaction volumes is becoming a distinct possibility. Fewer homes to buy could mean fewer homes sold and therefore impact the volumes at lenders, title companies as well as brokers. Competition for business is likely to intensify.

December 15 - Mid Month Pricing Update and Forecast

Mid Month Pricing Update and Forecast

Each month about this time we look back at the previous month, 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.

For the monthly period ending December 15, we are currently recording a sales $/SF of $156.20 averaged for all areas and types across the ARMLS database. This is up a massive $3.83 or 2.5% from the $152.37 we now measure for November 15. Our forecast range midpoint was $157.31, with a 90% confidence range of $154.16 to $160.46. The actual result was a little weaker than the mid-point but well within the confidence range. Last month's forecast was the most optimistic we have published for many years, so we are pleased that the model turned out to be correct about a huge jump in just a single month.

On December 15 the pending listings for all areas & types shows an average list $/SF of $159.45, down 0.7% from the reading for November 15. Among those pending listings we have 95.1% normal, 1.8% in REOs and 3.1% in short sales and pre-foreclosures. This mix contains more distressed listings than last month. REO activity remains low at the moment compared to historic rates, though short sale activity remains slightly elevated as an after-effect of the housing crash.

Our mid-point forecast for the average monthly sales $/SF on January 15 is $155.13, which is 0.7% below the December 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $152.03 to $158.23.

We are therefore predicting a small correction after the massive increase between November and December. This is in line with the pattern that occurs in most years. We often see a very strong December reading followed by a weaker January. In most years February bounces back again so there is no need to look at our January forecast as a negative signal. While demand indicators are doing nothing special, supply continues to get even tighter so there is no let up in the overall upward trend in pricing on the horizon. For prices to change direction we would need some sign of an increase in supply.

Market Summary for the Beginning of December

Starting with the basic ARMLS numbers for December 1, 2017 and comparing them with December 1, 2016 for all areas & types:

  • Active Listings (excluding UCB): 18,422 versus 20,928 last year - down 12.0% - and down 1.2% from 18,646 last month
  • Active Listings (including UCB): 22,019 versus 24,514 last year - down 10.2% - and down 1.7% compared with 22,403 last month
  • Pending Listings: 5,579 versus 5,782 last year - down 3.5% - and down 1.2% from 5,646 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 9,176 versus 9,368 last year - down 2.0% - and down 2.4% from 9,403 last month
  • Monthly Sales: 7,180 versus 6,875 last year - up 4.4% - but down 3.2% from 7,421 last month
  • Monthly Average Sales Price per Sq. Ft.: $154.62 versus $144.60 last year - up 6.9% - and up 2.7% from $150.53 last month
  • Monthly Median Sales Price: $244,900 versus $225,000 last year - up 8.8% - but down 0.04% from $245,000 last month

The supply of active listings is still substantially lower than last year, although almost all the drop is for homes under $200,000. We usually get a decent increase during the fall but in 2017 this increase was pretty paltry. Buyers got very little relief except at the upper end of the market, where relief was not required.

There were 19 working days in November 2017, the same as in 2016, so the 4.4% increase in sales is a valid and fair comparison. This is an improvement on October, although the percentage increase in sales is less than the percentage increase in the number of real estate agents since last year (6.3%). Luckily the increase in average prices makes up for that difference and then some.

The average price per square foot jumped a hefty 2.7% in just one month, between October 1 and November 1, putting appreciation back above the rate we saw last year. However those who watch only the median sales price will be disappointed at the lack of movement over the same period.

All in all, November was a positive month for sellers and has turned around the weakening demand trend that prevailed for the prior 3 months. This bodes well for a strong finish to the year in December.

Supply is still high above $1.5 million but demand continues to look better at this end of the market so well-priced homes should not have to wait excessively long to find a buyer

Market Summary for the Beginning of November

Starting with the basic ARMLS numbers for November 1, 2017 and comparing them with November 1, 2016 for all areas & types:

  • Active Listings (excluding UCB): 18,646 versus 21,028 last year - down 11.3% - but up 2.7% from 18,161 last month
  • Active Listings (including UCB): 22,403 versus 24,862 last year - down 9.9% - but up 2.8% compared with 21,783 last month
  • Pending Listings: 5,646 versus 6,050 last year - down 6.5% - and down 6.9% from 6,065 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 9,403 versus 9,884 last year - down 4.9% - but up 0.2% from 9,388 last month
  • Monthly Sales: 7,379 versus 7,078 last year - up 4.3% - but down 1.8% from 7,515 last month
  • Monthly Average Sales Price per Sq. Ft.: $150.35 versus $144.39 last year - up 4.1% - and up 0.6% from $149.45 last month
  • Monthly Median Sales Price: $245,000 versus $229,000 last year - up 7.0% - and up 1.7% from $241,000 last month

The supply of active listings has increased less than 3% over the past month, a smaller percentage than in 2016. New listings have been arriving at a slightly lower rate during October 2017 than in October 2017. We still have too few homes for sale at the low and mid range and too many for sale at the top end. Consequently prices have been rising quickly at the bottom end, rising moderately for the mid-range and falling moderately at the high end. You can see this clearly in the annual appreciation chart by price range.

Supply has fallen since 2016 across much of the Southeast Valley and is lower than normal in much of Pinal County. The effects in the rest of the Phoenix area are more muted.

The total sales count for October 2017 was fairly weak. Although it was up 4.3% compared with 2016, October this year had 10% more working days (22) than October last year (20 days). So the rate per working day declined by 5% making October the weakest month so far in 2017 for year over year daily sales volumes. With supply so tight it is often difficult to detect a fall in demand but sales, pending and AWC counts all indicate a slight weakening of demand.

As we suggested last month, pricing resumed its upward trajectory in October, especially for the median sales price. The average price per sq. ft. improved too, but was up only 4.3% compared with October 2016. This is a healthy increase but less than we have been seeing in year over year measurements for prior months.

The proposed changes to US taxation that are currently being discussed are widely seen as negative for the housing industry, both new and re-sale. This is because they will reduce the financial advantage of owning a home compared with renting. More details on this effect will be forthcoming in one of our daily observations.

October 15 - Mid-Month Pricing Update and Forecast

Mid Month Pricing Update and Forecast

Each month about this time we look back at the previous month, 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.

For the monthly period ending October 15, we are currently recording a sales $/SF of $150.21 averaged for all areas and types across the ARMLS database. This is up $1.10 or 0.7% from the $149.11 we now measure for September 15. Our forecast range midpoint was $148.18, with a 90% confidence range of $145.22 to $151.14. The actual result was much stronger than our predicted mid-point, and we said last month that this would not surprise us. However it remained within our 90% confidence interval. Almost all of the increase happened in the last 7 days since the reading was at $149.20 as recently as October 8.

On October 15 the pending listings for all areas & types shows an average list $/SF of $155.74, up 1.7% from the reading for September 15. Among those pending listings we have 95.0% normal, 1.6% in REOs and 3.4% in short sales and pre-foreclosures. This mix is little changed from August, except that we have a slightly lower ratio of REOs to short-dales and pre-foreclosures. REO activity is very low at the moment compared to historic rates.

Our mid-point forecast for the average monthly sales $/SF on November 15 is $152.17, which is 1.7% above the October 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $149.71 to $155.83.

So we are forecasting the same percentage increase over the next 31 days that we have seen in the average price of pending listings over the past 30 days. This means the third quarter slump is well and truly over and we expect the usual surge in $/SF for the fourth quarter. Having said that, the actual number of pending listings is lower than usual. Only 2001, 2007 and 2014 saw lower pending listing readings as of October 15, so it appears that the current pricing level is putting a slight damper on demand, at least as far as pending counts is concerned. Sales counts are still looking healthy although the annual sales rate is no longer increasing as it had been. a few months ago. This means the market is not expanding as fast as as it was in the first half of 2017.

October 3 - Market Summary for the Beginning of October

Market Summary for the Beginning of October

Starting with the basic ARMLS numbers for October 1, 2017 and comparing them with October 1, 2016 for all areas & types:

  • Active Listings (excluding UCB): 18,161 versus 20,153 last year - down 9.9% - but up 3.9% from 17,486 last month
  • Active Listings (including UCB): 21,783 versus 24,101 last year - down 9.6% - but up 2.0% compared with 21,355 last month
  • Pending Listings: 5,766 versus 6,065 last year - down 4.9% - and down 3.9% from 6,002 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 9,388 versus 10,013 last year - down 6.2% - and down 4.9% from 9,871 last month
  • Monthly Sales: 7,470 versus 7,415 last year - up 0.7% - but down 9.5% from 8,258 last month
  • Monthly Average Sales Price per Sq. Ft.: $149.28 versus $142.00 last year - up 5.1% - but down 0.2% from $149.61 last month
  • Monthly Median Sales Price: $241,000 versus $230,000 last year - up 4.8% - and down 1.6% from $244,900 last month

Supply remains lower than last year, and the gap opened up slightly compared with last month. We do have more supply than last month, but not as much more as we would normally expect at the time of year. Last month we were seeing more new listings but this trend quickly petered out and so far in 2017 we are up only 1.15% for new listings over this time in 2016. Overall, the supply remains chronically weak and there is little sign of any improvement.

Demand has been slightly weakening for several months now and at first sight it looks slightly weaker again at the start of October, although when supply is poor, it can be very hard to detect weakening demand out there in the market because there is enough demand to soak up all the supply and then some. The monthly sales rate is up only 0.7% compared with September 2016. This is the smallest annual increase since July 2016. However September 2016 had 21 working days, one more than September 2017. This is a 4.8% disadvantage for 2017, meaning that the calendar month comparison is very misleading. The real difference between the sales rate now and last year is more like 5.5% when a like for like comparison is made. This is actually an improvement on the year over year comparison we made last month.

Pending listing counts and under contract counts are weaker than last year as well as last month. For quite some time we have been seeing weak counts although sales counts have stayed high. This is partly because more listings are being added to ARMLS and closed the same day. These listings count as closed sales but were never active, pending or UCB. In effect, agents are documenting pocket listings after the fact in order that their sales statistics are seen in the best light. These were really off-MLS sales.

Pricing went backwards during September, continuing the 3Q trend until the very end of the month which is unusual. We normally see pricing trends turn positive during September rather than October. The average $/SF for pending listings has gone up 1.1% over the past 30 days so we are pretty confident that October will see more positive results for pricing.

Price trends remain weakest for the high end of the market and despite much stronger sales numbers than last year, the top end remains over-supplied. This is not unique to Central Arizona as we see similar weakness in luxury pricing across most of the USA. The low-end and mid-range still have price momentum and given the deterioration in supply, especially in the Southeast Valley, we expect that to continue for some time.

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