Daily Observations from The Cromford Report
October 22 - In an effort to understand more clearly how the market has changed since last year we segmented the Greater Phoenix market by price range and compared the contract ratios:
|Price Range||Contract Ratio Today||Contract Ratio Last Year||Change|
|Under $100K||51.0||46.8||up 9%|
|$100K to £125K||87.4||90.6||down 4%|
|$125K to $150K||83.9||91.8||down 9%|
|$150K to $175K||92.1||95.9||down 4%|
|$175K to $200K||93.2||85.5||up 9%|
|$200K to $225K||78.6||81.2||down 3%|
|$225K to $250K||68.8||73.0||down 6%|
|$250K to $275K||57.0||67.5||down 16%|
|$275K to $300K||52.1||62.6||down 17%|
|$300K to $350K||47.7||53.8||down 11%|
|$350K to $400K||42.7||45.1||down 5%|
|$400K to $500K||39.0||38.3||up 2%|
|$500K to $600K||35.5||32.0||up 11%|
|$600K to $800K||30.3||26.8||up 13%|
|$800K to $1M||23.0||20.5||up 12%|
|$1M to $1.5M||19.7||18.8||up 5%|
|$1.5M to $2M||13.3||11.4||up 16%|
|$2M to $3M||15.0||10.8||up 39%|
|Over $3M||4.9||7.0||down 30%|
The weakest trend is for homes priced between $250K and $350K (and also for homes over $3M, though this segment has very few sales and is therefore very volatile). Between $250K and $350K we are seeing more available supply and fewer homes going under contract. It is this lower mid-range sector which is exhibiting the most significant weakening. As this is a very high volume part of the market it affects the overall market numbers. It is also a very popular price range for new homes, which for the most part are excluded from our numbers since 90% of them are not listed on the MLS.
The strongest trend is for homes priced between $500K and $3M. Here supply has fallen 5% compared with last year while 7% more homes are going under contract. However it is not as much improved as it was during the first half of 2018.
October 20 - The Cromford® Market Index for all areas and types stands at 149.1 today. This is significant because it is lower than at the same point in both 2016 and 2017. As recently as one month ago it stood above both these years at 158.2.
The market appears to be hitting an air-pocket with falling demand and rising supply. There are a number of possible causes and probably a combination of them is driving this change in market direction:
- mortgage interest rates have now risen enough to dampen buyer enthusiasm
- mortgage interest rates have now risen enough to cause sellers to defer move-ups or downsizing
- we are starting to see the end of the wave of boomerang buyers
- home prices have risen enough to seriously affect affordability
- interest from foreign buyers is at an extreme low (which means mostly Canada in Arizona)
- recent tax changes have removed incentives for home ownership over rental
- home purchase has become more expensive relative to home rental
Black Knight Financial Services estimates that the monthly mortgage payment required to buy the average home in the USA has increased 16% since January. Wages are up an average of 3% and rents are up an average of 8% across Greater Phoenix in the last year. Official government measures of inflation might be relatively low, but inflation in the cost of shelter is very high. Eventually demand is susceptible to costs rising beyond a tipping point. While rents are rising fast they are rising less fast than mortgage payments.
The CMI is a leading indicator. The most widely followed trailing indicator is sales price. This is still rising and is likely to continue to do so for several months at least.
October 18 - The market is in a cooling trend as evidenced by the Cromford® Market Index for the single-family markets in the 17 largest cities:
Here we see 13 of the cities deteriorating for sellers and of the the cities improving, only 1 (Glendale) improved by a significant percentage over the past month.
Among the declining cities, Paradise Valley, Buckeye are down by double digits. Scottsdale, Fountain Hills, Mesa and Chandler are all down 7% to 8%.
We are not getting a flood of new listings (quite the opposite in fact), but active listing counts are rising because contract activity is weakening. The Cromford Demand Index and Contract Ratio measures tell us that buyers have lost enthusiasm. However under $200,000 we still see multiple offers in most situations thanks to to the continued lack of listings within that price range.
October 17 - The contract ratio is an excellent guide to how hot or cold a market is, and we are seeing the following readings compared to October 17 last year:
|Market Segment||Contract Ratio 2017||Contract Ratio 2018||Change|
|All Areas & Types||53.0||50.0||down 6%|
|Greater Phoenix - Single-Family Detached||55.9||51.7||down 8%|
|Greater Phoenix - Townhouse||70.1||66.5||down 5%|
|Greater Phoenix - Apartment Style||48.9||45.0||down 8%|
|Greater Phoenix - Twin / Duplex||68.2||89.6||up 31%|
|Greater Phoenix - Patio Home||53.3||58.1||up 9%|
|Greater Phoenix - Mobile Home||34.1||41.5||up 22%|
|Single-Family - Phoenix||59.3||52.0||down 12%|
|Single-Family - Mesa||79.4||66.5||down 16%|
|Single-Family - Scottsdale||30.1||28.7||down 5%|
|Single-Family - Chandler||78.2||68.6||down 12%|
|Single-Family - Glendale||64.8||67.7||up 4%|
|Single-Family - Gilbert||75.9||73.8||down 3%|
|Single-Family - Surprise||61.0||59.8||down 2%|
|Single-Family - Peoria||53.7||49.2||down 8%|
|Single-Family - Queen Creek (including San Tan Valley)||73.6||61.4||down 17%|
|Single-Family - Avondale||73.0||68.8||down 6%|
|Single-Family - Tempe||51.0||49.6||down 3%|
|Single-Family - Goodyear||46.9||45.2||down 4%|
|Single-Family - Maricopa||65.5||57.4||down 12%|
|Single-Family - Buckeye||62.4||59.6||down 5%|
|Single-Family - Cave Creek||35.5||34.0||down 4%|
|Single-Family - Fountain Hills||25.2||23.2||down 8%|
|Single-Family - Paradise Valley||20.4||14.7||down 28%|
|Single-Family - Casa Grande||66.5||41.6||down 37%|
|Single-Family - Sun City||62.5||69.0||up 10%|
|Single-Family - El Mirage||162.5||98.1||down 40%|
|Single-Family - Apache Junction||61.3||63.3||up 3%|
|Single-Family - Anthem||58.8||37.6||down 36%|
|Single-Family - Laveen||75.4||93.2||up 24%|
|Single-Family - Sun City West||78.8||79.6||up 1%|
|Single-Family - Litchfield Park||42.9||38.7||down 10%|
|Single-Family - Tolleson||72.7||86.8||up 19%|
|Single-Family - Arizona City||35.8||72.5||up 103%|
|Single-Family - Sun Lakes||64.0||62.9||down 2%|
|Single-Family - Gold Canyon||29.0||28.5||down 2%|
|Single-Family - Florence||55.3||71.0||up 28%|
The majority of segments are cooler than last year, with dramatic declines in Anthem, El Mirage, Casa Grande and Paradise Valley. This is a situation that has developed over just the last 6 weeks.
However mobile homes are hotter than last year, as are patio homes and twin/duplex homes and a handful of cities - Florence, Glendale, Arizona City, Sun City, Sun City West, Tolleson, Laveen and Apache Junction.
October 15 - The second week of October has continued the new trends started in the first week, an important signal for the market. New listings are well below last year but active listing counts have grown relatively fast. This means listings are going under contract more slowly. Closed listings are less numerous than last year too.
These all add up to a smaller market with lower activity, but not necessarily lower pricing. Demand is weaening but supply is also weak and needs to grow a lot if it is to match even a weaker demand level.
The Cromford® Market Index is still over 150 so we have a strong seller's market. However it is falling very fast with supply increasing and demand falling. If this trend continues for a couple of months we could be well on the way back to a balanced market. Change is in the air, but it is still too soon to be certain how this will develop. It is clear that this is an important time to be watching the market carefully.
Here are a few key numbers from the first 2 weeks of October:
|Measure for first 2 weeks of October||2017||2018||Change|
|New Listings - Greater Phoenix||4,916||4,226||down 14%|
|Active Listings Change - Greater Phoenix||827||871||up 5%|
|Closed Listings||2,845||2,646||down 7%|
|Pending Listings at end of period||5,786||4,973||down 14%|
|UCB & CCBS Listings at end of period||3,773||3,559||down 6%|
All of these changes are negative for sellers, as evidenced by the short term Cromford® Market Index chart.
October 11 - The Cromford® Market Index table for the single-family markets in the 17 largest cities is shown below:
We see 7 cities showing an improvement for sellers and 10 deteriorating. This does not sound too bad until we calculate that the average change is -2.8%, considerably worse than last week's -1.9%.
Buckeye, Fountain Hills and Paradise Valley have seen the largest declines while Tempe was the only city to see a double digit percentage improvement.
Despite the shortage of new listings, active listings are growing because fewer homes are going under contract. Over the last month there has been a decline in the enthusiasm of both buyers and sellers.
October 10 - We are examining the first week of October in more detail to study how new listing counts dropped unexpectedly. We counted 2,017 new listings in Greater Phoenix during the first full week which is down dramatically from the same week in 2017. The overall decline is 23% year over year and this is the lowest number of new listings we have ever seen for the first week of October. The previous record low was 2,343 in 2014.
- Homes priced up to $250K dropped from 1,147 to 764, a decline of 33%
- Homes priced between $250K and $500K dropped from 1,003 to 929, a decline of 7%
- Homes priced over $500K dropped from 454 to 324, a decline of 29%
So the mid-range had the smallest decline while the top and bottom saw large falls in new listing counts.
If we chop more finely, we do see a handful price ranges with a growth in new listings:
- Up to $25K increased from 5 to 6
- $25K to $50K increased from 7 to 8
- $250K to $300K increased from 319 to 351
- $800K to $1M increased from 43 to 45
- Over $3M increased from 16 to 22
Segmenting by dwelling type we see:
- Single-family listings fell by 20%
- Condo listings fell by 33%
- Mobile home listings fell by 29%
Mortgage rates tend to increase when the economy is strong. According to realtor.com the average 30 year fixed loan in Arizona is now at 5.01%, up from 4.83% just 7 days ago. People usually worry about higher rates discouraging buyers and while that is a reasonable concern, I am also of the opinion that higher rates discourage sellers, because in most cases they are going to move somewhere else and pay a higher rate too. If they have the option to stay put, they may choose to do so when rates are increasing.
For whatever reason, sellers are surprisingly rare this month. Even if we change the measurement week to Oct 3 to Oct 9, the picture does not change - new listings down 25% from 2,520 in 2017 to 1,885 in 2018. This latter total is once again the lowest we have ever recorded for those dates.
We live in interesting times.
October 9 - Filing the latest version of the long term interest chart on Cromford Public, it struck me that mortgage rates have been climbing very slowly but somewhat relentlessly. Freddie Mac reported an average of 4.63% during September for the 30 year fixed. This is the highest we have seen since May 2011, more than 7 years ago. Of course in 2011 this seemed like a very low rate because we had experienced rates over 6% almost continuously between 1970 and 2008, with occasional short periods in the mid 5s.
Now we have a lot of homeowners with loans bearing rates of 3.5% to 4.25% taken out over the past 7 years. To move to a new home, they will need to pay off that cheap loan and take out another at closer to 5%. This effect is likely to be a drag on the supply of re-sale homes for a long time to come. It is likely to be good news for remodelling companies as many home owners decide to preserve their cheap financing by staying in place and spending their upgrade money on improving and modernizing their existing home instead.
October 8 - After the first full week of October it is striking that the month is off to an unusually slow start.
New listings are 14% lower than they were during the same period in 2017. It is a very long time since we saw a drop-off like that..
Closed sales are also down, with 1,338 closed during the first week of October 2018, down over 10% from the 1,494 we had in 2017. The annual sales rate has taken a step lower as a result.
It is not exactly clear what is causing this, but both supply and demand are weaker than expected. One week does not make a trend, but this is so different from what we have seen so far this year that I feel I should point it out. If the rest of the month continues in this vein then it would represent a significant change of sentiment.
We will watch carefully and report whether the second week is similar to the first or gives us a snap-back to normal.
October 5 - Until September we had seen extremely strong sales numbers for the Northeast Valley's luxury single-family homes (over $500,000). Here are the comparisons with the year before:
The wheels seem to have come off the cart last month. Could we have seen this coming. Yes!
The under contract count on September 1 was down 2% from the year before, suggesting that year over year growth would stall. Now September 2018 had only 19 working days and thus a 5% disadvantage compared with September 2017. Adding that 5% to the 2% drop in under contract listings we get -7%, exactly the drop in sales during September. It does not always work this cleanly. What do we expect for October? Well the under contract count is almost identical to 2017 as of October 1, so we would anticipate roughly the same unit sales, adjusted for the number of working days. October 2018 has 23 working days compared with October 2017's 22, so this will add 5% to our estimate. We should therefore expect a resumption of sales growth this month, but only 5%, unimpressive in the context of the last 10 months.
The lack of sales is concentrated at the bottom end between $500,000 and $600,000, where unit counts fell 32% from a year earlier. This is probably connected to the shortage of supply since active listing counts are down 21% in this price range.
October 4 - The table below shows the Cromford® Market Index for the single-family markets in the 17 largest cities
We have 6 cities showing an improvement for sellers, 2 more than last week, with Glendale and Goodyear joining the other 4. However 11 cities showed deterioration for sellers and the average monthly change was 1.9%, slightly higher than the 1.8% we recorded last week. The trend remains down with rising supply and falling demand.
Tempe was the standout city for improving selling conditions while Fountain Hills, Paradise Valley and Buckeye showed significant weakness.
October 3 - Although Zillow has ramped up its purchases as an iBuyer, it has sold relatively few homes so far. The total number of homes purchased by the end of September was 157 while the total number of sales was 33, leaving 124 in inventory.
When we compare with Opendoor's start-up in 2015 and 2015, we see a similar pattern. By July 2015 they had 132 homes in inventory, having purchased 169 and sold 37. The main difference was that it took Opendoor 12 months to reach this stage and Zillow has taken less than half this time. The first mover has to prove the concept and break rocks. Followers benefit from that ground-breaking.
OfferPad has a somewhat different trajectory. They have tended to keep a lower inventory and sell their homes more quickly. By the time they had purchased 154 homes (in July 2016, they had sold 64 and only had 90 left in inventory.
Lifetime statistics as of the end of September are:
October 2 - Based on affidavit filings, the 3 main iBuyers operating in Greater Phoenix purchased 358 homes across Maricopa and Pinal counties in September. This is down from 446 purchases in August, but up from 278 in September last year.
Opendoor only purchased 188, making it their quietest month for purchases since September last year when they bought 161.
OfferPad purchased 105, in line with recent months but down from 117 in September 2017.
Zillow purchased 65, their largest total since starting in May. They seem to be stealing some market share from the other 2, possibly because they are buying at slightly higher prices. Certainly they are making less gross margin when they sell. The median gross margin for Zillow was 5% in July but only 3% in August. We have not yet been able to calculate the September number. Their 3% gross margin is immediately eaten up by commission paid to the buyer's broker, so they are living off the seller fees, to which we do not have access. This iBuyer business clearly involves a large amount of capital tied up and seriously low margins. Some may question why Zillow wishes to engage in the market, but it does seem to be growing in popularity with sellers. iBuyer transactions now represent roughly 1 in 20 home sales (excluding new homes and foreclosures).
Gross margins for Opendoor were around 6% in August and for OfferPad around 8%. Both of these are down from 8% and 11% respectively in August 2017. The additional competition seems to be causing gross margins to tighten.
September was a low activity month with only 19 working days thanks to a weekend at both ends. All the sales counts will be lower than normal for this reason.
October 1 - Nate Randleman used our Tableau chart showing average $/SF over the long term to calculate how prices had appreciated over the past 18 years. For Maricopa County the average was $97.63 in September 2000 and it was $166.51 in September 2018. The difference between these 2 numbers represents a long term average appreciation rate of only 3%.
Nate believes most clients (and probably many agents) would expect the number to be much higher since we have experienced very positive appreciation since 2011. They sometimes forget how much we went backwards between 2000 and 2011. We have spent much of the time since 2011 recovering from the crash of 2007-2008.
Overall, a long term appreciation rate of 3% is far from excessive and supports the theory that we are not significantly over-valued at today's prices.
What Nate did not know is that this Long Term Appreciation rate appears in all of our snapshots, so he could have saved himself some calculating. Here are the numbers extracted from a few of our snapshots (there are well over a hundred on the site). It may be that many of these will surprise you.
|Market Segment||Sub-set||Long Term Appreciation (Jan 2001 - Sep 2018)|
|All Area & Types in ARMLS||2.9%|
|Sun City West||3.1%|
September 28 - The Cromford® Market Index for the single-family markets in the 17 largest cities is shown in the table below:
Sellers may be dismayed to see 13 of the 17 cities showing the balance of power shifting away from them. However they can console themselves with the fact the the average shift is only -1.8% which is down from the -2.2% we saw last week. This is partly because 2 of the 4 improving cities (Tempe and Cave Creek) improved by large percentages.
Among the decliners, Buckeye (-10%) and Fountain Hills (-18%) are the most prominent, but Surprise(-7%) and Mesa (-7%) declined significantly too.
Scottsdale has changed course after a strong run in the last 3 months.
September 27 - The Census Bureau has just released the single-family building permit counts for August. The total for Maricopa and Pinal counties was 2,263, up 16% from 1,954 in August 2017. The count for the 12 months Sep 2017 to Aug 31 is 22.388 which is up 12.7% from 19,865 last year. Maricopa and Pinal account for 74% of Arizona's single-family permits.
Year-to-date in 2018 we have 16,154 permits which is up 13.6% from 2017.
The increases all exceed the increase in the overall sales rate, which implies:
- The market share for new homes should increase over the next year
- Supply should gradually improve if developers build as quickly as the permits indicate
For the past 12 months the breakdown by city is as follows:
- Phoenix 15.7%
- Unincorporated Pinal County 11.0%
- Buckeye 10.1%
- Mesa 7.9%
- Gilbert 6.8%
- Maricopa 6.1%
- Peoria 6.1%
- Unincorporated Maricopa County 6.0%
- Goodyear 5.9%
- Surprise 5.8%
- Queen Creek 5.2%
- Scottsdale 3.0%
- Chandler 2.4%
- Avondale 1.2%
- Florence 1.1%
- Glendale 0.9%
- Tempe 0.7%
- Wickenburg 0.7%
- Casa Grande 0.7%
- Eloy 0.6%
- Fountain Hills 0.4%
- Paradise Valley 0.4%
- Apache Junction 0.4%
- Litchfield Park 0.3%
- Cave Creek 0.2%
- Carefree 0.1%
- Coolidge 0.1%
- everywhere else 0.1%
September 26 - The S&P / Case-Shiller® Home Price Index® report was published yesterday covering sales during May, June and July 2018. The month to month change in indexes were as follows:
- Las Vegas +1.39%
- Cleveland +1.35%
- Phoenix +0.74%
- San Francisco +0.64%
- Tampa +0.61%
- Atlanta +0.54%
- Portland +0.47%
- Miami +0.44%
- Detroit +0.41%
- Minneapolis +0.39%
- Chicago +0.33%
- Denver +0.33%
- Dallas +.18%
- Washington +0.16%
- Charlotte +0.15%
- Los Angeles +0.13%
- Boston +0.14%
- New York +0.09%
- San Diego +0.01%
- Seattle -0.01%
Moving up from 7th to 3rd place, Phoenix is retaining more price momentum compared with the rest of the country, although it is not alone - Las Vegas and Cleveland are doing even better. The national average was +0.45%
It is quite a while since we saw a negative change in Seattle, albeit a very tiny one.
The year-over-year table looks like this:
- Las Vegas +13.7%
- Seattle +12.1%
- San Francisco +10.8%
- Denver +8.0%
- Phoenix +7.5%
- Tampa +6.8%
- Los Angeles +6.4%
- San Diego +6.2%
- Detroit +6.2%
- Boston +6.0%
- Minneapolis +6.0%
- Atlanta +5.8%
- Cleveland +5.7%
- Portland +5.6%
- Charlotte +5.6%
- Miami +5.0%
- Dallas +5.0%
- New York +3.4%
- Chicago +3.0%
- Washington +2.7%
Phoenix moves up to 5th place from 6th last month and is now well above the national average of 6.0%.
I have to admit it makes me nervous when Las Vegas is number one in both these tables.
September 25 - Consistent with the slight decline in the Cromford® Market Index we are seeing a slight decline in the listing success rate over the past 6 months. At the end of March the success rate for all areas & types was very high at 85%. Now it is merely high at 81%. This might seem like a very small drop but it does mean a 27% increase in the number of listings that failed to sell (from 15% to 19%). This is also consistent with the higher pace of price cuts that we have seen recently.
All in all, the market remains strong for sellers but not as strong as it has been and with a slow cooling trend.
September 24 - Long-time subscribers will have become familiar with the third-quarter slump in prices that happens every year in Greater Phoenix. It is not so much that home values go down; more that the sales mix moves away from more expensive properties and the price pressure from the second quarter eases away.
Despite the seller's market that prevails over the whole valley, the third quarter slump was in full force in 2018. However, it has now run its course and we can see the pressure building for another upward price trend in the fourth quarter. Take a look at the Tableau chart for Under Contract $/SF and you can see a sharp upward turn over the past few weeks. This happened at the same time in 2017 and was followed by 9 months of powerful upward movement. Unless there is a significant change in market conditions we are likely to see something similar over the next 9 months. Such a significant change would involve either a large increase in new listings or a major fall in the sales rate, neither of which are looking likely at the moment.
September 21 - One possible explanation for the low under contract counts we see these days is that lenders are taking less time to approve loan applications than they used to. This would shorten the time to close and result in fewer listings under contract for the same number of closed sales.
You would think that it would be fairly easy to check this hypothesis. It ought to be possible to measure close times by calculating the difference between the Contract Date and Close Date for each listing that closed on ARMLS. Unfortunately there are 85,044 closed listings where this calculation has a negative result, implying that the listing agent believes the purchase contract was signed AFTER the close of escrow. There are another 105,873 closed listings where the Close Date and Contract Date are exactly the same. This leads me conclude that the Contract Date data in ARMLS is of low quality and cannot be trusted. The Close Date is also of fairly poor quality, but we have the advantage of being able to cross check that date with the date the sale was recorded and therefore apply corrections to this field. At least that gets rid of the thousands of listings which are supposed to have closed on a Saturday, Sunday or public holiday (impossible since the county recorder does not work on those days).
Making the best of a bad job, we can examine the listings where the Close Date is at least 14 days later than the Contract Date. Closing times shorter than this are unlikely to have involved a third party lender. This test applies to 79% of the closed listings so it is a pretty decent sample. Using these records we find the following:
- average closing time in 2014 was 39.9 days
- average closing time in 2015 was 40.7 days
- average closing time in 2016 was 42.4 days
- average closing time in 2017 was 39.3 days
- average closing time in 2018 was 37.6 days
This gives us evidence of a 4.5% reduction is closing time between 2017 and 2018, following a more substantial reduction of 7.3% between 2016 and 2017.
Mind you, 2018's closing times are not exceptional. We were seeing closing times of 33 to 36 days throughout the years 2001 to 2008. It seems the easier it is to get a loan approved (as in 2004 to 2006) the quicker the close occurs. That make intuitive sense. The record low was 33.8 days in 2005. 2005 was really the year of the bubble bursting, even though people tend to focus on the collapse of Lehman Brothers in 2008, a long time after its collapse became inevitable.
We know that TRID (TILA-RESPA Integrated Disclosure) lengthened closing times in the fourth quarter of 2015 and then times started improving once everyone got used to the new procedures. Let us check the quarterly numbers:
- 2014 Q1 - 39.9
- 2014 Q2 - 40.0
- 2014 Q3 - 40.1
- 2014 Q4 - 39.4
- 2015 Q1 - 39.4
- 2015 Q2 - 40.8
- 2015 Q3 - 40.2
- 2015 Q4 - 42.7
- 2016 Q1 - 42.8
- 2016 Q2 - 42.6
- 2016 Q3 - 42.9
- 2016 Q4 - 41.3
- 2017 Q1 - 39.9
- 2017 Q2 - 39.9
- 2017 Q3 - 39.4
- 2017 Q4 - 37.8
- 2018 Q1 - 37.7
- 2018 Q2 - 37.9
- 2018 Q3 - 37.0
These numbers are at least consistent with the TRID story although I remain a little concerned about the quality of the data source even in the listings with reasonable sounding Contract Dates.
My conclusion is that there has been a reduction in close times over the past 2 years, but that we are now back to normal after the disruption due to TRID. The biggest drop took place in 4Q 2017. This goes some way towards explaining the reductions in listings under contract that we have reported, but it does not explain the drop completely. The under contract counts still look somewhat lower than we would expect. I believe we are seeing a slight weakening trend in demand at the low and mid-range, compensated by stronger demand at the high-end.
September 20 - The Cromford® Market Index table for the single-family markets in the 17 largest cities is shown below:
Here we see an average decline of 2.2% over the past month with 5 cities improving for sellers and 12 deteriorating.
Cave Creek and Tempe have shown the strongest improvement while Fountain Hills is in full scale retreat.
We cannot remember seeing Paradise Valley so high up this chart ever before. The luxury market has improved significantly over the past year with lower supply and much stronger sales numbers.
The recent weakness in the West Valley is reflected in this table with every city deteriorating for sellers
September 19 - The number of listings under contract is surprisingly low considering all the other readings on the market. We are some 9% below the count for this time last year and that was some 6% below 2016. The last time we saw a year-over-year increase for listings under contract was at the end of April.
While this situation persists it would be a mistake to think we are in a market with strong demand.
We are in a seller's market but that is not the same thing - the seller's current advantage is created by weak supply, not strong demand.
September 18 - It appears that Californians are back in force buying up Arizona homes, comprising 7.2% of all buyers in Maricopa County during August. However we need to remember that Opendoor counts as a Californian buyer and they represent about 33% of all sales to Californians at the moment. So we need to subtract their purchases before we can make a year over year comparison.
Having taken this extra step, we see that Californian buyers took a 5.1% market share during August, excluding Opendoor. In August 2017 the equivalent percentage was 4.2%. Thus there is a growing trend, but it is not quite as big as we might have assumed. California is almost always the largest source of out-of-state buyers and that is true more than ever in 2018.
Washington buyers have increased their share from 1.4% to 1.7% over the past year, but this includes Zillow, based in Washington. Subtracting their purchases brings us back to 1.6% which is still something, but again not quite as substantial as initial analysis suggests. Washington is in second place to California.
We don't have to make an allowance for OfferPad since they are based right here in Gilbert, Arizona.
Colorado is another strong state for our buyers but they have not increased their share (1.2%) since last year. Illinois has edged up from 0.9% to 1.0%.
All other US states increased from 7.2% to 7.7%. None of these individual states has as much impact as California, Washington, Colorado or Illinois, which are the biggest long term sources of out-of-state buyers.
Foreign buyers have become very scarce. Even Canadians who were buying as much as 6% in 2011 and rivalling California for impact on our market. Canadian buyers are down below 0.4% at the moment. This is not a new phenomenon. They were below 0.4% in August 2016 and August 2017 too.
September 17 - Reports from other parts of the country suggest the following trends:
- A significant reduction in demand from Chinese buyers.
- Continued strong demand for entry-level homes
- Declining demand for discretionary move-up and luxury homes
These trends do not appear to match what we are seeing in the Greater Phoenix area.
For one thing, we have never had much demand from Chinese buyers so even if their demand disappeared completely we would hardly notice. The Phoenix metropolitan area is the 12th largest in the USA, but it does not register in the conscious mind of the typical Chinese person. Before you think that is strange, let me ask you what you know about the 12th largest metropolitan area in China. The first question is what is it called? - Shenzhen being the correct answer. With a metro population of well over 23 million it is roughly 6 times the size of the Greater Phoenix area. I imagine few Arizona residents have ever thought much about it, never mind considered buying a home there. The same applies in reverse.
We are seeing much stronger growth in demand for luxury home this year than in 2017. Below we compare sales during the first 2 weeks of September:
- Total sales (all types) - 2,864 in 2018, 2,556 in 2017 - up 12%
- Under $250K - 1,310 in 2018, 1,357 in 2017 - down 3%
- $250K to $400K - 1,033 in 2018, 814 in 2017 - up 27%
- $400K to $800K - 427 in 2018, 317 in 2017 - up 34%
- $800K and up - 94 in 2018, 68 in 2017 - up 38%
No evidence there of declining demand for move-up and luxury homes. Entry level sales are down a little but that could be due to the limited availability of homes to buy at that price level.
I would therefore caution you not to assume that anything going on in the wider housing market applies to Greater Phoenix.
September 14 - We are still examining the changes that took place in the single-family market between August 1 and September 1, but this time we will segment the market by price rather than location.
The first thing that strikes us is that supply increased for homes at or under $400,000, but decreased for homes over $400,000. It is a very long time since we have said anything like that, so something different seems to be going on.
- active listings at or under $400,000 without a contract grew 9% from 6,610 to 7,187
- active listings over $400,000 without a contract fell 0.3% from 5,304 to 5,288
The big drop in supply was for homes between $1.5M and $2M which fell by 11%. This has been a heavily over-supplied sector in the recent past.
- monthly sale for homes at or under $400,000 fell 7% from 5,391 to 5,038
- monthly sales for homes over $400,000 grew 2% from 1,505 to 1,536
This analysis confirms our observations on September 12. The low to mid-range market is seeing rising supply and falling sales while the higher mid-range and luxury market is doing the opposite. This is the reason why the West Valley, with a large share of the most affordable homes, was the weakest areas during August.
About 78% of single-family sales in Greater Phoenix are priced at or below $400,000, so if this market loses steam, it will not be fully compensated by strength at the higher end.
One month does not make a trend, but we should keep our eyes on the low-to-mid-range market over the next few months.
September 13 - Below we show the Cromford® Market Index for the single-family markets in the 17 largest cities:
Here we a gradually deteriorating market from a seller's perspective. The average change of the last month is only -2.3%, but the decline is widespread with 12 of the 17 cities showing some deterioration and only 5 improving for sellers.
Cave Creek is the stand-out with a gain of 9% while Glendale and Fountain Hills saw the largest declines.
Despite this, every city is still a seller's market and well above the balanced zone of 90-110.
September 12 - We saw yesterday that the largest changes for the single-family market between August 1 and September 1 took place in the West Valley. Today we will look at the individual ZIP codes within the West Valley.
|Area||Active Listings (excl. UCB/CCBS) Aug||Active Listing (excl. UCB/CCBS) Sep||Change||Sales Jul||Sales Aug||Change||Months of Supply Aug||Months of Supply Sep||Change|
|Glendale 85301||46||46||none||34||29||down 15%||1.6||2.1||up 30%|
|Glendale 83302||52||48||down 8%||34||40||up 18%||2.0||1.8||down 9%|
|Glendale 85303||37||35||down 5%||43||32||down 26%||1.1||1.7||up 57%|
|Glendale 85304||46||59||up 28%||42||37||down 12%||1.5||1.9||up 32%|
|Glendale 85305||26||25||down 4%||16||14||down 12%||2.1||2.5||up 18%|
|Glendale 85306||34||42||up 24%||38||26||down 26%||1.1||1.7||up 55%|
|Glendale 85307||24||21||down 12%||8||5||down 37%||3.4||5.0||up 48%|
|Glendale 85308||180||168||down 7%||110||98||down 11%||2.1||2.3||up 6%|
|Glendale 85310||74||77||up 4%||46||37||down 20%||1.9||2.8||up 14%|
|Avondale 85323||60||61||up 2%||64||45||down 30%||1.3||2.0||up 58%|
|Buckeye 85326||192||197||up 3%||173||145||down 16%||1.5||1.8||up 17%|
|El Mirage 85335||44||44||none||63||37||down 41%||0.9||1.6||up 70%|
|Goodyear 85338||223||241||up 8%||109||116||up 6%||2.4||2.4||down 1%|
|Laveen 85339||97||122||up 26%||78||77||down 1%||1.6||2.0||up 12%|
|Litchfield Park 85340||124||137||up 11%||62||55||down 12%||2.4||2.9||up 19%|
|Peoria 85345||76||82||up 8%||67||72||up 8%||1.5||1.5||none|
|Sun City 85351||47||66||up 40%||69||59||down 15%||1.1||1.4||up 31%|
|Tolleson 85353||79||69||down 13%||70||64||down 9%||1.4||1.3||down 1%|
|Tonopah 85354||8||7||down 12%||5||1||down 80%||1.6||8.0||up 400%|
|Waddell 85355||62||63||up 2%||24||32||up 33%||3.3||2.4||down 28%|
|Wittmann 85361||25||29||up 16%||13||9||down 31%||2.6||3.8||up 44%|
|Youngtown 85363||6||10||up 67%||13||11||down 15%||0.7||1.6||up 136%|
|Sun City 85373||68||61||down 10%||45||36||down 20%||1.9||2.2||up 18%|
|Surprise 85374||85||94||up 11%||86||86||none||1.4||1.5||up 10%|
|Sun City West 85375||83||97||up 17%||91||83||down 9%||1.4||1.6||up 16%|
|Surprise 85378||20||39||up 95%||16||8||down 50%||1.6||5.6||up 246%|
|Surprise 85379||168||192||up 14%||124||106||down 15%||1.7||2.2||up 29%|
|Peoria 85381||59||56||down 5%||39||25||down 36%||1.8||3.2||up 76%|
|Peoria 85382||92||110||up 20%||55||69||up 26%||2.2||2.0||down 11%|
|Peoria 85383||418||440||up 5%||172||139||down 19%||2.7||3.6||up 30%|
|Surprise 85387||90||100||up 11%||30||28||down 7%||1.5||1.9||up 14%|
|Surprise 85388||103||120||up 17%||72||76||up 6%||1.8||1.9||up 6%|
|Avondale 85392||79||80||up 1%||67||55||down 18%||1.5||1.9||up 28%|
|Goodyear 85395||131||148||up 13%||61||53||down 13%||2.6||3.3||up 26%|
|Buckeye 85396||167||170||up 2%||76||81||up 7%||2.5||2.4||down 3%|
We see only 6 ZIP codes with lower months of supply than a month earlier. There is a general trend in favor of buyers when we see active listings up 7% in a month with 11% fewer sales despite the maximum number of working days (23). August is not expected to be a strong month, but the cooling is surprisingly strong in locations such as:
- Glendale 85303, 85306 and 85307
- Avondale 85323
- El Mirage 85355
- Tonopah 85354
- Wittmann 85361
- Youngtown 85363
- Surprise 85378
- Peoria 85381
We have become used to reporting strong markets at the low end and weaker ones at the top over the last 6 years. However there are distinct signs of a change going on. The top end is strengthening while the low to medium price ranges are cooling, albeit from a very strong situation. Supply is still weak (though improving) in the West Valley, so the market has a long way to go before it gets back to balance. However there are some signs of consolation for West Valley buyers in the above table.
If the entry-level market were very strong we would expect the West Valley to be the top performing area. Between August 1 and September 1, the opposite was the case.
September 11 - Here is how the major areas changed between August 1 and September 1
|Area||Active Listings (excl. UCB/CCBS) Aug||Active Listing (excl. UCB/CCBS) Sep||Change||Sales Jul||Sales Aug||Change||Months of Supply Aug||Months of Supply Sep||Change|
|Central Valley||2,810||2,892||up 2.9%||1,461||1,509||up 3.3%||2.4||2.3||down 1.0%|
|Northeast Valley||2,166||2,183||up 0.8%||632||612||down 3.2%||4.0||4.1||up 2.1%|
|Southeast Valley||2,578||2,696||up 4.6%||2,027||1,892||down 6.7%||1.7||1.9||up 9.6|
|West Valley||3,125||3,356||up 7.4%||2,119||1,888||down 10.9%||1.8||2.2||up 19.5|
The numbers are for single-family detached homes only.
We see that the deterioration in the market for sellers was concentrated in the West Valley - adding more listings without contracts than any of the other 3 are and showing a bigger drop in monthly sales rate too.
The Central Valley saw an increase in sales with a higher percentage than the increase in supply. It was therefore the area with the best trends for seller. The Northeast valley saw very little increase in supply, but there was a 3.2% drop in the sale rate. It was therefore the second best region from a seller's perspective.
The Southeast valley started and ended with the tightest supply, but it did see a 4.6% increase in active listings coupled to a 6.7% drop in sales. These trends went in the buyer's favor but not as much as in the West Valley.
September 10 - If you feel like the luxury market has improved a lot during the past year you are not mistaken. Excessive supply between 2015 and 2017 was a drag on the market keeping prices weak and inhibiting sellers during negotiations. The supply has been trending lower over the past year but the biggest change has been a surge in demand.
For the annual period that ended on August 31, we saw $8.4 billion spent on homes over $500,000 in Greater Phoenix. This is a huge 24.7% increase over the prior 12 months and almost entirely due to a 24.2% increase in the number of homes sold. The average price of these homes only rose by 0.4%.
The largest percentage increases in high-end dollar volume are to be seen in:
- Phoenix 85006 - up 384% (12 sales over $500K)
- Scottsdale 85257 - up 157% (40 sales)
- Rio Verde - up 163% (76 sales)
- Phoenix 85022 - up 142% (48 sales)
- Buckeye 85396 - up 132% (31 sales)
- Waddell 85355 - up 129% (22 sales)
- Surprise 85387 - up 121% (26 sales)
- Phoenix 85003 - up 105% (64 sales)
- Phoenix 85042 - up 95% (31 sales)
- Chandler 85224 - up 94% (23 sales)
- New River 85087 - up 91% (18 sales)
- Phoenix 85032 - up 85% (29 sales)
- San Tan Valley 85140 - up 85% (22 sales)
- Surprise 85379 - up 77% (14 sales)
- Phoenix 85008 - up 66% (13 sales)
- Mesa 85213 - up 65% (82 sales)
We excluded locations with fewer than 10 sales in the last 12 months from this table.
Few of these are generally regarded as top luxury home locations. The fact is that a rising price wave is pushing homes into the over-$500K bracket all over the place. We have more ZIP codes joining the over-half-million club, with homes selling for more than $500,000 in the following relatively inexpensive locations
- Phoenix 85009
- Casa Grande 85122
- Coolidge 85128
- Maricopa 85138
- Maricopa 85139
- Casa Grande 85194
- Mesa 85208
- Glendale 85301
- Glendale 85307
- Peoria 85382
- Avondale 85392
We also see strong rises in dollar volume in most of the traditional luxury areas:
- Fountain Hills 85268 - up 40%
- Scottsdale 85262 - up 24%
- Scottsdale 85255 - up 23%
- Paradise Valley - up 23%
- Phoenix 85018 - up 20%
There were a few exceptions, with Carefree 85377 down 1% and Scottsdale 85259 down 7%.
September 7 - Our regular examination of the Cromford® Market Index for the single-family markets in the 17 largest cities is shown below:
We see an average decline of 3% in the CMI, telling us that the market is not quite as favorable for sellers as it was a month ago. 6 cities have improved for sellers but 11 have deteriorated.
Glendale, Goodyear, Queen Creek, Maricopa, Mesa and Fountain Hills saw the largest declines while Cave Creek was the only city showing strong improvement.
Despite the general trend, every city is still a seller's market and it would take many months of this trend before buyers start to flex their negotiation power.
September 6 - We often get asked what percentage of the market has been captured by the iBuyers (Opendoor, OfferPad and Zillow). The answer is not too hard to calculate but it does depend on what you define as "the market". The simplest calculation is to take all sales of single-family or condo/townhouses within Maricopa and Pinal County. However this includes new home sales which are not part of the market where iBuyers operate. Trustee sales, bank owned sales, GSE REO sales and HUD sales should probably be excluded from the market too, even though it is possible for an iBuyer to acquire a home through these channels.
Here is a table showing market share over the past 24 months, using the 2 different definitions of "the market":
|Month||OfferPad Purchases||Opendoor Purchases||Zillow Purchases||Total iBuyer Purchases||% All Sales||% Sub market|
The August 2018 numbers are based on preliminary unverified data.
In rough terms, the iBuyers are now handling almost 1 in 20 of the available sellers in the Greater Phoenix market.
September 5 - Now let us take a look at average price per sq. ft. for new homes year-to-date:
- The New Home Company - $701
- Optima - $701
- Green Street - $296
- Statesman - $260
- Toll Brothers - $242
- Porchlight - $236
- Cachet - $232
- Highland - $232
- Robson - $208
- David Weekley - $205
- Shea - $200
- K Hovnanian - $194
- Blandford - $191
- VIP - $186
- Farnsworth - $184
- Taylor Morrison - $168
- Maracay - $168
- Mattamy - $161
- Towne - $157
- Bellago - $157
- Lennar - $156
- Woodside - $154
- Fulton - $152
- Richmond American - $148
- Pulte - $147
- William Ryan - $145
- Cresleigh - $145
- Ashton Woods - $139
- Elliott - $139
- Gehan - $138
- Meritage - $138
- William Lyon - $134
- KB - $132
- Beazer - $132
- Providence - $132
- Garrett Walker - $131
- Courtland - $130
- LGI - $124
- Pinnacle West - $121
- D R Horton - $120
It must be emphasized that land cost is an important part of the price of a new home. D R Horton achieves the lowest cost by focusing most of its development where land prices are lowest. Of the 1,332 closed sales year-to-date, 63% of them were in Buckeye, Maricopa or San Tan Valley.
September 4 - Here are the median sales prices for new homes in Maricopa and Pinal counties, sold between January and July 2018.
|Developer||Median Sales Price|
|The New Home Company||$2,298,999|
|D R Horton||$220,000|
There are many other entities but volumes for these were too small to calculate a reasonable median sales price.
Once again we can see how D R Horton and LGI are very targeted at the entry level homes where there is such a shortage of re-sale supply.
September 3 - Following up our post of August 31, here the top 25 developers in Maricopa and Pinal counties by YTD sales revenue recorded by the end of July:
- Lennar - $405M
- Taylor Morrison - $337M
- D R Horton - $306M
- Pulte - $251M
- Meritage - $203M
- Shea - $193M
- Mattamy - $164M
- Toll Brothers - $148M
- Fulton - $133M
- KB - $129M
- Ashton Woods - $122M
- Optima - $117M
- Robson - $109M
- Richmond American - $109M
- K Hovnanian - $104M
- Maracay - $103M
- William Lyon - $83M
- Blandford - $77M
- Beazer - $68M
- Woodside - $63M
- Garrett Walker - $60M
- LGI - $48M
- David Weekley - $47M
- Courtland - $40M
- Gehan - $40M
We note that Toll Brothers moves up from 19 by units to 8th by revenue due to their exclusive focus on higher-end homes.
In contrast D R Horton and KB drop down compared the unit table due to heavy focus on entry-level housing.
August 31 - After 7 months of recordings between Jan 1 and July 31, here is the top 25 ranking by closed units for local developers:
- D R Horton - 1,332 closed homes
- Lennar - 1,137
- Taylor Morrison - 801
- Pulte - 715
- Meritage - 620
- KB - 469
- Shea - 420
- Mattamy - 397
- Fulton - 380
- Ashton Woods - 328
- Richmond American - 292
- William Lyon - 263
- K Hovnanian - 262
- Robson - 255
- Beazer - 237
- Garrett Walker - 228
- Maracay - 219
- LGI - 217
- Toll Brothers -170
- Woodside - 161
- Blandford - 159
- Courtland - 142
- Optima - 140
- Gehan - 114
- Pinnacle West - 96
The numbers are for Maricopa and Pinal counties only.
August 30 - Another look at the Cromford® Market Index table for the largest 17 cities (single-family only):
Here we see 11 cities deteriorating for sellers and 6 improving. The overall average is a decline of 2%. This week Cave Creek is the top advancing city with +7%. Glendale is going backwards fastest with -10%. Phoenix continues to drop slowly down the table.
Some of the smaller cities are looking more positive with some outstanding values for the CMI:
- Arizona City - 385.7
- El Mirage - 300.9
- Sun Lakes - 259.1
- Gold Canyon - 236.7
- Tolleson - 216.2
- Apache Junction - 204.2
If you want a high CMI these days its good to be in Pinal County or an inexpensive spot in the West Valley.
August 29 - The S&P / Case-Shiller® Home Price Index® number are now out for the sales during April through June. Comparing with last month, here is how the 20 featured metropolitan areas fared:
- Las Vegas +1.39%
- Detroit +1.04%
- Minneapolis +1.04%
- Cleveland +0.99%
- Boston +0.85%
- Chicago +0.77%
- Phoenix +0.74%
- Seattle 0.73%
- Portland +0.70%
- Miami +0.66%
- Atlanta +0.65%
- San Diego +0.60%
- Tampa +0.60%
- Denver +0.60%
- Charlotte +0.55%
- Washington +0.55%
- Los Angeles +0.53%
- San Francisco +0.47%
- Dallas +0.39%
- New York -0.07%
Phoenix slipped very slightly from 6th place last month to 7th this month and came in just below the national average of +0.77%.
On a year over year basis the ranking table looks like this:
- Las Vegas +13.0%
- Seattle +12.8%
- San Francisco +10.7%
- Denver +8.3%
- Los Angeles +7.4%
- Phoenix +7.2%
- Boston +7.1%
- San Diego +6.9%
- Tampa +6.9%
- Minneapolis +6.5%
- Detroit +6.4%
- Portland +5.8%
- Charlotte +5.7%
- Atlanta +5.7%
- Dallas +5.2%
- Miami +5.2%
- Cleveland +5.1%
- New York +3.8%
- Chicago +3.3%
- Washington +2.9%
Phoenix ranked 6th in this table, up from 7th last month and well above the national average of +6.2%.
August 28 - For the largest 17 cities you can see 2 years of comparative appreciation rates using the chart here.
We see that appreciation rates have tended to converge over the past 2 years, currently ranging from a low of 4.4% for Scottsdale to a high of 10.9% for Maricopa. Two years ago the range was much wider from a low of -4.8% for Paradise Valley to a high of 11.0% for Maricopa. Maricopa has not been on top for the whole period. Avondale was in the lead between April 2017 and May 2018.
The current ranking is:
- Maricopa 10.9%
- Avondale 8.2%
- Queen Creek 8.1%
- Mesa 8.0%
- Buckeye 7.9%
- Surprise 7.9%
- Glendale 7.7%
- Cave Creek 7.6%
- Phoenix 7.5%
- Paradise Valley 7.1%
- Gilbert 7.0%
- Chandler 6.8%
- Peoria 6.7%
- Tempe 6.5%
- Fountain Hills 5.5%
- Goodyear 4.7%
- Scottsdale 4.4%
All these numbers are for single-family detached homes only.
August 27 - The supply of active listings in 2018 (excluding those under contract) has followed a different trend depending on the dwelling type:
- single-family - has fallen from a peak 13,498 on January 21 to 12,392 on August 24, a drop of 8.2%
- condo / townhouse - has fallen from a peak of 2,561 on January 21 to 1,936 on August 24, a drop of 24.4%
- mobile / manufactured - has fallen from a peak of 684 on January 13 to 431 on August 24, a drop of 37.0%
So single-family homes have retained a much higher percentage of their supply than condos or mobile homes.
The supply has also behaved differently by county:
- Maricopa County - has fallen from a peak of 14,783 on January 20 to 13,254 on August 24, a drop of 10.3%
- Pinal County - has fallen from a peak of 1,917 on February 10 to 1,429 on August 24, a drop of 25.5%
So Pinal County has seen far more of its supply disappear than Maricopa County has.
These effects are all due to average price points.
- Pinal County is on average cheaper than Maricopa County
- condo / townhouse properties are on average cheaper than single family homes
- mobile / manufactured homes are on average cheaper than condo / townhouse properties
Although condo / townhouse properties are cheaper on average than single-family homes, this is purely because they are much smaller on average. The average price per sq. ft. for condo / townhouse properties is currently around $170, noticeably higher than the average price of single-family properties at around $160.
Whatever way you look at the market, inexpensive homes have become much harder to find over the last 7 months.
August 24 - The Cromford® Market Index for the single-family markets in the 17 largest cities:
Another table that suggests the market is slowly and slightly cooling down. The average change over the last month is -2% and we see 11 cities deteriorating for sellers with 6 improving. The general trend is an uptick in supply despite low numbers of new listings, coupled with continued weakness in homes going under contract compared with normal.
The Northeast Valley, represented by Paradise Valley (+9%), Scottsdale (+7%) and Cave Creek (+6%), is having the best of things, but Avondale, Buckeye and Chandler all managed a 3% gain.
The strongest declines are seen in Tempe (-10%), Glendale (-8%), Fountain Hills (-8%) and Gilbert (-7%).
Avondale has consolidated its position at the head of the table. Peoria and Tempe are a little way adrift at the bottom, but even these 2 cities remain in a seller's market over 110.
August 23 - The Census Bureau reported a total of 5,937 multi-family permits across Maricopa & Pinal counties for July 2018 year-to-date. This is the highest YTD number for July since 2007.
Phoenix and Tempe completely dominate the YTD numbers in 2018 with 2,118 and 2,021 respectively. Formerly very active, Scottsdale has faded into a distant third place with 505, while Chandler (387), Gilbert (205), Peoria (183) and Mesa (155) are the principal also-rans.
August 22 - The single-family permits for Maricopa & Pinal counties during July totalled 2,138 which is a 16% increase over July 2017. The annual run rate has increased to 22,079 which is the highest we have seen since February 2008. However it is still a lot lower than between 1997 and 2007 when it was consistently over 28,000 and usually over 33,000.
Many developers are trying harder to meet the demand for more affordable homes, which is probably why Unincorporated Pinal County is the number one source of permits this July with 300. The vast majority of these are located in the loosely defined area we know as San Tan Valley. The inexpensive areas of Buckeye and Maricopa also appear among the top 6 locations with 211 and 204 permits respectively. The top 6 are rounded out by Phoenix (250), Mesa (222) and Queen Creek (167).
Overall, the numbers suggest a mood of optimism among the developers, though moderated by caution based on their unhappy experience of 2007-2009.
August 21 - In the first 3 weeks of August we have seen fewer new listings appear than during the same 3 weeks last year. We currently count 6,147 which is 3.4% less than the 6,361 for last year. This gap seems to be widening because we saw a 1.4% drop after 2 weeks and a 0.3% increase after the first week.
The gap is visible for all dwelling types but is largest for mobile homes. We have seen only 111 versus 133 new mobile home listings which is a drop of over 16%.
The gap is also larger for Pinal County at 4.8% versus Maricopa County (3.2%).
August 20 - In most years the active listing count (excluding UCB and CCBS listings) hits a low point in August and then starts to rise until Thanksgiving. In 2018 we hit the low point slightly early in July and have already been drifting upwards for 4 weeks now. This might be considered a negative sign for sellers, but the change is so slight I would not want to make too big a deal out of it.
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.
August 17 - We have examined the new listings for Greater Phoenix that arrived in the first 2 weeks of August. Overall we saw 4,079, down from 4,208 in the same period last year. The interesting stuff comes when we look at individual price ranges:
|Price Range||New Listings 2017||New Listing 2018||Change||Sales Rate||Change in Annual Sales Rate|
|Up to $150K||408||275||down 33%||8,697||down 20%|
|$150K to $200K||789||542||down 31%||17,257||down 13%|
|$200K to $250K||871||843||down 3%||20,496||up 6%|
|$250K to $300K||638||706||up 11%||15,044||up 10%|
|$300K to $400K||688||803||up 17%||16,376||up 12%|
|$400K to $500K||334||379||up 13%||7,639||up 14%|
|$500K to $1M||371||441||up 19%||7,711||up 14%|
|Over $1M||109||90||down 17%||1,882||up 19%|
We see that the market under $200K is contracting fast with both new listings and sales falling. However the new listing arrival rate is falling faster than the sales rate.
From £200K to $250K we have sales up and new listings down, a market improving for sellers. From $250K to $1M the supply is growing at a similar rate to sales, with a couple of ranges getting a larger increase in supply than sales ($300K to $400K and $500K to $1M).
Over $1M the situation is vastly improved for sellers because supply has fallen while sales rate up by the largest percentage of any price range.
August 16 - Once again we show the Cromford® Market Index table for the single-family markets in the 17 largest cities:
Only 5 cities improved for sellers over the past month, 3 of them in the Northeast Valley. Once again Paradise Valley and Scottsdale were the biggest gainers.
Avondale has regained its place at the head of the table despite losing 1%. The Southeast Valley has lost the dominance it held in the early part of the year, with Tempe (down 14%) and Gilbert (down 8%) the biggest decliners. Only Mesa remains above 200 although it went backwards by 2%. Chandler managed a 1% advance.
All 17 cities remain seller's markets, but 12 out of the 17 weakened for sellers.
August 15 - The total number of active listings (including those in UCB or CCBS status) 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.
Even if we are hearing about signs of a fall in demand, mainly at a national level and in regions outside Arizona, supply is so low at the moment, demand would have to drop a lot more for us to reach a balanced (and smaller) market.
August 14 - Inspired by a question from Tracy Royce, we have created a new Tableau chart in Cromford® Public which allows you to examine the intended use stated on the Affidavits of Value by buyers in Maricopa and Pinal counties.
For the second quarter of 2018, the following breakdown is observed for Greater Phoenix as a whole:
- Owner Occupier (Primary Residence) - 74.0%
- Investor - 10.9%
- Second Home - 10.7%
- iBuyer - 3.2%
- Unknown - 1.2% (mostly trustee sales)
Since iBuyers are acting as intermediaries and create one extra transactions than we would have seen without them, we concluded that the overall sales count is 3.2% higher than it would have been normally. Their share in 2Q 2017 was 1.7%, in 2Q 2016 was 1.3% and in 2Q 2015 was 0.2%.
We can see that iBuyers are not involved with home sales over $500,000 nor with the new home market. Excluding those sales from the total, they currently have a 4% market share, up from 2.1% a year ago.
If we focus on the 55+ communities (both legally restricted and targeted by marketing), then we see a very different picture:
- Owner Occupier - 64.0%
- Second Home - 28.0%
- Investor - 6.3%
- Unknown - 1.0%
- iBuyer - 0.7%
Since the iBuyer buying process is fairly passive, we conclude that the owners of 55+ properties are far less attracted to the iBuyer web sites than the average seller. We also see that investors show far less interest in 55+ homes than average. However 55+ properties are very popular as second homes.
Investors are far more active purchasing condos (16.6%) than single-family homes (9.8%)
iBuyers have tended to prefer the opposite with a 2.5% share in condo purchases and a 3.3% share in single-family purchases.
Top cities for the percentage of purchases by iBuyers in 2Q 2018 were:
- Waddell - 10.6%
- Tolleson - 9.5%
- Anthem - 9.1%
- Laveen - 8.0%
- San Tan Valley - 6.1%
- Glendale - 5.2%
- Avondale - 4.9%
- Surprise - 4.9%
- Arizona City - 4.8%
- Buckeye - 4.8%
August 13 - Sometimes it can be revealing to examine a market by breaking it into just a few large geographic areas. Below is a table of some key statistics for single-family homes comparing August 2018 with August 2017.
|Area||Annual Change in Annual Sales Rate||Annual Change in Active Listings (excluding UCB/CCBS)||Annual Change in Days of Inventory|
|Central & North Valley||+2.4%||-1.5%||-5.3%|
For sellers, every area has seen an improvement, but the Central & North Valley has seen by far the lowest percentage reduction in days of inventory. This is primarily due to a very small drop (-1.5%) in active listings compared to the rest of the valley.
The Northeast Valley and Pinal County have both seen a big improvement for sellers with an almost 20% drop in days of inventory. Both had a large 16% decline in active listings without a contract while they both saw strong increases in annual sales, with the Northeast the strongest of all.
The Southeast Valley saw a similar fall in active listings to Pinal County and the Northeast, but the annual sales rate has not managed any growth. It therefore lags behind the other two areas in positive movement for sellers.
The West Valley managed a similar increase in the annual sales rate to the Central Valley but saw a more significant drop in active listings.
Ranking the areas by improvement for seller's prospects we have:
- Pinal County
- Northeast Valley
- Southeast Valley
- West Valley
- Central & North Valley
It is surprising how different the areas are to one another and also how much the Northeast Valley has improved for sellers over the past 12 months.
August 10 - We have an unusually low number of listings under contract at the moment. Looking at the weekly chart for all areas & types we can see that in the last 10 years only 2008 and 2014 had lower counts at this point of the year. This is particularly unusual given that sales volume remains strong.
Certain cities have a significant shortfall of single-family contracts compared with last year:
- Fountain Hills - down 41%
- El Mirage - down 26%
- Avondale - down 24%
- Litchfield Park - down 21%
- Surprise - down 19%
- Sun City - down 18%
- Tempe - down 17%
- Glendale - down 16%
- Chandler - down 15%
- Casa Grande - down 15%
Fountain Hills had a large number of listings under contract in April, as many as 109, its highest count since 2012, but has slumped to just 41 as of this week.
Since the sales rates are holding up, you could argue that listings are closing more quickly or are being entered into ARMLS only after closing. This is certainly true of some listings, but since a drop in listings under contract is usually the first sign of a fall in demand, we are watching this situation closely. We suggest that you do too. As yet we are drawing no conclusions but we are wondering if the sales rate will follow suit over the next few months.
August 9 - The table below shows the Cromford® Market Index values for the single-family markets in the 17 largest cities by dollar sales volume.
We again see a big divergence between the Northeast Valley and the rest of the market.
The Northeast Valley continues to improve for sellers with a 26% increase in the CMI for Paradise Valley over the last month and a 10% rise for Scottsdale. Cave Creek has also gained a healthy 5% but Fountain Hills has started to fade after a very strong run over the past 3 months.
The rest of the market is looking a little bit tired. All cities are still seller's markets, but every city outside the Northeast (except Buckeye and Goodyear) showed at least a slight move in favor of buyers over the last month. Much of the change is due to weaker numbers of listings under contract. Tempe has also gained supply faster than normally expected for the season. Tempe, Gilbert and Avondale were the biggest losers. The change was modest for Mesa, Chandler, Surprise, Glendale, Phoenix and Queen Creek.
Supply remains very low, but has started to show early rises between $200,000 and $400,000.
It is unusual that Mesa should be top of the table while its close neighbor Tempe has hit the bottom. We are living in interesting times.
August 8 - Zillow has now purchased 62 homes and sold 10. All are in Maricopa County and none in Pinal.
The average purchase price of the 10 homes that have been sold was $309,700, which is just 0.4% below their average Zestimate of $311,036. The average sale price was $319,080, 2.3% higher than Zestimate. This means the average gross margin was 2.9%.
It took an average of 15 days to list the homes purchased, a further 23 days to get a contract and 20 days to close. These are lower numbers than the existing iBuyers (Opendoor and OfferPad), but remember we are only measuring the homes that sold, which by definition are the ones that sold quickly. There are plenty of homes that will take longer but are not closed yet.
Indeed, the first home purchased by Zillow is still active and has had no offers after 71 days and numerous Open House events. It has had 2 price reductions and is now on offer for $415,000 (having been purchased for $410,000). Zillow is offering an additional $2,500 commission to the buyer's broker on top of the 3% already offered.
There are now 10 listings in UCB status (the other iBuyers always use Pending status). There are 24 Active with no contracts and 18 not listed yet.
Zillow has announced a huge reduction in its targets for home sales in 2018. Forecast revenue is now down from $255 million to $40 million. They stated to investors that home closings are taking longer than anticipated.
August 7 - Between 2014 and 2016 we saw a strong upward trend in the supply of luxury homes, particularly in the Northeast Valley. That trend came to a halt in 2017 and we are now seeing a downward move. On August 1, 2018 we counted 2,365 single-family active listings (including UCB and CCBS) across the Northeast Valley and priced over $500,000. This is the lowest start-of-month count since September 2015 and is down 11% from a month ago and 8% lower than this time last year. The downward trend has gained momentum in the last 8 weeks.
Luxury buyers may have become used to having plenty of supply to choose from, and certainly supply is abundant compared with the market below $500,000. However supply is dropping faster than for several years and as a consequence sellers are gaining significant negotiation advantage. This is reflected in the rise in the Cromford® Market Index numbers for Scottsdale, Paradise Valley and Fountain Hills.
We normally see an increase in active listings from September through November but this is unlikely to change the narrative. Buyers of luxury homes have had their best times (the spring of 2016 was the peak) and their search is likely to become trickier over the next few months.
August 6 - The daily chart showing Average Annual Appreciation based on Monthly Average $/SF has been unusually stable for the last 6 months. The appreciation rate (by this measure) has stayed very close to 8% with only slight dips to 7% and occasional surges towards 10%.
If home prices are rising by 8% a year, then they are getting much less affordable. Average incomes are rising by something like a quarter of this rate. Rents are also rising at a steep rate (see charts below). The cost of shelter is rising as a percentage of income.
The effect is to make existing home owners feel more wealthy since their equity is growing fast. However, the incentive for people to move up and the enthusiasm of first-time buyers is in gradual decline. We have a low Cromford® Supply Index because remarkably few people wish to sell their house. We also have a declining Cromford® Demand Index because fewer people are trying to buy. At the moment demand remains much higher than supply across most sectors, so it feels like we have strong demand. Do not be fooled. The CSI stands at 59.1, the lowest level since 2015, but the CDI is at 96.5, the lowest level since March 2015. This is a key reason why we do not have bubble conditions (in which demand rises artificially due to speculation).
August 2 - The table showing the Cromford® Market Index values for the single-family markets in the largest 17 cities appears below.
There is a surprising amount of movement here. First we should point out that every one of the 17 cities is a seller's market. However only 7 of the 17 saw improvement for sellers over the past month and 10 saw deterioration.
Once again the biggest moves upward came from the Northeast with Paradise Valley up a staggering 32% and Scottsdale up 11%.
The biggest decliners were Tempe down 17% and Avondale down 12%.
Mesa remains on top for the second week, even though it took a 1% hit over the month.