Market Summary for the Beginning of June
May continued to be a good time to be a seller in most areas & price ranges. Demand quickly recovered from well below normal in January to slightly above normal by mid April and it has stayed there throughout May with barely any detectable change. Meanwhile supply continues to drop for an ever-widening collection of areas & price ranges, giving plenty of problems for most buyers who are bumping into each other at the few listings that remain. Multiple offer situations are increasing. If buyers are wanting to spend more than $500,000 then they are in luck – supply is much more plentiful above that mark, though a few very popular areas like Arcadia have relatively slim pickings. During May even those upper price ranges saw a downward trend in active listing counts, but not enough to cause any real problems for most buyers. If today’s normal demand can cause supply to drop as much as it did in the last month, then buyers are going to have an even harder time if demand were to grow. This is especially true for the entry level market which is desperately short of homes for sale or rent.
The price trend is now very different for the low end, where strong appreciation is likely, and for the high end where a gently drift sideways is more likely, except in those areas where inventory is unusually low.
Here are the basic ARMLS numbers for June 1, 2015 relative to June 1, 2014 for all areas & types:
- Active Listings (excluding UCB): 20,351 versus 25,555 last year – down 20.4% – and down 5.4% from 21,512 last month
- Active Listings (including UCB): 24,595 versus 28,950 last year – down 15.0% – and down 3.1% compared with 25,387 last month
- Pending Listings: 7,819 versus 6,965 last year – up 12.3% – but down 1.7% from 7,951 last month
- Under Contract Listings (including Pending & UCB): 12,063 versus 10,360 last year – up 16.4% – but down 1.7% from 12,276 last month
- Monthly Sales: 8,293 versus 7,509 last year – up 10.4% – but down 2.3% from 8,490 last month
- Monthly Average Sales Price per Sq. Ft.: $136.19 versus $127.65 last year – up 6.7% – and up 0.5% from $135.45 last month
- Monthly Median Sales Price: $211,000 versus $192,500 last year – up 9.6% – and up 4.5% from $202,000 last month
We note that the monthly median sales price has increased much faster than the monthly average price per sq. ft. The low end of the market is not pulling its usual weight due to the painfully low levels of supply in so many areas. This generates insufficient sales to keep the median down at its natural level. Prices are not really improving as much as the median suggests, except in a few very affordable areas, which may not remain so affordable for much longer.
May was another good month for high end sales, though this time it was those priced over $2 million that over-achieved the most, with 34 closed transactions compared with 18 in May last year.
The growing sense of justifiable optimism in the housing market tends to bring out ever more ridiculous articles in the media, usually forecasting doom and gloom ahead. Some even pretend to use mathematics to justify their case. One recent article claimed that jumbo loans had a far higher delinquency rate than conventional loans. This conclusion was based on a formula that counts REO properties among the delinquent loans. Since REO properties cannot have a loan (it was extinguished at foreclosure) this is very strange math. In any case, all lenders are all too aware that the true default rate among jumbo loans has been extremely low for some time. In fact delinquency on all types of home loans is down dramatically from a few years ago. Black Knight Financial Services reported that in March 2015, of every 10,000 borrowers that were current at the end of February, only 73 missed a payment during March. This was the lowest “roll rate”, as they call it, in over 15 years – right back to the last millennium.
In Greater Phoenix we saw just 2 REO sales of homes listed for $500,000 or more during May 2015, along with 14 short sales and/or pre-foreclosures. The other 566 sales (97%) were normal. Five years ago, things were very different – 46 REOs, 67 short sales and/or pre-foreclosures and only 216 (66%) normal sales. The luxury market in Greater Phoenix definitely does NOT have a delinquency problem in 2015.
Others get concerned by such foolish items as “a Bank of America analyst forecast calls for home values to rise 3.7 percent this year and 0.8 percent next year, before declining 1.7 percent in 2017, 2.1 percent in 2018 and 0.8 percent in 2019.” That is a forecast that the US housing market will experience three straight years of ‘modest’ declines in property values. While the basis for this forecast is certainly a valid concern – incomes are not keeping up with the pace of home price increases – the idea that some analyst’s formula can accurately predict an average home price in 2017, 2018 or 2019 is simply nuts. I invite you to save this quote and look at it again in 5 years to see what I mean.
As John Kenneth Galbraith said (or was it Ezra Solomon; we don’t even know the past for certain), “The only function of economic forecasting is to make astrology look respectable”.
We will continue to stick to reporting the present and very short term forecasts. Right now the Greater Phoenix housing market is experiencing more than usual upward price pressure due to a chronic shortage of affordable housing to buy or rent. The majority of new development is focused on the mid-range or luxury markets, not the affordable market, for understandable business reasons, so there is no imminent solution to this shortage of affordable homes. Slow growth in incomes has been stunting home purchase demand in Arizona for some considerable time, but we don’t need more demand to drive price increases. The chronic lack of supply will do that all on its own. The upward price pressure will probably be counterbalanced by the seasonal effect which pulls average prices lower between June and September each year. After that, well who knows? The correct answer is: nobody right now. But if you keep your eyes on supply and demand measures, you will know before almost everyone else, which we think is an important competitive advantage.