Jim Brent

For Buyers:
2018 is not going to be any less competitive for buyers in general. The market is starting out with 14% fewer listings compared to 2017, however there are 35% fewer listings under $200K, a price range that commands 34% market share of all MLS resales in Greater Phoenix. 51% of MLS sales were between $200K-$400K in 2017, and supply in this range is down just 7%. 14% of sales were between $400-$1M and supply is down nearly 9%. Only the market over $1M is starting 2018 with 4% more for sale, 2017 sales over $1M were less than 2% of the market.

For Sellers:
Over 51% of newly constructed condominiums, townhomes and single family residences sold in 2017 were between $275K-$500K as of November and approved single family permits are up nearly 12% going into 2018. Added inventory from new construction continues to keep mid-range property appreciation at sustainable levels at the current level of demand. The last wave of boomerang buyers are expected to rejoin the masses in home ownership this year after waiting 7 long years to qualify for conventional financing after foreclosure. These buyers span all price ranges and their return combined with positive inbound relocation and employment keep Greater Phoenix a positive environment for sellers.

Commentary written by Tina Tamboer, Senior Real Estate Analyst with The Cromford Report

Average sales price per square foot – Year over Year

• Monthly Average Sales Price per Sq. Ft.: $149.48 versus $138.64 last year – up 7.8% – and up 0.5% from $148.79 last month
• Monthly Median Sales Price: $244,900 versus $227,800 last year – up 7.5% – and up 1.6% from $241,000 last month

Supply remains lower than last year, but the gap closed slightly compared with last month in terms of active listings with no contract. We are starting to see more new listings than last year. The third quarter is up 2.5% from last year and up 5.5% from 2015. So far the extra supply is not having much effect, but if it continues for several months finding a property could start to get a little easier for buyers.

The monthly sales rate is up only 1.8% compared with a year ago. Both August 2016 and August 2017 had the same number of working days (23) so we have a fair comparison to draw. Since the year over year growth was 5.7% in June and 3.0% in July we again see a continuing slow downward trend in the advantage that 2017 has over 2016 in sales volume. Growth in the annual sales rate has almost stopped with 95,000 proving to be a difficult line of resistance. All these point to a gradual fading of demand. The serious shortage of supply obscures that fade.

We experienced a seasonal price drop between June and July, but prices have already bounced back during August and are likely to remain on an upward track for the rest of 2017 at least.

We still have a seller’s market in most locations and price ranges, but the current trends means the seller’s advantage has very little momentum. Before buyer`s get too excited, the trends are very mild in nature. As such we do not currently see major increases in buyer’s bargaining power coming anytime soon.

Of course, the market could change quickly, as it did in the summer of 2013, but there is not much sign of this in any of the numbers at the moment.

This commentary was provided by Michael Orr of the Cromford Report. Michael Orr is the Director of the Real Estate Center at the W.P. Carey School of Business at Arizona State University.

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

• Active Listings (excluding UCB): 17,412 versus 19,711 last year – down 11.7% – and down 3.7% from 18,087 last month
• Active Listings (including UCB): 21,484 versus 23,801 last year – down 9.7% – and down 3.7% compared with 22,301 last month
• Pending Listings: 6,085 versus 6,807 last year – down 10.6% – and down 6.2% from 6,486 last month
• Under Contract Listings (including Pending, CCBS & UCB): 10,157 versus 10,897 last year – down 6.8% – and down 5.1% from 10,700 last month
• Monthly Sales: 8,003 versus 7,770 last year – up 3.0% – but down 16.8% from 9,615 last month
• Monthly Average Sales Price per Sq. Ft.: $148.85 versus $138.39 last year – up 7.6% – but down 1.8% from $151.64 last month
• Monthly Median Sales Price: $241,000 versus $225,000 last year – up 7.1% – but down 1.6% from $245,000 last month

Supply remains significantly lower than last year, and the gap widened slightly compared with last month in terms of active listings with no contract. The drop in supply over the last month (3.7%) was concentrated in the price range from $225,000 to $250,000 and in the ranges over $1 million. Price ranges below $175,000 have a little more supply than they did last month, a new trend that we have now seen for two months running.

The monthly sales rate is up 3.0% compared with a year ago. Both July 2016 and July 2017 had the same number of working days (20) so we have a fair comparison to draw. Since the year over year growth was 5.7% in June we see a continuing slow downward trend in the advantage that 2017 has over 2016 in sales volume. Growth in the annual sales rate is also slowing which confirms this trend.

We experienced a significant price drop between June and July, but this is no surprise. It happens almost every year, and in fact the drop in 2016 was larger. The effect is primarily due to the decline in luxury home activity. On an annual basis appreciation is running at 7.6% when measured by average $/SF and 7.1% when measured by median sales price. Both of these are very strong compared with general rates of inflation but are unspectacular in the context of the wider housing market. Washington, Oregon, Idaho, Utah and Colorado are seeing even faster appreciation, while California, Nevada and Florida are similar to Arizona. Only Alaska is seeing home prices declining year over year.

Appreciation is fine for the home owner, but translates into loss of affordability for the potential home buyer. Prices are being driven higher by a natural and persistent lack of supply, not irresponsible speculation. In this situation it is normal for prices to rise until they suppress demand enough to match the weak supply and we reach equilibrium. That is fundamental to economic theory. So we should not be surprised if sales volumes lose some of the momentum they have seen during the first half of 2017.

Of course the nature of demand is always in flux. At the moment Arizona’s population increase is concentrated in the older age groups which portends strong markets in the housing areas that appeal to this sector. Birth rates are weak and getting weaker, so natural population growth is unlikely to be much of a factor in driving future housing demand. In-migration is key to the state and much of that in-migration has been dominated by retirees, or at least those over 55. This differs from the situation prior to 2007 which saw strong in-migration from the under 40s. We anticipate the median age in Greater Phoenix will increase quite markedly over the next decade. This will have a number of economic effects, not just on housing.

This commentary was provided by Michael Orr of the Cromford Report. Michael Orr is the Director of the Real Estate Center at the W.P. Carey School of Business at Arizona State University.

Metro Phoenix Lease Rates Decline 11% For Certain Types of Rentals
Supply Stops Declining Between $150K-$300K

For Buyers:
Good news for buyers, listings for sale between $150K and $300K stopped declining over the past 4 weeks.  This is good news because as the summer progresses, there are fewer buyers to compete with in the marketplace which offers a seasonal relief for those still willing to brave high temperatures and scalding door knobs to view homes.  Supply is still extremely low, but this slight improvement gives as much relief as a hot breeze on a July afternoon.  It’s not much, but it’s something.  Meanwhile, luxury buyers may notice fewer properties to look at this summer as demand was higher during the Spring season and overall inventory has been dropping due to a higher number of closings and seasonal cancellations/expirations.  Expect inventory in price ranges above $500K to continue declining seasonally until settling into a stagnant level in August and early-September.

For Sellers:
There has been a lot of talk about the increased production of luxury apartments and what impact they will have on the residential real estate market.  One segment that is starting to see their influence is apartment-style condominium rentals leased through the Arizona Regional MLS.  While rents on single family homes and townhouses continue to rise, successful leases of apartment-style condominiums have dropped 11% in average rates from a high of $1.26/sf in January 2017 to $1.12/sf by June. The drop is consistent across all lease price ranges for this type of rental and is not seasonal.  Areas that have been particularly affected are Tempe, Old Town Scottsdale and the Central Corridor including Downtown Phoenix.  Considering the lack of supply for sale in affordable price ranges and the added competition from brand new apartment complexes, this may be a good time for landlords of apartment-style rentals to consider selling if they’re unwilling or unable to reduce their rental rate.

Commentary written by Tina Tamboer, Senior Real Estate Analyst with The Cromford Report
©2017 Cromford Associates LLC and Tamboer Consulting LLC

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

• Active Listings (excluding UCB): 18,087 versus 20,458 last year – down 11.6% – and down 2.1% from 18,476 last month
• Active Listings (including UCB): 22,301 versus 24,856 last year – down 10.3% – and down 4.2% compared with 23,281 last month
• Pending Listings: 6,486 versus 6,985 last year – down 6.1% – and down 11.4% from 7,324 last month
• Under Contract Listings (including Pending, CCBS & UCB): 10,700 versus 11,383 last year – down 6.0% – and down 11.8% from 12,129 last month
• Monthly Sales: 9,512 versus 8,996 last year – up 5.7 – but down 3.5% from 9,858 last month
• Monthly Average Sales Price per Sq. Ft.: $151.83 versus $140.97 last year – up 7.7% – and up 0.9% from $150.46 last month
• Monthly Median Sales Price: $245,000 versus $230,000 last year – up 6.5% – and up 2.1% from $240,000 last month

Supply remains significantly lower than last year, but not quite as much as last month, when there was a 11.6% gap in terms of active listings with no contract. The drop in supply over the last month (2.1%) was concentrated in areas that cater to the 55+ home buyer and higher priced areas. This follows a normal seasonal pattern that repeats every July. Some less expensive areas have a little more supply than last month.

The monthly sales rate is up 5.7% compared with a year ago. Both June 2016 and June 2017 had the same number of working days so at last we have a fair comparison to draw. The last 3 months were all distorted by different working day counts which favored March and May but disadvantaged April. We see a slight downward trend in the advantage that 2017 has over 2016 in sales volume, but almost 6% is still a very positive rise.

In common with the USA as a whole, we are seeing lower counts for pending listings and listings under contract, compared with the same time last year. This fall is quite large but so far has not been matched by a drop in sales. We discussed some of the underlying reasons for this fall in our daily observation for June 7. Despite this disconnect between under contract counts and sales counts, we can detect a slight cooling trend in both numbers. In other words, although sales are up, the demand indicators have been gradually weakening over the past few months. This weakening is hard to detect out there in the real world because it has not been as pronounced as the weakening in supply. Hence the balance in the market has continued to get more favorable for sellers rather than buyers.

With prices up almost 8% (based on monthly average $/SF) it should not be surprising that demand is tailing off. If it were increasing in the face of such a strong price increase we would be suspecting the illogical enthusiasm associated with a bubble. As it is, the market is well behaved and shows none of the symptoms we associate with a market bubble.

After 2 years under-performing the rest of the market, we are now seeing improvement in the numbers coming out of the Northeast Valley. This is especially obvious in the Cave Creek and Scottsdale areas. In contrast some parts of the Southeast Valley have cooled off compared with the first part of the year. However Mesa and Queen Creek remain quite buoyant.

The overall changes in the market are quite mild and tricky to detect without close analysis. We will be reporting on some of those changes in the daily observations section over the coming weeks.

This commentary was provided by Michael Orr of the Cromford Report. Michael Orr is the Director of the Real Estate Center at the W.P. Carey School of Business at Arizona State University.

For Buyers:
More buyers have turned to new homes so far this year.  Overall year-to-date new home sales are up 26% compared to last year as builders continue to add much needed supply to the marketplace.  All price ranges over $225K have seen large increases in year-to-date sales, with builders focusing heavily on adding inventory between $275K and $500K.  While the median price for new homes is significantly higher than MLS resales ($311K vs. $242K), by the square foot they’re actually quite competitive when compared by price range across a broad territory.  Example, for new single family homes sold in Maricopa County between $225K and $250K, the annual average sales price per square foot* is $122, compare that to $132 for MLS resales and $133 for renovated homes sold by flip investors. This pattern repeats itself the higher you go in price.  It does not ring true for buyers looking to live in a specific area however, when compared by zip code new homes typically are more expensive than their neighbors.

For Sellers:
The continued lack of supply in the market means that existing homeowners are seeing increased solicitations to sell their home outside of the local MLS.  Normal, non-distressed sales that were sold non-MLS (often called “For Sale By Owner” or “FSBOs”) have risen nearly 13% year-to-date compared to last year.  However, based on the annual average sales price per square foot, these non-MLS sales have sold for nearly 15% less than their MLS competitors.  While the gap may vary, this trend holds true across all price points and cities with MLS competition.

Commentary written by Tina Tamboer, Senior Real Estate Analyst with The Cromford Report ©2017 Cromford Associates LLC and Tamboer Consulting LLC