The Cromford Report – Daily Observations April 2018
April 9 – We can rank ZIP codes by their long term appreciation rate. We use the annual average price per sq. ft. and calculate the average appreciation rate between January 2001 and today. We used only single-family detached homes for this exercise.
Here are the top 20. Some of them might surprise you.
|Rank||ZIP Code||Long Term Rate||Starting $/SF||Current $/SF|
|3||Gila Bend 85337||5.93%||$22.76||$61.54|
|20||Black Canyon City 85324||3.91%||$70.65||$136.89|
For owners, the best areas for return on investment over the long term from 2001 onwards have been:
- Central and East Phoenix (85003, 85004, 85006, 85008, 85012, 85013, 85014, 85015, 85018)
- South and Central Scottsdale (85250, 85251, 85254, 85257) including the “magic” ZIP code 85254
- North Tempe (85281, 85282)
- A handful of areas on the outer fringes (Gila Bend, Stanfield, Eloy, Black Canyon City), none of which tend to be on investor target lists
Many areas are missing from the top 20 list. The best performers in their respective areas are:
- Southeast Valley: Chandler 85224 (3.87%)
- West Valley: Glendale 85306 (3.70%)
- Northeast Phoenix: 85032 (3.84%)
- North Scottsdale: 85255 (3.71%)
April 6 – Below is the table of Cromford® Market Index values for the single-family markets in the 17 largest cities:
We have 10 cities improving for sellers, 6 deteriorating and 1 neutral. This is a positive picture overall but the size of the movements are unusually large. On the positive side we have:
- Avondale up 18%
- Fountain Hills up 17%
- Buckeye up 11%
- Maricopa up 10%
- Queen Creek up 9%
- Glendale down 7%
Then on the negative side we also have some sizable moves:
- Tempe down 12%
- Surprise down 10%
- Paradise Valley down 9%
- Peoria down 8%
- Scottsdale down 6%
With our largest city Phoenix showing a 4% rise, the trio of Chandler, Gilbert and Mesa slightly up (and already very high), the market is showing continued strength. All cities are still in the seller’s market zone (over 110).
Some parts of the USA are reporting slowing price rises, but we are not seeing that in Greater Phoenix. Appreciation is higher in 2018 than it has been for several years. The annual $/SF for all areas & types is 7.3% above this time last year. The increase last year was 5.2%, with 5.5% the year before that while 2015 gave us 5.3%. Back in 2014 we were still experiencing the coiled-spring effect and $/SF had jumped 17.7%.
Recent weakness on Wall Street could possibly impact demand in the high end luxury market, but the remainder of the market is showing few (if any) signs of weakness.
April 5 – Unfortunately the activities of Cerberus makes a terrible supply shortage even worse. As of April 1, the low-end of the market looks like this:
|Price Range||Active SFD (not UCB or CCBS)||Annual Sales Rate||Days of Inventory||Normal Days of Inventory||Worst Affected|
|Up to $100K||64||466||50||76|
|$100K – $125K||38||641||22||81|
|$125K – $150K||87||2,102||15||79||Yes|
|$150K – $175K||184||5,305||13||78||Yes|
|$175K – $200K||547||9,476||21||81||Yes|
|$200K – $225K||642||8,142||29||103|
|$225K – $250K||934||9,048||38||113|
|$250K – $275K||713||6,773||38||116|
|$275K – $300K||844||6,570||47||128|
Anything single-detached below $275K is now extremely hard to find, and remember the above numbers are for the whole of Greater Phoenix. In the more central areas the supply is negligible.
April 4 – Now we have more details available about Cerberus purchases in March we can take a look at where the homes they have purchase are located.
So far they are very concentrated in Phoenix, Glendale and Tempe, these 3 cities representing 77% of all purchases. Mesa, Chandler and Peoria add another 16%. There is a scattering of homes in Surprise, Scottsdale, San Tan Valley, Gilbert & Queen Creek, but it is clear that Cerberus want to be near the center of the valley. Scottsdale is mostly too expensive for them. There are no purchases in Buckeye, Maricopa, Casa Grande, Sun City or Anthem. However there is just 1 in Florence, easily the furthest out we have seen.
Popular ZIP codes include 85032 (47 homes purchased), 85282 (35), 85051 (38), 85015 (30), 85304 (30) and 85302 (29). These numbers represent a significant share of the homes bought during the last 4 months.
If you are buying a home in the ZIP codes targeted by Cerberus, it would be realistic to expect a competing offer from them close to asking price.
April 3 – Back in 2012 and 2013 everyone was asking the Cromford Report when the institutional investors would dump their single-family holdings and cause a glut of homes to appear on the market. When I gave the answer “not anytime soon, maybe never” a lot of people looked dubious. But in fact, very few of those rental homes have come back onto the open market even today. A few have changed ownership as consolidation of companies took place, but the total number of institutional investor homes has changed very little since those days.
Now things are changing again. However it is not causing homes to come onto the market – quite the reverse. A new very large operator entered the Phoenix market in late November and has been buying up lower priced homes to turn them into rentals. It is already very tough to buy a home below $250,000, now buyers have Cerberus Capital Management to contend with as a competitor.
- Nov 2017 – 4
- Dec 2017 – 28
- Jan 2018 – 66
- Feb 2018 – 222
- Mar 2018 – 263
So we can see that Cerberus is purchasing almost as many homes now as Opendoor, representing about 3% of the market by unit. In doing so they are reducing inventory available for sale and increasing inventory available for rental.
Cerberus is privately held and probably the second institutional investor that can accurately be called a hedge fund company. Although many of the early institutions to invest in single-family homes were referred to as hedge funds, most were REITs and all but a few were publicly traded. Blackstone is publicly traded but is otherwise in a similar place to Cerberus, even bigger and heavily diversified.
Cerberus is also huge, managing over $30 billion in invested capital and focusing on high return (and high risk) distressed investments. Former vice-president Dan Quayle and former treasury secretary John Snow are among the executives, along with founder Stephen Feinberg. They have investments in retail, banking, weapon manufacturing, health care, government services, financial services, apparel, paper, transport, autos and real estate, to name just a few. One of their biggest real estate holdings is in Spain. There they own 80% of a joint venture holding the former assets of bank BBVA – bought at a 61.5% discount from book value and including a large number of foreclosed homes. This mirrors a slightly earlier transaction where Blackstone purchased real estate holdings from Santander, for 10 billion euros.
About 70% of their purchases up to the end of February came from normal listings on ARMLS. Almost all the rest were from other investors as the second part of a fix and flip. Many of these were listed on the MLS too. In fact 20 of their homes were purchased from Opendoor and OfferPad. The average sales price was $231,746 and median $228,000. All were recorded as cash sales. They are paying current market prices.
April 2 – Dollar volume of residential sales through ARMLS exceeded $3 billion in March. This is only the third time a single month has exceeded $3 billion in home sales.
The other 2 months were nearly 13 years ago in June and August 2005.
April 1 – Not so long ago the market was dominated by bank sales and short sales, and misinformed sources predicted this would continue for a long time thanks to the “shadow inventory” myth. In fact the banks were never “hiding” inventory but the myth spread because of incorrect calculations a large data corporation and the media’s delight in a negative conspiracy theory.
Now we have a large number of ZIP codes with not one single-family REO for sale and no short sales either:
- Phoenix 85003 85004 85006 85007 85024 85034 85053
- Stanfield 85172
- Valley Farms 85191
- Casa Grande 85193
- Mesa 85201 85203 85210
- Scottsdale 85251
- Fort McDowell 85264
- Tempe 85281 95282 85283
- Glendale 85301 85306 85307 85310
- Aguila 85320
- Arlington 85322
- Gila Bend 85337
- Morristown 85342
- Palo Verde 85343
- Youngtown 85363
- Surprise 85378
The list of ZIP codes with no REO listings (but 1 or more short sales is somewhat longer. However REO activity is extremely low even compared with before the bubble of 2004-2006.
In addition to the above, the following have no single-family REOs:
- Phoenix 85012 85013 85014 85016 85017 85019 85020 85021 85022 85027 85029 85033 85043 85048 85054 85083 85085
- Apache Junction 85119
- Queen Creek / San Tan Valley 85142 85143
- Superior 85173
- Mesa 85203 85207 85209 85210 85212
- Scottsdale 85250 85257 85259
- Paradise Valley 85253
- Rio Verde 85263
- Tempe 85284
- Gilbert 85295 85296 85297
- Glendale 85302 85303 85304 85305
- Litchfield Park 85340
- Waddell 85355
- Wittmann 85361
- Carefree 85377
- Peoria 85381
- Buckeye 85396
These lists include some of the ZIP codes that were most affected by the wave of bank sales. For example Phoenix 85043 had 272 REOs listed on ARMLS in February 2009 along with 142 short sales or pre-foreclosures. Now it has just 1 short sale and only 73 listings in total.
These days the ZIP codes with the highest number of REOs are some of those that were least affected during the crash. Scottsdale 85255, Sun City 85351 and Peoria 85353 each have 5. This is not because they have unusual levels of distress (they don’t). It is just because they are very large ZIP codes with much higher numbers of homes than the average ZIP code.
© 2018 Cromford Associates LLC
The data used to create the Cromford® Report is obtained from public records and obtained under license from the Arizona Regional Multiple Listing Service, Inc (ARMLS). Cromford Associates LLC and ARMLS expressly disclaim and make no representations or warranties of any kind, whether express, implied or statutory, as to the accuracy of the data used or the merchantability or fitness for any particular purpose.
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