The Cromford Report – Daily Observations December 2016

    December 31 – Foreclosures are the first thing to be finalized for the year, especially easy when the last day falls on a weekend. During 2016 there were a total of 8,017 Notices of Trustee Sale issued in Maricopa County. This is down 14% from the 9,310 we had in 2015. It is a good time to remember that we had 10,712 notices in the month of March 2009 alone and 103,342 for the year of 2009. This puts the 8,017 for this year into perspective.

    2016 saw the lowest number of Notices of Trustee Sales in any year since 2001, when we started counting.

    Trustee Deeds numbered 3,412 for Maricopa County in 2016, down 20% from 4,275 in 2015. Unlike Notices, the Trustee Deed count is nowhere near the lowest we have seen. The lowest year for Trustee Deeds was 1,072. In those days, Notices of Trustee Sale resulted in multiple approaches by investors trying to buy the homes prior to the auction, because the homes generally had plenty of equity. For some of the investors that turned out to be pretty bad timing, buying at the top of the market.

    We still have a significant number of homes with negative equity and when these get a Notice of Foreclosure Sale, it is unlikely that any investor is going to be interested until the trustee sale takes place and the existing lien is wiped away.

    Having said this, our Trustee Deed count in 2016 is the lowest for any year since 2001, except for the bubble years of 2005 and 2006.

    December 30 – We can use the Days of Inventory (active listing count divided by the annual sales rate) to tell us which cities are in a better or worse situation for sellers than they were last year. In the table below we excluded UCB and CCBS listings from the active counts, but we included all property types.

    Rank City Days of Inventory Dec 2015 Days of Inventory Dec 2016 Change
    1 Wittmann 149 94 -37%
    2 Coolidge 133 87 -35%
    3 Wickenburg 425 294 -31%
    4 Chandler 68 49 -28%
    5 Maricopa 98 71 -28%
    6 Fountain Hills 203 146 -28%
    7 San Tan Valley 83 61 -27%
    8 Sun Lakes 117 85 -27%
    9 Laveen 74 57 -23%
    10 Litchfield Park 105 81 -23%
    11 Gilbert 62 49 -21%
    12 Mesa 75 59 -21%
    13 Queen Creek 101 80 -21%
    14 Goodyear 87 69 -21%
    15 Anthem 89 71 -20%
    16 Casa Grande 140 119 -15%
    17 Florence 151 135 -11%
    18 Peoria 78 70 -10%
    19 Cave Creek 154 139 -10%
    20 Gold Canyon 256 233 -9%
    21 Rio Verde 337 310 -8%
    22 Apache Junction 121 113 -7%
    23 Phoenix 73 68 -7%
    24 Tolleson 45 42 -7%
    25 Eloy 171 159 -7%
    26 Scottsdale 149 142 -5%
    27 Tempe 57 56 -2%
    28 Sun City 58 58 0%
    29 Paradise Valley 323 326 +1%
    30 Waddell 97 101 +4%
    31 Sun City West 67 72 +7%
    32 Buckeye 84 90 +7%
    33 Glendale 52 656 +8%
    34 Arizona City 128 140 +9%
    35 Surprise 75 85 +13%
    36 Avondale 37 43 +16%
    37 El Mirage 24 31 +29%
    38 Carefree 314 442 +41%
    39 New River 98 174 +78%
    40 Youngtown 16 66 +313%

     

    We used the name San Tan Valley to refer to the places within ZIP Codes 85140, 85142 and 85143 which lie within Pinal County. For Queen Creek we restricted our analysis to Maricopa County locations.

    Some of the areas of the West Valley suffered extreme shortages of supply in 2015 that have now started to abate. Examples include Youngtown, El Mirage, Avondale, Surprise, Glendale, Buckeye, Sun City West and Waddell.

    The unusual shortages we currently see are in Chandler and Gilbert, where 49 days is a very low reading for the time of year. Mesa and Tempe are not far behind.

    Pinal County is improving sharply for sellers (particularly in Coolidge, Maricopa and San Tan Valley)

    Wickenburg and Wittmann are not exactly hurting for supply, but the days of inventory has dropped significantly in both locations since this time last year.

    Among the more expensive locations, Carefree is the one with the most difficulty for sellers compared to last year, while Fountain Hills is the most improved.

    December 29 – The last Cromford® Market Index table of 2016 paints a pretty picture for the majority of the market, with 11 out of 17 cities improving their balance in the seller’s favor.

    The top 8 cities have all seen an improving situation for sellers over the last month thanks to a significant fall in active listings. The Southeast Valley is a great spot for sellers with Chandler, Gilbert, Mesa and Tempe taking 4 of the top 6 spots and on an improving trend, especially for Tempe.

    The West Valley is more mixed with Avondale and Glendale taking the remaining 2 spots in the top 6, but Buckeye and Surprise sitting near the bottom of the table.

    The Northeast valley fares the worst, with Fountain Hills crashing back to 9th place having been among the leaders a few weeks back. Paradise Valley has also weakened over the last month and remains in last place.

    However we still have none of the 17 largest cities below 100, the neutral point.

    December 28 – There are just over 20,000 active listings on ARMLS, excluding UCB & CCBS. There were just under 21,000 on the same day last year. There are another 3,281 listings in UCB or CCBS status, up from 3,096 last year, reflecting the popularity of UCB status which continues to be used widely instead of Pending, even when backup offers are unwelcome.

    Including UCB & CCBS, we have 95 days of inventory based on the annual sales rate. This is the lowest number of days of inventory since September 2013, and 10 fewer than last year at this time.

    All in all, we will be starting 2017 with a pretty dismal inventory from a buyer’s perspective. Even though supply is plentiful in parts of the luxury market, the overall level of supply is inadequate to meet the current level of buyers’ demand.

    We can therefore feel confident that prices are going to rise yet again in the next few months. This is a three month outlook. After that the forecast will depend on the levels of supply and demand that we see during the first quarter of 2017.

    December 27 – The last Tuesday of the month means it is time for the S&P/Case-Shiller® Home Price Index® report. The latest one refers to the prices for sales between August and October 2016. The table of 20 cities based on the month to month change is as follows:

    1. Tampa +0.93%
    2. San Francisco +0.58%
    3. Miami +0.49%
    4. Dallas +0.42%
    5. Atlanta +0.41%
    6. Phoenix +0.39%
    7. Cleveland +0.36%
    8. Washington DC +0.22%
    9. Seattle +0.18%
    10. Charlotte +0.17%
    11. San Diego +0.15%
    12. Boston +0.06%
    13. Minneapolis +0.06%
    14. Denver +0.00%
    15. Los Angeles -0.01%
    16. Las Vegas -0.08%
    17. Portland -0.08%
    18. Detroit -0.17%
    19. New York -0.20%
    20. Chicago -1.06%

    Placed at number 6 out of 20, Phoenix is well above the national average of +0.22%.

    Measured over 12 months the changes are as follows:

    1. Seattle +10.66%
    2. Portland +10.27%
    3. Denver +8.29%
    4. Dallas +8.11%
    5. Tampa +7.81%
    6. Miami +6.46%
    7. Detroit +6.38%
    8. Charlotte +6.02%
    9. San Diego +5.90%
    10. Atlanta +5.98%
    11. Los Angeles +5.74%
    12. Las Vegas +5.72%
    13. Minneapolis +5.50%
    14. San Francisco +5.47%
    15. Phoenix +5.16%
    16. Boston +4.51%
    17. Cleveland +3.95%
    18. Chicago +3.95%
    19. Washington DC +3.41%
    20. New York +1.70%

    On a year over year basis, Phoenix is slightly below the national average of 5.61%

    December 26 – As we expected, the huge advantage that 2016 was showing over 2015 in sales rate during November has disappeared in December. On November 25, the monthly sales rate was running over 28% higher than the year before. However most of this was due to the effect of TRID delaying sales in the fourth quarter of 2015. By the second half of December the TRID effect had dissipated. We now see only an 8.6% advantage for 2016 over 2015 in the monthly sales rate as of December 26. This 8.6% is the underlying increase in sales which we think is mostly due to the higher approval rate on loan applications rather than an increase in the number of people making those same loan applications.

    December 25 – Those like me, who thought the peak in multi-family construction might be behind us, should probably have another think after the November report about permits from the Census Bureau.

    There were 1,144 multi-family units permitted during November, compared with only 409 in November 2015. Although the monthly fluctuations are quite extreme, the 12 month rolling annual count is relatively stable and is now reading 9,290, which is the highest figure we have seen since 2007. The previous peak in late 2014 looked safe as of the spring of this year, but recent counts have been surprisingly strong.

    Major contributions this November were from:

    1. Phoenix – 498
    2. Mesa – 333
    3. Chandler – 209
    4. Surprise – 100

    December 24 – November was a strong month for single family permits in Maricopa and Pinal counties. We counted 1,355 which is up 23% from 1,099 in November 2015. The year-to-date count is 16,966 which is up only 11% from the year to date total in 2015. Since closings on single family new homes have reached 34% higher than last year at this time, the number of permits is not keeping up the pace.

    As we have mentioned several times, the overall shortage of supply has been getting more extreme in Chandler, Gilbert and Tempe. These locations feature only weakly in the new permits. Gilbert was top city for many years but has now slumped to 7th place in November with only 99 permits. Chandler comes in 9th with 70. With few vacant land locations, Tempe is way behind with only 10 permits.

    The top permit locations in November were:

    1. Phoenix – 194
    2. Buckeye -152
    3. Mesa -130
    4. Peoria – 120
    5. Unincorporated Pinal County – 105
    6. Goodyear 100

    Looks like there will be plenty of supply in Buckeye, Peoria and the North Valley in 2017. However I am growing concerned that buyers will have a very hard time in the Southeast Valley given the unusually weak supply trends of the past 3 months. Only Mesa seems to be keeping up with demand.

    December 23 – There are not many days left in this year, and it looks like we will have seen just under 5% more listings created and added to the ARMLS database in 2016 compared with 2015. This additional supply might have swamped the market and been a severe problem for sellers. However we have instead seen an increase in the annual sales rate of just under 7%. So instead, the supply has failed to keep up with the ability of buyers to takes the homes off seller’s hands. This is largely because buyers are, on average, better qualified in 2016 than 2015, with stronger credit scores and greater ability to find the necessary down payments. As a result the Cromford® Market Index is ending the year above 143 having ended 2015 in the low 130’s.

    Of course not everywhere is seeing stronger conditions for sellers than this time last year. We can rank the cities by how much the CMI has changed over the past year:

    1. Maricopa +56.2%
    2. Gold Canyon +52.5%
    3. Casa Grande +40.3%
    4. Chandler +39.7%
    5. Goodyear +35.5%
    6. Fountain Hills +33.6%
    7. Gilbert +28.2%
    8. Sun Lakes +20.0%
    9. Queen Creek +19.2%
    10. Laveen +17.5%
    11. Mesa +17.2%
    12. Apache Junction +13.8%
    13. Buckeye +12.0%
    14. Peoria +11.9%
    15. Phoenix +11.6%
    16. Paradise Valley +10.0%
    17. Avondale +9.1%
    18. Tempe +8.7%
    19. Scottsdale +7.2%
    20. Cave Creek +3.2%
    21. El Mirage +2.8%
    22. Anthem +0.3%
    23. Litchfield Park -2.4%
    24. Tolleson -2.7%
    25. Sun City -3.0%
    26. Glendale -4.2%
    27. Arizona City -4.5%
    28. Surprise -12.8%
    29. Sun City West -15.2%

    22 out of 29 cities are in the positive zone. The Northwest Valley (Sun City, Sun City West, Surprise, Glendale) and inner Southwest Valley (Tolleson, Litchfield Park) are the most obvious areas that have deteriorated for sellers. Pinal County has seen strong improvement except in Arizona City. The Southeast Valley looks very much stronger than at the end of 2015.

    Remember that changes in the CMI indicate future pricing trends not current ones, since it is very much a leading rather than a trailing indicator.

    December 22 – When we look at the Cromford® Market Index for the single family markets in the largest 17 cities, we still see a mixed trend.

    All 17 are still above 100, but the bottom 3 are in the balanced zone between 90 and 100. We have 9 cities deteriorating and 8 improving, but Phoenix itself has risen 2% over the last month and this gives a positive boost for the overall market since Phoenix typically accounts for 25% of sales.

    The Southeast Valley continues to be the most improved spot for sellers, with Chandler, Gilbert, Tempe & Queen Creek all making strong progress. Mesa slipped 1% but remains in a relatively strong 5th place. The Northeast Valley has improved for buyers with all cities showing falls in their CMI, Cave Creek, Paradise Valley and Fountain Hills showing the heaviest declines. With the exception of Avondale and Buckeye, the West Valley cities also weakened slightly for sellers.

    December 21 – The average price per square foot for pending listings has exceeded $150 for the past 5 days, a big jump from $147.11 as recently as December 6.

    The last time this number was over $150 was on March 27, 2008.

    This means there is a reasonable chance that the average $/SF for closed sales ends the year on a high again.

    December 20 – The Black Knight Financial Services Report for October shows an increasingly mixed picture for loan delinquency among the states. While the USA as a whole continues to improve and the non-current loan rate is near normal at 5.3%, a handful of states are seeing deterioration compared with a year ago.

    1. Alaska – up 19.3% to 3.0%
    2. North Dakota – up 4.3% to 2.2%
    3. Louisiana – up 2.6% to 10.2%
    4. Wyoming – up 1.9% to 4.2%

    These are no doubt affected by the continuing difficulties in the energy sector.

    Arizona has improved by 12.3% to a non-current rate of 3.5%, well below the long term average.

    The states with the largest improvement year over year are:

    1. Washington – down 23.7% to 3.3%
    2. Nevada – down 23.6% to 4.7%
    3. Oregon – down 22.4% to 3.2%
    4. Colorado – down 19.9% to 2.4%

    We note that 3 of these 4 states contain major cities that are among the top performers in the Case-Shiller Home Price Index table (Seattle, Denver and Portland). Las Vegas is not in the list of 20 cities monitored closely by Case-Shiller.

    December 19 – We know from the Ellie Mae report that loan approvals are increasing as a percentage of applications. The question that arises is whether lenders are lowering their standards, or borrowers are improving their credit ratings.

    The average FICO score for a closed loan was 730 in October 2016, with a 78% loan to value and front-end debt-to-income ratio of 24% and back end debt to income ratio of 37%. A year earlier the FICO score was 722, LTV was 80, and 25 and 39 were the DTI ratios. So the closed loans actually averaged a higher standard than a year ago.

    So the answer is pretty clear. Lenders are not lowering their standards. Instead, borrowers are improving their credit ratings and are also putting slightly more into down payments. This improvement happened between 2014 and 2016, and has been particularly strong over the last 12 months.

    December 18 – We still measure the number of pending foreclosures each day, even though most people pay little attention to foreclosures these days. Our measurements show why most people are uninterested. There are fewer pending foreclosures now than in any December since we started measuring in 2001. There will never be zero foreclosures, but 2,387 for the whole of Maricopa County is extremely low compared with the maximum reading we have seen. That was 51,022 at the end of 2009. Today’s reading is not the lowest ever, since in April 2006 we had only 2,255. This was the calm before the storm. By the end of 2006 the number has risen ominously to 4,089. You would have found it hard at that point to find anyone who would believe it would rise to over 50,000.

    December 17 – With little prospect for a cut in interest rates and the likelihood of further rises, many home buyers could be kicking themselves for not buying in 2016 while they had the chance. As recently as October it was possible to get a 30 year fixed loan at 3.42% according to Freddie Mac’s interest rate survey. Today we are looking at 4.18%.

    For a $200,000 loan that translates to a payment of principal & interest of $976 per month. In October that same loan would have cost just $889 a month. This is a rise of almost 10% in a matter of weeks. The purchases prices at price points below $300,000 are still moving north at a brisk pace, so a home purchase in 2017 is likely to be a lot more expensive than it would have been n 2016.

    If interest rates continue to climb, as many are forecasting, it is not impossible we could see 5% reached before the end of 2017. That would make the principal & interest payment for a $200,000 loan rise to $1,270. This is a 43% increase from the payment corresponding to a 3.42% rate, and this could potentially be happening in a little over a year.

    Millennials are likely to be squealing if this were to happen, and they probably will not take kindly to being reminded by baby boomers that 8% is the long term average rate for a 30-year fixed loan. The monthly payment at 8% is $1,664. Mind you, it was last at 8% in August 2000, so it is easy to forget what it was like.

    Economists have been predicting interest rate rises for the last 4 years and each year they have been wrong. It appears that 2017 may possibly be the year in which the forecasts finally come true, but no-one knows that for sure, even Janet Yellen.

    Anyone who thinks rising interest rates cause home prices to fall will discover that is a false premise and has never been borne out by historical example. Home prices depend on supply versus demand. Higher interest rates are likely to cause lenders to be more interested in approving loans and a higher approval rate leads to increased demand. The shortage of construction labor is going to put a lid on additional supply, so unless there is an external change (e.g. a massive population shift) non-luxury home prices in Greater Phoenix are likely to continue rising in 2017, especially for the low end and lower mid-ranges up to $300,000.

    December 16 – We are taking another look at the Cromford® Market Index for the 17 largest cities and their single family markets:

    The green arrows have the advantage, outnumbering the red ones by 9 to 8. The overall market favors sellers by a wide margin, as all indexes are over 100.

    Avondale remains way out in front and has opened up its lead by moving 8% higher over the last month. It’s demand index is 98.2, little changed, but its supply index has fallen back down to 48.2. We have not seen adequate supply in Avondale since early in 2011.

    Cave Creek and Paradise Valley have weakened over the last month. In Cave Creek, supply has increased while demand has dropped sharply. It is now a balanced market having been a seller’s market as recently as late November. Paradise Valley’s supply is close to normal but its demand has weakened in recent weeks. Scottsdale is seeing a similar trend but not quite so pronounced.

    Tempe has seen the largest improvement for sellers, with Gilbert doing quite well also. In fact both Gilbert and Chandler are strongly favorable for sellers at the moment with very weak supply in many areas.

    Glendale, Mesa and Fountain Hills are seeing a cooling trend but remain well inside the seller’s market zone.

    December 15 – We do not yet have an Ellie Mae Origination Insight Report that reflects the much higher interest rate environment since early November, but their last 4 reports about mortgages for July through October are still interesting reading.

    The most obvious trend is that the closing rate has increased. We have always maintained that it is the loan closing rate that drives the demand in the housing market, not the interest rate. The interest rate determines what you can afford. The closing rate determines whether you get a loan at all. When anyone can get a loan, the market gets bubbly. When hardly anyone can get a loan, the market goes squishy and is dominated by cash buyers.

    For conventional purchase loans, the closing rate has increased from 70.8% in October 2015 to 77.2% in October 2016. The closing rate has been over 70% since July 2015. In October 2013 the closing rate was only 67.1% and in October 2014 it was 67.9%. I think we can conclude there is an obvious trend here. Conventional purchase loans are getting approved at a rate that is 9% higher than last year. Have you noticed that annual sales are up by about 7% from last year on ARMLS? They are up almost 10% in the public records because new homes have been doing so well. The new home annual sales rate is up almost 30%. A lot of the extra loan approvals are for loans on new homes.

    We did not need any more buyers or loan applications to achieve a 9% growth in sales. The higher approval rate turns 9% of latent demand into real actionable demand, by approving buyers who would otherwise have been declined their loans.

    What about the other types of loans, I hear you ask. Well conventional loans represent 68% of all loans, so the others are not so important. But FHA loans (with 20% market share) are getting approvals at 72.9%, up from 66.5% last year. So we can see the same story there; in fact the closing rate is up 9.6%. For VA loans, representing 9% of the market, they are getting closed at 76.6%, up from 72.9% last year. Not quite such a big increase, at 5.1%, but VA loans have had a noticeable advantage in higher closing rates until now.

    We observe that the Cromford® Demand Index has increased from 99.0 at the end of October 2015 to 107.9 at the end of October 2016. Although the CDI does not use the loan closing rate as an input, we believe there is a direct link between the increased loan closing rate and the increased demand reflected in the CDI numbers.

    December 14 – From yesterday’s chart we can easily see that sellers are gaining an advantage in the Southeast Valley thanks to a combination of falling supply and increasing demand. This is far in excess of the trends in other regions of Greater Phoenix. Now let us look at which parts of the Southeast Valley are benefitting most from this trend. A quick way to do this is to examine the Days of Inventory for each area. A large percentage fall from this time last year is an indicator of a trend that is strongly favorable to sellers. So we see:

    1. Chandler 85286 – down 46% to 49 days
    2. Phoenix 85048 – down 40% to 60 days
    3. Chandler 85249 – down 39% to 67 days
    4. Mesa 85206 – down 36% to 59 days
    5. Chandler 85225 – down 33% to 36 days
    6. Gilbert 85233 – down 30% to 42 days
    7. Gilbert 85296 – down 29% to 48 days
    8. Mesa 85209 – down 28% to 61 days
    9. Mesa 85215 – down 28% to 85 days
    10. Chandler 85224 – down 26% to 34 days
    11. Gilbert 85295 – down 26% to 43 days
    12. Mesa 85212 – down 22% to 64 days
    13. Mesa 85213 – down 22% to 67 days
    14. Mesa 85203 – down 20% to 45 days
    15. Sun Lakes 85248 (including Chandler 85248) – down 20% to 91 days
    16. Gilbert 85298 – down 20% to 79 days
    17. Mesa 85207 – down 19% to 113 days
    18. Mesa 85208 – down 17% to 66 days
    19. Mesa 85210 – down 16% to 39 days
    20. Tempe 85281 – down 16% to 68 days
    21. Phoenix 85045 – down 16% to 99 days
    22. Mesa 85201 – down 14% to 39 days
    23. Queen Creek 85142 (Maricopa County only) – down 14% to 90 days
    24. Mesa 85205 – down 12% to 65 days
    25. Tempe 85282 – down 11% to 43 days
    26. Gilbert 85234 – down 10% to 54 days
    27. Tempe 85283 (including Guadalupe) – down 10% to 59 days
    28. Phoenix 85044 – down 5% to 60 days
    29. Mesa 85202 – down 2% to 40 days
    30. Gilbert 85297 – down 2% to 49 days
    31. Tempe 85284 – down 1% to 88 days
    32. Chandler 85226 – flat at 42 days
    33. Mesa 85204 – up 3% to 38 days

    The top 16 ZIP codes in this table have seen a 20% or more drop in days of inventory since this time last year, and because days of inventory is a slow moving indicator, this is a significant positive sign for sellers. Only one ZIP code has added inventory, Mesa 85204. This was formerly an extremely hot ZIP code behaving more like the inner West Valley than the Southeast. Like the West Valley, the lowest price areas have cooled slightly over the last year. However, we cannot regard 38 days as very excessive inventory. It’s just not quite as low as 37 days.

    December 13 – I am looking at how the Southeast Valley and Pinal County are improving for sellers compared with the rest of the market. From the chart below you can see that the overall market saw a slight decline in active listings between December 1, 2015 and December 1, 2016. The quarterly sales rate for September through November was 16% stronger in 2016 than 2015.  The Southeast Valley had the strongest increase in sales rate at 20%, while Phoenix & the North Valley had the weakest at 10%. The big difference for the Southeast Valley is the dramatic 12% fall in active listings since 12 months ago. In contrast the West Valley has seen a strong increase of 7%.

    From a seller’s perspective,  the Southeast Valley is significantly out-performing the overall market, as is Pinal County, though to a lesser degree. The West Valley has weakened because of increased inventory while the Northeast Valley, Phoenix and the North Valley  are slightly under-performing the sales growth seen in the overall market.”

    December 12 – Interest rates have moved higher quickly over the last month, with the most recent Freddie Mac report showing 4.13% for a 30-year fixed. This is 18 basis points higher than this time last year and 20% higher than the 3.44 reading we saw in July and August. Sudden interest rate rises like this tend to increase the sales rate as borrowers try to lock in their existing loan commitments. The sales rate then tends to fall back as the market adjusts to the higher cost of ownership for buyers who were unable to lock in lower rates. We can see that the sales rate was very high for the time of year over the last four weeks, and this is a typical reaction. Listings under contract readings are currently rather weak given the sales rate, again typical of a period just after a significant rise in interest rates.

    How fast the under contract count rises in 1Q 2017 will very key. This will determine if the positive effect of less stringent loan qualification rules is balancing out the negative impact of higher borrowing costs.

    December 11 – The Cromford® Demand Index has fallen slightly over the past month from 108.5 to 107.2. This may seem odd to people who have noticed that the monthly sales rate is up by about 21% from this time last year. The reason is that we use a combination of monthly sales rate plus pending listing counts plus UCB counts (adjusted for invalid UCB usage by agents) to compute the demand index. By that measure demand is somewhat weaker than the sales rate would suggest.

    The CDI was only 99.0 on December 11, 2015, so demand is definitely up from last year. However we had 9,480 listings under contract then and we have 9,566 now. This is only a 1% increase, much less impressive than the increase in closed sales. Until we get to the end of December we will have to suffer the distortions caused by the introduction of TRID during the fourth quarter of 2015.

    December 10 – New FHA loan limits were announced for 2017, but the changes are not going to make a big difference for Arizona. The 2017 limit is going up from $271,050 to $275,665 in all Arizona counties except Maricopa and Pinal, where it has been increased a little more, from $271,050 to $279,450, and Coconino, where it is unchanged at $362,250.

    The $8,400 increase for Maricopa and Pinal is just over 3%. This is far less than the annual increase in average price per sq. ft. that we have seen for homes under $300,000, which is 8.2% based on public record data. This means slightly fewer buyers are likely to qualify for FHA loans in 2017 than in 2016 and the change is therefore a mildly negative factor for demand. Obviously it would have been worse if the limit had not been increased at all. However the cheaper homes that FHA loans are designed for have appreciated far more than more expensive homes. The FHA loan limit would have been increased to about $293,000 if it were tied to average price per sq, ft. for homes at or below $300,000.

    Arizona is slightly disadvantaged in the HUD calculations because we have so few counties and Maricopa and Pinal Counties provide 66% of the state’s housing. HUD uses median sales price for a county and MSA as their primary guide in calculating the FHA loan limit.

    December 9 – Let us have another look at how the Cromford® Market Index is doing for the single family markets in the 17 largest cities.

    15 out 17 cities are in a seller’s market with just 2 in the balanced zone between 90 and 110. So the comments below are relative to an overall positive situation for sellers. The trend however is mixed rather than positive.

    We see a very balanced picture, and not quite as healthy as I would have expected if you had asked me for an outlook two months ago. We have one city, and the most important one, Phoenix, standing absolutely still, and then eight cities improving for sellers and eight cities deteriorating. Cave Creek, Paradise Valley, Mesa, Surprise and Scottsdale have been going backwards and look distinctly weaker than last month. Avondale is back to its winning ways and remains way out in front. Tempe has had an excellent month while Gilbert and Buckeye have seen a decent improvement. Maricopa and Chandler also continue to develop quite nicely and steadily for sellers.

    Among the next batch of 12 intermediate sized cities, the picture is more negative as we see the following very short list of cities showing improvement for sellers over the last 4 weeks:

    • El Mirage – up 14% from 220.0 to 250.6 – the most seller friendly part of Central Arizona

    The list of intermediate cities with deterioration is much longer:

    • Arizona City – down 16%
    • Litchfield Park – down 16%
    • Sun Lakes – down 15%
    • Anthem – down 10%
    • Sun City West – down 10%
    • Sun City – down 7%
    • Gold Canyon – down 6%
    • Tolleson – down 5%
    • Casa Grande – down 4%
    • Apache Junction – down 1%
    • Laveen – down 1%

    In 2015 we had a very strong December after two weak months in October and November. So my expectations after 2 stronger months in October in November was that the CMI trend would look better than this.

    I wait with interest to see if December can get a little more impressive than it is was during the first week. It is still early days, so we could still see a surge into the finishing line on December 31.

    December 8 – Although I cannot pretend that the ARMLS rental database is a true reflection of the entire rental market, it is giving us some signs of a mild slowdown in the rental market from the intensity of the last few years. The total number of active listings was 3,269 on December 6, which is only slightly higher than the 3,191 on December 2015. However the monthly closed lease rate is down from 2,307 to 1,977. This means we have 1.7 months of supply instead of 1.4 months last year.

    The average monthly lease price per square foot was 78 cents on December 6, 2015, and this has moved up to 82.8 cents, a rise of just over 6%. However we hit a peak of 85.6 cents on July 1, 2016 and the trend has been downwards since then.

    The average asking price is $1,918 per month, up from $1,818 last year, but down from a peak of $2,105 on May 30, 2016.

    Average days on market for closed leases is up to 34 having been as low as 25 in June and just above the 33 days in early December last year.

    Overall I would say it looks slightly easier to find a rental now than it has been all year. However we are a long way from the days of 2008 and 2009 when there were almost 10,000 rentals listed on ARMLS to choose from. The real test will come in late February of 2017 which is when we usually see the low point in supply for the year.

    December 7 – So now we are looking for the locations where the Contract Ratio has improved the most for sellers. These places have seen a decline in active listings or an increase in listings under contract or both, sufficient to show an increase of 30% or more in the Contract Ratio since this time last year:

    1. Phoenix 85003 – up 242.2% from 27.3 to 93.3
    2. Wickenburg 85390 – up 158.5% from 7.7 to 20.0
    3. Phoenix 85045 – up 146.8% from 22.7 to 56.1
    4. Tempe 85281 – up 106.3% from 50.0 to 103.1
    5. Coolidge 85128 – up 83.9% from 31.4 to 57.7
    6. Peoria 85381 – up 76.5% from 43.7 to 77.0
    7. Scottsdale 85250 – up 72.8% from 26.9 to 46.5
    8. Maricopa 85138 – up 63.0% from 38.1 to 62.0
    9. Phoenix 85054 – up 62.0% from 55.6 to 90.0
    10. Phoenix 85048 – up 57.3% form 30.7 to 48.3
    11. Phoenix 85028 – up 51.9% from 46.7 to 71.0
    12. Phoenix 85015 – up 50.8% from 41.0 to 61.8
    13. Mesa 85206 – up 49.8% from 36.8 to 55.1
    14. Tonopah 85354 – up 47.1% from 20.0 to 29.4
    15. Phoenix 85023 – up 44.0% from 66.7 to 96.0
    16. Gold Canyon 85118 – up 43.9% from 12.3 to 17.6
    17. Chandler 85286 – up 40.7% from 47.0 to 66.1
    18. Scottsdale 85258 – up 40.4% from 20.0 to 28.1
    19. Phoenix 85014 – up 39.2% from 26.8 to 37.3
    20. Phoenix 85085 – up 38.5% from 40.4 to 56.0
    21. Gilbert 95297 – up 37.7% from 58.4 to 80.4
    22. Mesa 85213 – up 37.0% from 44.9 to 61.4
    23. Glendale 85308 – up 31.6% from 51.5 to 67.8
    24. San Tan Valley 85143 – up 30.1% from 50.0 to 65.0
    25. Florence 85132 – up 30.0% from 33.9 to 44.1

    Many of these areas are those that were suffering last year and have recovered quite a bit of momentum. Phoenix 85045 is a prime example, badly affected by the construction of the 202 freeway extension. Wickenburg too, has recovered somewhat from a very low 7.7 last year. Other examples include Coolidge and Gold canyon, both of which have come through some hard times are showing signs of recovery.

    We see very few areas in the West valley, which for the past 4 years has been the hottest part of town. Most of the locations are in the Central or Southeast Valley with several from Pinal County too.

    December 6 – Overall the market is warmer than it was at this time last year, with the Contract Ratio measuring 46.01 today and 43.19 on December 6, 2015. This is an advantage of 6.8%, which is down from an advantage of 11.4% three months ago. So although the market is showing improvement over last year by this measure (one of our favorites), it has lost some of that advantage over the recent past. We shall try to find out where this advantage has been lost. Examining those ZIP codes where the contract ratio has substantially declined from last year, we find the following:

    1. Glendale 85307 – down 82.3% from 250.0 to 44.4
    2. Glendale 85306 – down 57.3% from 200.0 to 85.4
    3. Phoenix 85017 – down 54.3% from 114.3 to 52.2
    4. Mesa 85210 – down 51.9% from 120.8 to 58.1
    5. Phoenix 85008 – down 51.4% from 102.8 to 50.0
    6. Youngtown 85363 – down 47.9% from 122.2 to 63.6
    7. Phoenix 85022 – down 47.9% from 75.0 to 39.1
    8. Phoenix 85035 – down 47.2% from 87.8 to 46.4
    9. Rio Verde 85263 – down 46.5% from 18.5 to 9.9
    10. Phoenix 85009 – down 46.3% from 71.4 to 38.3
    11. Mesa 85202 – down 45.7% from 111.4 to 60.5
    12. Surprise 85388 – down 44.4% from 79.4 to 44.1
    13. Phoenix 85043 – down 43.1% from 129.2 to 73.4
    14. New River 85087 – down 42.6% from 36.5 to 21.0
    15. Glendale 85301 – down 39.8% from 67.4 to 40.6
    16. Glendale 85305 -down 39.6% from 58.8 to 35.6
    17. Apache Junction 85219 – down 38.5% from 44.2 to 27.2
    18. Glendale 85310 – down 38.2% from 63.6 to 39.3
    19. Phoenix 85029 – down 36.1% from 79.2 to 50.6
    20. Phoenix 85033 – down 34.9% from 90.0 to 58.6
    21. Tempe 85282 – down 31.9% from 86.2 to 58.7
    22. Phoenix 85083 – down 31.7% from 57.6 to 39.4
    23. Surprise 85379 – down 30.1% from 71.5 to 50.0
    24. Phoenix 85037 – down 29.8% from 136.1 to 95.5
    25. Wittmann 85261 – down 29.8% from 45.0 to 31.6
    26. Scottsdale 85262 – down 28.4% from 12.6 to 9.0
    27. Phoenix 85019 – down 26.2% from 72.7 to 53.7
    28. Phoenix 85042 – down 24.7% from 86.4 to 65.0
    29. Glendale 85303 – down 24.6% from 85.7 to 64.6
    30. Surprise 85374 – down 24.4% from 52.9 to 40.0
    31. Tolleson 85353 – down 24.0% from 96.2 to 73.0
    32. Surprise 85378 – down 22.9% from 125.0 to 96.4
    33. Avondale 85392 – down 21.6% from 103.3 to 81.1
    34. Queen Creek 85142 – down 20.7% from 55.1 to 43.7
    35. Tempe 85284 – down 20.3% from 37.5 to 29.9

    All the above are at least 20% weaker than December 2015 as measured by their contract ratio.

    Much of the formerly high-flying Northwest Valley is seeing a significant negative change from this time last year, with higher inventories and lower demand. This is particularly true of Surprise and Glendale plus many western areas of Phoenix. As a result we would expect lower rates of appreciation in the Northwest and inner West Valley in 2017. These areas have large numbers of rental homes and it is possible that landlords will lighten their portfolios in 2017 and 2018.

    The contract ratio of 9.0 for Scottsdale 85262 is the lowest we have seen since 2009 and confirms a remarkable lack of buying interest for the very large number of homes for sale in this ZIP code. Rio Verde is also much weaker than last year although it typically has very low contract ratio readings at all times.

    The contract ratio of 46.4 for Phoenix 83035 is the lowest we have seen since 2011. The Maryvale area is looking much softer than a year ago with 85035 showing the highest number of active listings since early 2014 and the lowest number of pending listings since 2008.

    To balance these weaker areas there are many that are stronger and we will examine these in depth tomorrow.

    December 5 – Which type of home has appreciated most over the past 2 years? There are 8 types defined by ARMLS

    • Single family detached
    • Townhouse
    • Apartment Style / Flat
    • Gemini / Twin
    • Patio Home
    • Manufactured / Mobile
    • Loft Style
    • Modular Prefab

    Unfortunately two different agents can often disagree about what type a specific house is, so the use of these terms is inconsistent. Putting that aside for a moment, it is clear that certain types have appreciated faster than others over the past 24 months. We eliminated 2 types from consideration because they are relatively rare and the data is too sparse to be statistically reliable. These are loft style and modular / prefab.

    For the other types we see the following:

    Dwelling Type Annual Average $/SF Dec 1, 2014 Annual Average $/SF Dec 1, 2015 Annual Average $/SF Dec 1, 2016 2 Year Change %
    Single Family Detached $127.45 $132.99 $141.22 10.8%
    Townhouse $119.04 $128.21 $139.68 17.4%
    Apartment Style / Flat $136.47 $143.84 $150.40 10.2%
    Gemini / Twin $83.95 $92.81 $104.05 23.9%
    Patio Home $150.71 $157.80 $162.30 7.7%
    Manufactured / Mobile $66.39 $70.19 $79.10 19.1%

     

    Generally, the pattern reflects what has been happening to price ranges. So the most expensive house type as far as price per sq, ft,. is concerned, Patio Homes, had the lowest appreciation rate.

    However the least expensive home type, Manufactured / Mobile, did not have the highest appreciation rate, only the second highest. The honor for highest appreciation rate goes to Gemini / Twin Homes with an astounding 23.9% gain over 24 months.

    December 4 – Thanks to the several factors, but especially the slowdown in closings that occurred in October and November 2015 after the introduction of new TRID procedures, the annual sales rate has ticked up sharply for most parts of the market. We can compare cities and see how much benefit they are seeing in their annual sales rate (single family sales only):

    1. Wittmann – from 73 to 104 – up 42.5%
    2. Coolidge – from 164 to 207 – up 26.2%
    3. Florence – from 458 to 560 – up 22.3%
    4. Laveen – from 825 to 985 – up 19.4%
    5. Chandler – from 3,959 to 4,614 – up 16.5%
    6. Buckeye – from 1,805 to 2,067 – up 14.5%
    7. Rio Verde – from 85 to 97 – up 14.1%
    8. Casa Grande – from 853 to 945 – up 10.8%
    9. Maricopa – from 1,501 to 1,661 – up 10.7%
    10. Apache Junction – from 584 to 639 – up 9.4%
    11. Gilbert – from 4,970 to 5,397 – up 8.6%
    12. Mesa – from 6,194 to 6,723 – up 8.5%
    13. Peoria – from 3,035 to 3,226 – up 6.3%
    14. Queen Creek – from 3,035 to 3,226 – up 6.5%
    15. Tempe – from 1,357 to 1,439 – up 6.0%
    16. Goodyear – from 1,820 to 1,928 – up 5.9%
    17. Wickenburg – from 136 to 144 – up 5.9%
    18. Eloy – from 88 to 93 – up 5.7%
    19. Phoenix – from 15,381 to 16,240 – up 5.6%
    20. Sun Lakes – from 514 to 542 – up 5.4%
    21. Surprise – from 3,173 to 3,328 – up 4.9%
    22. Anthem – from 609 to 638 – up 4.8%
    23. Waddell – from 244 to 255 – up 4.5%
    24. Sun City West – from 1,097 to 1,144 – up 4.3%
    25. Cave Creek – from 699 to 728 – up 4.1%
    26. Gold Canyon – from 392 to 406 – up 3.6%
    27. Sun City – from 1,193 to 1,227 – up 2.8%
    28. Tolleson – from 605 to 621 – up 2.6%
    29. Arizona City – from 219 to 224 – up 2.3%
    30. Scottsdale – from 4,789 to 4,892 – up 2.2%
    31. Glendale – from 3,652 to 3,721 – up 1.9%
    32. Avondale – from 1,348 to 1,371 – up 1.7%
    33. Fountain Hills – from 494 to 502 – up 1.6%
    34. Litchfield Park – from 593 to 600 – up 1.2%
    35. Youngtown – from 114 to 112 – down 1.8%
    36. El Mirage – from 641 to 597 – down 6.9%
    37. Tonopah – from 41 to 38 – down 7.3%
    38. Paradise Valley – from 370 to 339 – down 8.4%
    39. Carefree – from 105 to 83 – down 21.0%
    40. New River – from 199 to 151 – down 24.1%

    Annual sales rates are non-volatile things so a big movement is very important.

    Changes in the smaller cities are less significant but it takes a massive swing to move a city like Chandler up 16.5%. That indicates a very strong market, with Buckeye and Maricopa not too far behind.

    December 3 – Days of inventory for all areas & types has dropped sharply in the last week thanks to a lot of active listings disappearing at the end of November. We currently have a reading of just over 100, down from 109 this time last year and 131 in 2014.

    It is interesting to see how days of inventory has changed for each price range over the last year:

    Price Range Days of Inventory Dec 2015 Days of Inventory Dec 2016 % Change
    Under $100K 46 59 +31%
    $100K-$125K 42 53 +26%
    $125K-$150K 42 40 -5%
    $150K-$175K 61 51 -16%
    $175K-$200K 71 66 -7%
    $200K-$225K 75 70 -7%
    $225K-$250K 86 71 -17%
    $250K-$275K 95 78 -18%
    $275K-$300K 102 82 -20%
    $300K-$350K 120 95 -21%
    $350K-$400K 138 116 -16%
    $400K-$500K 187 143 -13%
    $500K-$600K 209 179 -14%
    $600K-$800K 236 244 +3%
    $800K-$1M 332 310 -7%
    $1M-$1.5M 382 376 -2%
    $1.5M-$2M 512 497 -3%
    $2M-$3M 776 651 -16%
    Over $3M 1,012 1,149 +13%

     

    We note the increases in inventory under $125K, between $600K and $800K and over $3 Million.

    Looking best from a seller’s perspective are the lower inventory level between $150K and $600K and between $2 Million and $3 Million.

    December 2 – The Cromford® Market Index for the single family markets in the largest 17 cities has moved as follows over the past month:

    The cities with deteriorating markets for sellers outnumber those with improving markets by 11 to 6. However in 3 cases (Goodyear, Phoenix, Peoria) the deterioration is extremely small, so a tiny change could swing the balance in other direction by 8 to 9.

    The expensive areas of Cave Creek, Paradise Valley and Scottsdale are providing most of the negative momentum, although Fountain Hills is still high in the table, thanks to its superior supply situation.

    The top improvers are Tempe, Avondale, Chandler and Gilbert.

    Chandler is suffering from weak inventory trends in 85224, 85249 85286 and especially 85225, which is improving the negotiation power for sellers. Similar things are afoot for sellers in Gilbert 85233, 85234 and 85295.

    December 1 – The closed sales numbers for November 2016 are looking huge compared with November 2015:

    1. Chandler up 67%
    2. Goodyear up 51%
    3. Avondale up 47%
    4. Peoria up 47%
    5. Queen Creek up 47%
    6. Gilbert up 38%
    7. Tempe up 31%
    8. Phoenix up 30%
    9. Scottsdale up 28%
    10. Mesa up 25%
    11. Glendale up 24%
    12. Surprise up 23%

    These are single family sales numbers for the 12 largest cities.

    This is deceptive however.

    In November 2015 the title companies were struggling with the new closing procedures introduced by TRID and closed sales were unusually low. Listings under contract were piling up. At the time we estimated that 500 listings failed to close and slipped from November into December.

    Also November 2016 had one more working day (19) than November 2015 (18). This means we should expect 5.6% more sales if the market were in the same state of play.

    These factors mean the volume increase is overstated by about 16%. The true increase in sales rate is about 16% overall.

    Still not too shabby.

     

    © 2016 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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