The Cromford Report – Daily Observations March 2016
March 31 – Today we take another look at the single family markets in the largest 17 cities and examine how the Cromford® Market Index has changed over the past month:
Overall, the market continues the recent improving trend for sellers with 11 out 17 cities seeing an increase in their CMI. Many of them are up 5% or more, including Maricopa, Surprise, Avondale, Goodyear, Buckeye, Peoria, Mesa, and Chandler.
Fountain Hills, Paradise Valley and Tempe are the main weakening spots for sellers, though Tempe is still in the seller’s market zone over 100. Paradise Valley and Fountain Hills are firmly in buyer’s market territory now.
Once again, Maricopa is the faster improving market and managed to rise from 17th to 16th place.
March 30 – Just in case you think analyzing the ARMLS listings is pretty straightforward I am going to start an occasional series about the weird data you sometimes find among the listings. These are often hard to spot, but they make a terrible mess of your averages if you don’t detect and correct them before you do your calculations.
So here is the first of our weird listings containing unusual data errors:
Listing number 4086563 for 19708 N CONCORD DR, Surprise, AZ 85374 claims to have 2 bedrooms and 1075 bathrooms. Although these numbers are confirmed by Monsoon we are more than a little skeptical. This seems like rather an excessive amount of plumbing to fit inside 1894 sq. ft, and we believe the listing agent probably meant to enter 1.75 bathrooms. However his typo survives to this day. The remarks talk about 2 beds and 2 baths and we are willing to bet he rounded the actual 1.75 up to 2 when it came to entering the remarks.
All this seems to have confused Zillow, so that it is reporting 0 bedrooms and 2.5 bathrooms. Redfin has the same faulty information as Zillow, while RPR ups the ante and reports 0 bedrooms and 3 bathrooms. Homesnap has the same bad data as RPR and so does eppraisal.com.
My respect goes to any real estate site that has the correct bedroom and bathroom data for this home. I have not found one yet.
March 29 – The S&P / Case-Shiller® Home Price Index® report has been published for January. This covers sales that closed between November 2015 and January 2016. Ranking the 20 cities reported by their month to month price changes we see the following:
- Los Angeles 0.53%
- San Diego 0.42%
- Portland 0.42%
- Miami 0.38%
- Las Vegas 0.28%
- Tampa 0.24%
- Denver 0.22%
- Seattle 0.19%
- Detroit 0.11%
- Dallas 0.11%
- Cleveland 0.08%
- Atlanta 0.00%
- Charlotte -0.05%
- Washington -0.10%
- Phoenix -0.20%
- New York -0.27%
- Chicago -0.38%
- Boston -0.39%
- Minneapolis -0.50%
- San Francisco -0.69%
At 15th place, Phoenix has dropped dramatically from last month when it was 3rd. We are a little puzzled why this would happen as we are not seeing the same price trend that Case-Shiller is reporting. Our average price per sq. ft. for Oct 2015 to Dec 2015 was $136.13 for all areas & types while the same number for Nov 2015 to Jan 2016 was $137.70. This is a month to month increase of 1.2% which would put us top of of the table above.
If we restrict our analysis to Greater Phoenix, the increase is still 1.2% using ARMLS closed sales.
Looking at all the recorded sales across Pinal and Maricopa County we get an average price per sq ft of $134.24 for the fourth quarter of 2015 moving to $135.58 for November through January 2016, an increase of 1.0%
So the latest Case-Shiller number for Phoenix looks a little suspect.
The annual change table is as follows:
- Portland 11.8%
- Seattle 10.7%
- San Francisco 10.5%
- Denver 10.2%
- Dallas 9.2%
- Tampa 7.4%
- Detroit 7.1%
- San Diego 6.9%
- Miami 6.8%
- Los Angeles 7.0%
- Phoenix 6.1%
- Las Vegas 6.0%
- Atlanta 5.7%
- Charlotte 4.9%
- Minneapolis 4.5%
- Boston 3.6%
- Cleveland 2.9%
- New York 2.8%
- Washington 2.2%
- Chicago 2.1%
The national increase was 5.4%, so Phoenix remains modestly ahead of that and still in the middle of the pack. Washington has been going backwards since July, Chicago and Boston have been going backwards since August, New York since September.
Chicago appears to be the weakest of the major markets covered by Case-Shiller while the Pacific Northwest (Portland & Seattle) are the strongest.
March 28 – The National Association of REALTORS® has reported the highest number of pending listings for the USA in 7 months for the end of February. We presume that this does not include what we locally know as UCB or CCBS listings.
The ARMLS pending listings stand today at 8,313 for all areas & types. This is the highest since May 28 (10 month ago), but if we include the UCB and CCBS listings we get a count of 13,547 under contract. This is the highest number recorded since June 28, 2013, which is 33 months ago. Just in the last month UCB & CCBS listings have grown by 15% and pending listings have grown by 12% . Last year at this time we saw UCB & CCSB listings grow by 12% (less than 2016). However pending listings grew by a very strong 22% during the same period last year. Overall under contract listings grew by 19% between Feb 28 and Mar 28 last year and by 13% this year. So our high under contract count at the moment is largely due to us starting at a higher number rather than an exceptional growth rate. You can see this effect here.
March 27 – The number of active listings is starting to decline now, rather late in the season but with some serious downward momentum building as new listings drop in number and buying activity hits its stride. We have 22,796 excluding UCB & CCBS across all areas & types, down from 23,054 last week and 23,148 the week before that. We have a huge number of UCB & CCBS listings – 5,190 in all. In fact 39% of all under-contract listings are now UCB or CCBS.
Price changes are also in decline with 2,526 in the last week, the lowest total since February 1. We hit a peak of 2,941 on March 8
March 26 – The total number of listings under contract for all areas & types is 13,250, which is higher than at any time last year. The peak usually occurs between March and May, so we are likely to see 2016 establish a higher point before it slows down. We did see higher totals between 2009 and 2013 but these numbers were inflated by the large number of short sales that stayed in escrow for a long time awaiting lender approval.
The ZIP codes with the largest percentage increase in under contract listings compared with a year ago are:
- Gila Bend 85337 (4 versus 1)
- Phoenix 85003 (43 versus 19)
- Morristown 85342 ( 6 versus 3)
- Guadalupe 85283 (2 versus 1)
- Arlington 85322 (2 versus 1)
- Coolidge 85128 (34 versus 18)
- Chandler 85248 (80 versus 49)
- Casa Grande 85122 (40 versus 26)
- Phoenix 85012 (23 versus 15)
- Glendale 85305 (26 versus 17)
We see a couple of central Phoenix areas & a handful of remote ZIP codes in that list
March 25 – In many of the cities we are seeing a change to a more positive situation for sellers. Demand is increasing while the flood of new listings that dominated the market for the first 10 weeks of 2016 has started to ease. We can see this in the Cromford® Market Index for the single family markets in the 17 largest cities:
In marked contrast to a month ago, we see 12 of the 17 cities with higher CMI readings and only 5 showing a deteriorating situation for sellers. Once again the West Valley is in good shape, with no exceptions:
- Peoria – up 7%
- Avondale – up 6%
- Surprise – up 5%
- Buckeye – up 5%
- Goodyear – up 3%
- Glendale – up 2%
Even when we extend our analysis to the smaller cities we see positive trends in the West Valley:
- El Mirage +35%
- Sun City +14%
- Sun City West +4%
- Tolleson +3%
There are a couple of areas having trouble however:
- Litchfield Park -12%
- Laveen -1%
Phoenix and the Southeast Valley are also doing fairly well with the obvious exception of Tempe which has deteriorated by 16% in the last month and Queen Creek which is showing signs of weakness..
The worst trends for sellers are concentrated in the Northeast Valley:
- Fountain Hills -12%
- Paradise Valley -11%
- Scottsdale -3%
However Cave Creek has held steady over the last month.
Although it is still in 17th place, Maricopa is the most improved city in the top 17 list, up 13%.
March 24 – Today we are taking a look at the three largest 55+ age restricted areas in the valley: Sun City, Sun City West and Sun Lakes. Now there are many other locations containing age restricted communities, but these three are the easiest to study since they are almost exclusively for the active adults among us. Here is how they compare now and last year at this time, for single family homes (along with Chandler for comparison with the normal market):
All 3 areas have more inventory for sale than last year, while Sun City and Sun City West have also seen a significant increase in new listings compared to last year. The annual sales rate has declined slightly in Sun City but increased in Sun City West and surged by 16% in Sun Lakes compared to a year ago. However there is some weakness in Sun Lakes when looking at the under contract counts and the contract ratio. The under contact counts for Sun City and Sun City West look strong and their contract ratios are higher than last year.
Average days on market is lower than last year for Sun City and much lower for Sun City West but higher for Sun Lakes.
Like the rest of the market, appreciation has been stronger for the lower priced areas, in this case Sun City at 9% handily beat Sun City West’s 6% while Sun Lakes was way behind at only 2%.
Overall I would say that sellers are currently having a harder time in Sun Lakes than they are in the other two areas. The increase in inventory will make life somewhat easier for buyers in all these areas than last year, but they are facing significantly higher pricing in the two Northwest Valley locations.
Compared with 2015 all three of the active adult markets are overall a little weaker relative to the normal market as represented by Chandler.
March 23 – According to the Zumper National Rent Report, rents in Phoenix have increased an average of 13.0% for 1 bedroom apartments to hit $780 a month. Two bedroom apartments are at an average of $980, 11.4% higher than a year ago.
In Mesa, 1 bedroom apartments are averaging $710 a month, up 6.0% while 2 bedroom apartments are at $890, up by 11.3%.
If these rent increases are causing concerns, I have 2 suggestions:
- Move to Tucson where 1 bedroom apartments are only $530 a month, down 1.9% from last year and 2 bedroom apartments are $730 a month, unchanged from a year ago.
- Console yourself that you are not in San Francisco where a 1 bedroom apartment rents for $3,590 a month and a 2 bedroom apartment rents for $4,870 a month.
Note that these rents are based on advertised asking prices not actual lease agreements.
March 22 – One subscriber has asked me to comment on how the midrange from $250,0000 to $500,000 is stratified. To do this I will use the recorded deeds from Maricopa & Pinal because the high number of new homes does not get reflected in the ARMLS statistics. The following table is for single family and condo/townhouse properties in Maricopa & Pinal.
|Price Range||YTD Sales Feb 2016||YTD Sales Feb 2015||Sales Growth YoY||% New Homes||Active (excl. UCB) Mar 1, 2016||Active (excl. UCB) Mar 1, 2015||Active Change YoY||6 mth avg $/SF||YoY Appreciation in 6 mth avg $/SF||ARMLS Annual Sales Rate||ARMLS Days of Inventory|
|$250,000 to $275,000||1,000||742||+35%||19%||1,085||1,037||+5%||$130.20||2.5%||5,289||75|
|$275,000 to $300,000||829||671||+24%||23%||1,214||1,238||-2%||$135.06||5.2%||4,612||96|
|$300,000 to $350,000||1,100||888||+25%||26%||1,915||1,766||+8%||$139.18||2.0%||6,107||115|
|$350,000 to $400,000||706||628||+12%||26%||1,541||1,594||-3%||$144.97||0.6%||4,208||134|
|$400,000 to $500,000||788||653||+21%||24%||2,064||1,820||+13%||$161.18||2.7%||4,491||168|
We can see the following:
- new homes have a very strong market share in the price range $300,000 to $400,000
- the largest growth in active listings is for the highest range $400,000 to $500,000 with 5.5 months of active inventory
- unit sales growth is good across the mid range, with the weakest price range being $350,000 to $400,000 and strongest $250,000 to $275,000
- the weakest appreciation is for $350,000 to $400,000 and the strongest for $275,000 to $300,000
March 21 – New home sales are off to a good start in 2016. The year to date count for closed sales of new single family homes during the first two months was 1,619 across Maricopa & Pinal counties, up 32% from last year.
The same cannot be said of attached homes, which were down 7% to 111 units. There seem to be far fewer attached homes available for closing, but many more are under development so this rate should increase by 2017.
The top locations for new homes sales so far this year are:
- Mesa 220
- Peoria 198
- Gilbert 180
- Phoenix 168
- Queen Creek 126
- Buckeye 126
- Chandler 114
- Goodyear 106
- San Tan Valley 102
- Scottsdale 56
If we rank the cities by dollars spent on new homes the picture changes a little:
- Mesa $71M
- Gilbert $67M
- Peoria $67M
- Phoenix $66M
- Scottsdale $49M
- Chandler $47M
- Queen Creek $44M
- Goodyear $35M
- Buckeye $31M
- San Tan Valley $28M
The top 10 home builders so far in 2016 based on closed revenue are:
- Taylor Morrison $43M
- Pulte $42M
- K Hovnanian $35M
- Lennar $31M
- Meritage $26M
- Shea $25M
- CalAtlantic $25M
- Fulton $24M
- D R Horton $22M
- Ashton Woods $22M
March 20 – The Cromford® Market Index hit a short term low on March 8 at 125.6 and has since gently risen to 126.7 telling us that the market has improved slightly for sellers in the last 2 weeks. The Cromford® Supply Index is still rising – it went from 80.2 to 81.1 during the same period – but we at last detect some serious signs of improving demand. The Cromford® Demand Index has risen from 100.8 to 102.8, its most significant move in 10 months.
Contributing to the increased demand we see:
- The monthly closed sales rate up from 6,034 to 6,866 in 12 days
- The number of pending listings up from 7,729 to 8,044
- The number of UCB & CCBS listings up from 4,778 to 5,008
These bode well for the rest of the spring buying season.
The number of normal UCB & CCBS listings has hit an all time record today at 4.376. We expect higher records to come. To illustrate the distorting effect of internet marketing sites on the UCB counts we note that this number was 2,282 two years ago, 814 four years ago and just 435 six years ago. By our calculations at least 65% of the UCB listings today would have been classified as Pending based on the customary habits of agents in 2010, prior to the impact of Zillow etc.
March 19 – There were 1,001 multi-family unit permits issued across Maricopa and Pinal counties in January. This is a surprisingly high number and exceeds every month in 2015. However these monthly numbers can be very volatile. The annual rate is 7,840 which is roughly the annual rate we saw throughout the 2004 to 2008 period.
Almost all of these January 2016 permits were issued in the City of Phoenix. A tiny handful were issued in Chandler, Unincorporated Pinal County and Scottsdale. So it was a very lop-sided month which gives us little idea what 2016 will turn out like.
March 18 – Something awful appears to have happened to the Census Bureau’s online permit database. It has been “down for maintenance” for three weeks now and not expected to return for another two weeks. I was able to get a text file from the bureau containing January’s permit counts for Arizona and this paints a happy picture for home builders. There were 1,234 single family permits issued in January 2016 across Maricopa and Pinal counties. This is up 42% from January 2015 and emphasizes how much buyers are favoring new homes over re-sales in the last several months. The top locations for permits in January were:
- Phoenix 201
- Mesa 119
- Buckeye 111
- Gilbert 107
- Peoria 103
- Unincorporated Pinal County 91
- Chandler 81
- Maricopa 78
- Goodyear 65
- Scottsdale 65
Compared to last month, Chandler and Peoria have fallen out of favor while Mesa, Buckeye and Maricopa are more popular.
The 12 month rolling average for single family permits has risen to 1,428 per month, equivalent to 17,136 per year. Last year’s total was 16,768 and our current forecast for 2016 is 22,100.
March 17 – Last week on March 10 we suggested that we would see some improvement in the overall picture now that the flood of new listings is starting to ease off and demand is picking up with the spring season in full swing. This is reflected in the Cromford® Market Index for the single family market in the 17 largest cities:
We now see 8 cities improving for sellers (twice as many as last week) and 9 deteriorating. The most significant deterioration is in Tempe, Paradise Valley and Fountain Hills. The bottom 4 cities in the table are in the buyer’s market zone while the top 8 are in the seller’s market zone. If we examine the change over the past week the picture becomes even more positive:
Here we see only 6 cities showing deteriorating conditions for sellers.
In general the entry-level and mid range homes up to $500,000 are selling well, but the market over $500,000 remains over-supplied, especially between $1 million and $2 million.
March 16 – The first distinct signs of early trouble are starting to appear in the Black Knight Financial Services Mortgage Monitor report for January 2016. For the first time in several years, a couple of states are showing an increase in delinquency rates year over year. It is pretty obvious that this is due to the problems of the oil and gas industry. Ranking the states by the change in the percentage of first loans that are non-current we see:
- Wyoming +2.2%
- North Dakota +2.1%
- West Virginia -0.2%
- Oklahoma -0.4%
- South Dakota -2.4%
- Louisiana -2.8%
- Texas -3.0%
- Montana -5.1%
- Alabama -5.8%
- Virginia -5.8%
- Delaware -6.4%
- New Mexico -6.5%
- Kansas -6.7%
- Arizona -6.8%
- Alaska -7.2%
- Mississippi -7.4%
- California -7.5%
- Georgia -7.7%
- Indiana -8.4%
- Iowa -8.8%
- Kentucky -8.8%
- South Carolina -9.0%
- North Carolina 9.1%
- Montana -9.2%
- Utah -9.4%
- Pennsylvania -9.5%
- Arkansas -9.7%
- Tennessee -9.7%
- Washington DC -10.1%
- Maryland -10.4%
- Ohio -10.6%
- Nebraska -11.4%
- Michigan -11.8%
- Minnesota -11.9%
- Colorado -12.0%
- Wisconsin -12.2%
- Maine -12.4%
- Idaho -12.6%
- Connecticut -13.4%
- Vermont -13.7%
- Hawaii -14.1%
- New York -14.5%
- New Jersey -15.0%
- Illinois -15.5%
- Rhode Island -15.9%
- Massachusetts -15.9%
- New Hampshire -18.0%
- Washington -18.4%
- Oregon -18.8%
- Nevada -19.1%
- Florida -23.4%
The top seven states in this list are all highly dependent on the oil and gas industry. Meanwhile Florida and Nevada, formerly the poster children of the housing crisis, are showing the fastest improvement in delinquency rates.
The picture in Arizona is slightly mixed. While our non-current percentage is down to 4.2% from 4.5% a year ago, this month’s reading is higher than all of the readings since last March. We now rank 42rd out of 51 so this is 1 rank worse than last month with Oregon taking our place.
By the time we see the March report, I would expect to see the top 7 states in the table above record higher delinquency rates year over year, along with New Mexico, Alabama and Kansas. California, Arkansas, Arizona, Indiana and Nebraska are also strong possibilities for a year over year increase as March 2015 through September 2015 is going to be a more difficult comparison due to the low delinquency readings we saw last year.
March 15 – We saw that the market sectors with the heaviest over-supply right now are priced between $1 million and $2 million, but not all locations are alike. Confining our calculations to this price range we have examined certain geographic areas to see where the effects of excessive supply are mild or extreme:
|Location||Current Days of Inventory||Running Average Since 2011||% of Running Average||Ranked Market Strength for Sellers|
|Gold Canyon 85118||1338||745||180%||23|
Inside the 101 loop, Scottsdale locations are in good shape (with the notable exception of 85258. However, outside the 101 loop we see an unusually large inventory of homes for sale in the $1 million to $2 million range. The situation is particularly hard for sellers in 85258, 85266, 85255, 85262 and Fountain Hills. Paradise Valley has too much inventory but most areas of Phoenix have less inventory than normal, with 85018 the only exception.
Elsewhere, Gold Canyon, Mesa and Peoria are massively over-supplied with inventory but Queen Creek, Buckeye, Gilbert and Glendale are below their normal levels.
March 14 – There are many possible reasons why someone might decide to list a luxury home for sale:
- downsizing to a smaller home after the kids have all moved out
- US currency strength (e.g. versus the Canadian dollar) making cashing out attractive for foreign owners
- illness making it hard to manage a large home
- death leaving a home to beneficiaries who have no need for it
- need for liquid funds due to financial problems elsewhere (this particularly applies to oil & gas executives at the moment)
Whatever the reasons, there are strong signs that the current owners of luxury homes are much more interested in selling than usual. This is creating an excessive number of active listings in many areas. Our favorite way to measure supply is to compare the number of active listings (excluding UCB and CCBS) with the annual sales rate, expressing the result as the number of days of inventory. As of March 12, the overall days of inventory in Maricopa County is 96, not a large number by any means, though slightly higher than the running average since January 2011 (85). However when we look at the number of days of inventory by price range we find the following (using the Tableau chart Days of Inventory):
|Price Range||Current Days of Inventory||Running Average Since 2011||% of Running Average||Supply versus Demand||Ranked Market Strength for Sellers|
|Under $100K||65.5||55.4||118%||excess supply||14|
|$100K – $125K||47.0||50.7||93%||under supplied||8|
|$125K – $150K||38.2||55.7||69%||extreme shortage of supply||2|
|$150K – $175K||43.3||64.5||67%||extreme shortage of supply||1|
|$175K – $200K||61.7||76.1||81%||severe shortage of supply||3|
|$200K – $225K||68.8||80.3||86%||shortage of supply||4|
|$225K – $250K||75.8||87.5||87%||shortage of supply||5|
|$250K – $275K||83.5||93.5||89%||shortage of supply||7|
|$275K – $300K||92.9||104.1||89%||shortage of supply||6|
|$300K – $350K||115.3||118.3||97%||slightly under supplied||10|
|$350K – $400K||129.2||133.5||97%||slightly under supplied||9|
|$400K – $500K||169.4||155.3||109%||over supplied||12|
|$500K – $600K||239.0||188.8||127%||severely over supplied||17|
|$600K – $800K||266.8||223.6||119%||excess supply||15|
|$800K – $1M||370.6||302.6||122%||excess supply||16|
|$1M – $1.5M||449.4||337.3||133%||extremely over supplied||18|
|$1.5M – $2M||632.2||467.8||135%||extremely over supplied||19|
|$2M – $3M||776.8||665.6||117%||excess supply||13|
Between $100,000 and $400,000 sellers are enjoying a lack of competition from other sellers, especially if their home is priced between $125,000 and $200,000. For these price ranges we can expect appreciation to remain strong relative to inflation.
Seller’s problems start at $400,000 and stop at $3 million. Despite the huge number of 1116 days of supply over $3 million this is quite normal for this sector of the market and is actually lower than the last four years at this point in the season. It is always hard work selling any home over $3 million because there are so many for any one buyer to choose from. 2016 is no worse than normal.
It is the sectors ranked from 12 through 19 that are giving sellers more problems than normal and the biggest problems at the moment are for homes priced between $1.5 million and $2 million.
Those sectors ranked 15 through 19 are the ones most likely to depreciate over the coming 12 months.
Tomorrow we will add geographic location into the mix to see where the problems are most severe.
March 13 – We have been reporting that the luxury market has been becoming more difficult for sellers since mid-2015. Initially the weakness was concentrated in the price ranges over $2 million. This was easy to explain because of the long established correlation between high-end homes and the weak performance of the stock market during the last 8 months. Recently the excessive inventory has become more obvious in the ranges from $500,000 to $2 million.
These trends are not unique to Greater Phoenix. In fact a recent report by CoreLogic comments on similar developments across the whole country. However the situation in Greater Phoenix displays some differences from the picture painted by CoreLogic. CoreLogic shows strong correlation between the S&P 500 Index and the percentage of home sales over $1 million. Their chart is shown below:
A similar chart for Maricopa County only (but starting in 1999) looks like this:
Here we can see that million dollar home sales in Maricopa County peaked much higher at 3.2% of sales in March 2007. This was partly because the luxury market kept booming while the rest of the market slowed dramatically in the second half of 2006. There has also been a slightly weaker recovery in the percentage of million dollar home sales than Core Logic reports for the whole country. We peaked recently at 1.9% (April 2015) while CoreLogic is reporting 2.2% as a peak for May 2015.
You can see a sudden drop in demand for high end homes during the second half of 2015, especially in August through October. However you can also see a good recovery since then despite the stock market correction during January and February.
We would agree that there is some correlation between high end demand and the stock market. However we do not think the problems that affect the high end market right now are because of a lack of demand. In fact sales over $1 million in Maricopa County were up 11% in January and 7% in February compared with a year earlier. Transaction counts are strong, which is good news for REALTORS®.
The current problems for sellers are caused by excessive supply. Too many luxury home owners are interested in selling their homes at the same time in 2016. It is the number of sellers that is abnormal not the number of buyers. We will look further at this issue tomorrow.
March 12 – Rental listings at ARMLS are in danger of being declared an endangered species. Yesterday we had a total of just 2,140 active listings (excluding vacation rentals). The all time low was a couple of weeks ago on Feb 28, when there were just 2,090. Back in 2008 there were almost 10,000. The current count is 27% below last year and 45% less than 2014.
The average lease price for an active listing is now up to $2,087 per month, 11% higher than last year.
The current inventory represents just 26 days of supply and the average days on market is 28. Last year at this time the average days on market was 37.
The average leased price per sq. ft. is currently 79.1c, while last year it was 71.7c. That represents an annual increase of over 10%.
It is a very good time to be a landlord and a terrible time to be a tenant.
March 11 – Yesterday we looked at the 17 largest cities. Today we turn our attention to the 12 remaining secondary cities. The following are seeing single family markets that favor sellers;
|Rank||City||Cromford® Market Index||Contract Ratio||Days of Inventory||Appreciation in Annual $/SF|
The following are balanced (CMI between 90 and 110):
|Rank||City||Cromford® Market Index||Contract Ratio||Days of Inventory||Appreciation in Annual $/SF|
The following have markets that favor buyers:
|Rank||City||Cromford® Market Index||Contract Ratio||Days of Inventory||Appreciation in Annual $/SF|
|7||Sun City West||89.3||67.0||119||5.3%|
Once again the market in El Mirage is extremely short of supply with the consequence that appreciation is running into double figures.
The active adult market, represented by Sun City, Sun City West and Sun Lakes, is seeing more supply and weaker demand than last year.
March 10 – When we look at the change in the Cromford® Market Index over the last month for the single family markets in the largest 17 cities we still see unfavorable trends for sellers:
There are far more(13) cities that have deteriorated since February 10 than have improved (4). However the table is more positive than last week.
The worst changes over the past month from a seller’s perspective are:
- Paradise valley (down 15%)
- Tempe (down 14%)
- Chandler (down 8%)
These 3 cities have suffered from an excessive rise in active listings giving buyers more choice and so weakening sellers’ negotiating power. However Tempe and Chandler remain in the seller’s market zone with a CMI over 110 whereas Paradise Valley is well below 90 signifying a buyer’s market. In this it joins Buckeye and Maricopa, although the situation in Maricopa has started to improve in the last 6 weeks.
Fountain Hills and Scottsdale are also weakening for sellers, but cities that have predominantly mid-range homes, such as Mesa, Peoria and Gilbert are showing positive movements for sellers.
We forecast that next week we see some more improvement in the overall picture now that the flood of new listings is starting to ease off and demand is picking up with the spring season in full swing.
March 9 – A couple of weeks ago, Bank of America announced that it was rolling out a new home loan product that would allow borrowers to put down as little as 3%. In some ways this product competes with FHA loans with their minimum down payment of 3.5%. However FHA loans require mortgage insurance and the new Bank of America product does not. Bank of America’s relationship with the Federal Housing Agency (FHA) is clouded by the $800 million it paid to settle claims that it made errors in FHA-backed loan documents. “It” is rather a loose term in this case because the vast majority of those loans were made by Countrywide Financial prior to its acquisition by Bank of America in 2008. This purchase prevented a collapse of Countrywide Financial and was seen as a rescue at the time. Whether Bank of America would have completed the acquisition with hindsight is debatable.
Mortgages created under the new program will be sold to the non-profit Self-Help Ventures Fund, which in turn will sell them on to Freddie Mac. The non-profit will remain on the hook for most of the losses should the borrower default at some point in the future.
Importantly, the 3% down payment may be funded by another second loan, a grant or cash on hand. Another innovation is that credit history may be established by non-traditional forms of credit such as day-care expenses, health club memberships and rents.
There are some important restrictions in this program. First the borrower must occupy the home and it must be their primary residence. The borrower must also have a credit score of at least 660 and earn no more than the median for the area. In the “Phoenix-Mesa-Glendale” metro area the Census Bureau reports a median income of $53,365 per year for 2014, the most recent number available. The 2015 median income will not be released by the Census Bureau until September 2016. The median income used by Bank of America will not be the Census Bureau’s number in any case, but rather the HUD median income, which is defined for each county. In both Maricopa and Pinal the 2015 median income is currently defined as $64,000.
In addition the debt to income ratio must be no more than 43% (to make it a Qualified Mortgage for Freddie Mac). So if the maximum income is $64,000 per year, the maximum monthly debt repayment for all loans payable by the borrower will be $2,293. If we assume $500 a month for a car loan, student loan, etc. that leaves $1,793 for the maximum monthly mortgage payment under this scheme. First time home owners will also be required to attend a home buyer education program. The maximum loan size is $417,000 but that is much higher than the FHA loan limit of $271,050.
The most significant restriction is the cap that Bank of America is placing on loan production.
For now, Bank of America is reported (by Dow Jones Business News quoting the bank as its source) to be capping loan production under this scheme at $500 million annually. This is a very small number for the whole country and represents less than 3,000 loans annually if the average loan size is a modest $170,000. To put it in context, it is far less than the $1.36 billion advanced in FHA loans by Bank of America last year. Most of the large banks have been exiting the FHA loan business and Bank of America was only the 22nd largest FHA loan originator during 4Q 2015. Bank of America originated $69 billion in first mortgages and home equity loans in 2015, so the new scheme will probably represent far less than 1% of its annual loan production. If Greater Phoenix gets its fair share of the country’s allocation we may see some 30 to 50 of these new type of loans during 2016.
We can conclude that this scheme is likely to have only a tiny impact on the market if the cap remains in place. No doubt Bank of America will be watching to decide whether to remove or adjust the cap, while other lenders consider their options.
March 8 – Across Greater Phoenix year-to-date, sales are up 5% compared with this time last year. However they are up only a modest 4% for single family detached homes. They are up a more impressive 10% for attached homes and up a strong 14% for mobile and manufactured homes.
Although single family sales were up 4% year to date, for homes priced below $200,000 sales during February dropped by 16% compared with February 2015. Between $200,000 and $300,000 sales were up 9% and above $300,000 they were up a very healthy 17%.
March 7 – After 66 days of the year we have seen 23,071 new listings added to ARMLS within Greater Phoenix (all dwelling types). This represents 102 days of supply at the annual sales rate of 82,672. With 102 as the average we can spot the areas with relatively high or low numbers of new listings.
The unusually low supply areas are:
- Glendale 85307 (44 days)
- Glendale 85304 (65 days)
- Phoenix 85053 (65 days)
- Youngtown 85363 (65 days)
- Avondale 85392 (67 days)
- Phoenix 85043 (67 days)
- Mesa 85204 (70 days)
- Phoenix 85027 (71 days)
- Phoenix 85019 (71 days)
- El Mirage 85335 (72 days)
Here we see the usual suspects, mostly on the west side, where supply has been hard to find for a long time. The next 10 are also mostly on the west side with a couple of ZIP codes from West Mesa and Chandler 85226 thrown in.
The unusually high numbers of new listings are here:
- Fort McDowell (549 days)
- Aguila 85320 (320 days)
- Arlington 85322 (275 days)
- Casa Grande 85194 (263 days)
- Scottsdale 85262 (211 days)
- Rio Verde 85263 (210 days)
- Scottsdale 85266 (197 days)
- Phoenix 85003 (196 days)
- Phoenix 85054 (185 days)
- Carefree 85377 (173 days)
- Paradise Valley 85253 (172 days)
- Gold Canyon 85118 (171 days)
- Morristown 85342 (170 days)
- Scottsdale 85258 (164 days)
- Congress 85332 (158 days)
- Scottsdale 85255 (155 days)
- Florence 85132 (147 days
- Scottsdale 85259 (145 days)
- Mesa 85215 (142 days)
- Wickenburg 85390 (140 days)
Many sellers in the above 20 areas are struggling to compete with the large numbers of new listings relative to the usual sales rate. We expect to see a growing number of price reductions in these areas as listings fight for buyer’s attention.
March 6 – We counted 845 new homes (single family & condo) that closed escrow within Maricopa County during February. This is an increase of 37% over February 2015 and the highest number for any February since 2008. The median sales price was $313,925 for new homes during February. There has not been any significant movement in medians for new homes since December 2013, when it was $319,898. It has bounced up and down randomly between $301,427 and $323,306.
New homes have gained market share over re-sales in the last year, moving from 10% in February 2015 to 12% in February 2016. However the mix for new homes is biased heavily towards single family rather than condos. There is still a lot of construction going on for attached homes, but the vast majority of these are intended for rent rather than purchase.
March 5 – I frequently get asked what percentage of home sales go through the MLS. As usual, the answer is more complex than you might expect. This is because you need to decide what counts as a home sale. For example in 2015 in Maricopa and Pinal Counties there were the following deeds that I would normally ignore when counting home sales:
- 6,330 parcels in bulk sales
- 863 deeds in lieu of foreclosure
- 9,890 corrective deeds (fixing mistakes in earlier deeds)
- 147 duplicated recordings
- 1 gift
- 309 multi-parcel sales
- 12,376 non-residential sales (e.g. commercial or multi-family)
- 86,857 related party sales (not arms length)
- 1 treasurer’s deed
- 295 sheriff’s deed
- 2,646 reversions to beneficiary through failed trustee auction
- 19,902 land parcel sales
- 99 sales to relocation services
We the come down to the deeds I would count as true sales of one sort or another, that did not involve the MLS:
- 190 bank owned sales outside MLS
- 26 GSE owned sales outside MLS
- 1,779 investor flips outside MLS
- 9,060 new homes outside MLS
- 12,451 normal resales outside MLS
- 268 pre-foreclosures outside MLS
- 2,338 trustee sales
There were also 79,739 deeds recorded that could be linked directly to an MLS listing
This means that MLS sales represented approximately 75% of the total sales in 2015.
March 4 – After a slight lull last week, new listings are arriving at full speed again. We have seen the arrival of 8.5% more than last year, 3.3% more than 2014 and 13.2% more than in 2013 as of March 4.
This is good news for buyers, but unfortunately the mix of new listings does not match the mix of demand. Across Greater Phoenix we see 63% of homes sales go for less than $250,000, but only 52% of new listings are priced below $250,000. The price range between $250,000 and $500,000 represents 30% of sales and it has received 34% of the new listings. This is not dramatically out of balance. Sales of $500,000 and more represent less than 8% of transactions but 14% of new listings have been at this price point. This is a problem.
The most seriously over-supplied sectors are from $500,000 upwards:
|Price Range||Number of Closed Sales YTD||Number of New Listings YTD||New Listings versus Closings||Increase in New Listings Compared with 2015||Increase in YTD Sales Compared with 2015||Increase in Active Listing Count since Jan 1|
The range between $2M and $3M is less affected than the others, but the remaining price ranges over $500,000 have seen a surge in new listings and active listing counts.
There is good news for sellers in the YTD sales counts compared with 2015, especially for the ranges $500K-$600K, $1M-$1.5M and Over $2M. The most challenging price ranges are currently $600K-$800K and $1.5M-$2M. In the case of $600K-$800K the surge in supply is the largest percentage of all and has overwhelmed the improving demand. In the case of $1.5M to $2M we see a lot of new listings and no sales growth.
The range over $3M is doing surprisingly well for closed sales, up 67% from this time last year after a quiet period during the second half of 2015. However the increase in sales is not enough to stop the supply from growing significantly. Given that there were 85 sales through ARMLS of homes over $3M during the whole of last year, 115 new listings is a 16 month supply added in just over 2 months. It is going to take a long time to absorb those new listings unless there is a large increase in demand during the next 4 months.
March 3 – The Cromford® Market Index has been dropping since January 17, but the decline is slowing and it only fell from 126.9 to 126.1 over the past week. Although the Supply Index is still moving up, the Demand index has started to increase at last and at 100.5 (just a fraction above normal) it at its highest level since September 20.
When we look at the single family markets in each of the 17 largest cities the trend is still mostly negative over the past month:
We see 3 improving cities, 2 more than last week. We also see 3 cities with only a fractional negative change over the last month.
The picture looks brighter when we look at changes in the past week. The CMI has increased for the following cities in the last 7 days:
- Maricopa – the only city to improve dramatically, but still bottom of the league
- Mesa – up 2.6 from last week
- Peoria – up 2.3 from last week
- Cave Creek – up 1.1 from last week
- Gilbert – up 1.0 from last week
- Buckeye – up 1.0 from last week
- Avondale – up 0.8 from last week
- Phoenix – up 0.4 from last week
- Surprise – up 0.1 from last week
The remaining cities have deteriorated further for sellers over the past 7 days:
- Tempe – down 7.6
- Paradise Valley – down 4.2
- Chandler – down 2.7
- Fountain Hills – down 2.2
- Scottsdale – down 1.9
- Goodyear – down 1.3
- Queen Creek – down 0.7
- Glendale – down 0.5
It is encouraging that more cities improved (9) in the last week than deteriorated (8). However the situation for sellers in the upper levels of the market remains quite poor and this is reflected in the presence of Paradise Valley, Fountain Hills and Scottsdale in the deteriorating list. In fact Paradise Valley has dropped into a buyer’s market territory (under 90) over the past week.
March 2 – We would like to draw your attention to the Price Range Snapshots. These illustrate the huge differences between the market situation at (say) $175,000 compared to (say) $1.5 million.
Between $150K and $175K the snapshot is a sea of green showing that sellers have the upper hand in almost all negotiations for homes at this price level.
Between $1.5 million and $2 million the snapshot has predominantly red arrows. The pending listing situation is positive, but most other readings are negative for sellers. In particular 684 days of inventory is a troubling sign especially with the annual sales rate stuck around 260 and a listing success rate below 50%.
March 1 – Although there are not very many trustee sale auctions in Maricopa or Pinal counties these days, it is still possible to pick up the occasional bargain property through foreclosure.
During February, 57% of the 292 properties auctioned went to a third party bidder rather than reverting to the beneficiary (lender). This is a very strong percentage. We have not exceeded 58% since April 2006 almost ten years ago. Last year in February 2015 only 42% of the 323 trustee sales went to third parties.
© 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.
No small part of this deal working out was due to the intense negotiations and juggling of our real estate agent, Denise Pruitt with Arizona Best Real Estate. She acted in our best interest at every turn, taking the brunt of the unpleasantness and making it work out. WE WOULD NOT BE IN THIS HOUSE WITHOUT HER. I think she is owed a bedroom, at least. Maybe a portion of the pool. – Eric & Kathryn (clients of Denise Pruitt)
Just wanted to thank you for the terrific job you did for us in finding the house of our dreams. We love it! Your experience and optimism was greatly appreciated. We feel you have become a friend during the process. Please do not hesitate to use us as a great reference. Good luck in the future and keep in touch. Lots of love. – Tom & Lil (clients of Denise Pruitt)
Sheri Jackson is an amazing realtor! After meeting with her the first time, I knew that she had the passion and drive to help find the right home for me. The best part about the entire process was she made it so simple and easy for me to find a place I now call home. I would personally recommend her expertise to anyone looking for a home or rental in the future. – Ashley (client of Sheri Jackson)
I have worked with Cheryl several times (buying and selling) and I can confidently give her my highest recommendation. Cheryl is an intelligent, thorough and motivated agent who will work diligently to provide a pleasant and successful real estate transaction. – R Chang (client of Cheryl Menayas)
Working with you was a great experience. Your knowledge, consulting and negotiating skills made the selling process go so smoothly. I will recommend you to my family, friends and anyone interested in selling or buying a home. – Judy B (client of Vicki Kaplan)
Sheri helped us narrow down a list of homes she prepared for us, encouraged us not to just settle and within 48 hours we were signing papers to a home that suited all of our needs. Sheri was very knowledgeable and the made the house hunting experience A LOT OF FUN!! We would personally recommend Sheri to anyone looking to purchase a home in the future. – Bob & Sue H (clients of Sheri Jackson)
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Thank you for helping me find my beautiful home. I knew it was hard work, but it was worth it. Thanks again for everything and for being such a good friend. – Kristin (client of Denise Pruitt)
Ruth Sells was just a pleasure to work with and the best Realtor we have had the opportunity of meeting in many years of searching. – the Stumpfs (client of Ruth Sells)
Ruth has done an excellent job of acqainting/educating us with the details of the AZ market. This has been our first experience purchasing an AZ property – and we’re very fortunate to have her assist us. Bless her for her patience with us throughout the process! – Roger (client of Ruth Sells)