The Cromford Report – Daily Observations March 2018

    March 14 – The single-family luxury market (over $500,000) has improved quite a lot since this time last year. Supply is not the problem that it is under $500,000, but the sales rate has risen significantly across all the luxury segments.

    Over the last 3 months we have seen 25% more closings than during the same period last year. Sales are up most between $1 million and $2 million with an increase of 37%. The supply of active listings (excluding UCB & CCBS) is up 2% in this range but it is down 4% for all homes over $500,000. The higher sales rate means the supply feels much lower even though it is only down slightly. This is good for pricing which has increased just over 5% (in $/SF) compared with a year ago.

    Average days on market are down 13% and days of inventory (a key measurement) is down 18% from 282 to 231.

    The listing success rate is higher too, with only Carefree and Fountain Hills below 50%. Unusually high success rates are to be seen in parts of the Southeast Valley (85048, 85248, 85249).

    March 13 – We still see occasional claims that pricing is back to the levels during the bubble years but we refute these claims. We still have quite a long way to go in most segments of the market, with just a handful of special exceptions.

    First of all, people make the mistake of using median sales prices. This is NOT a fair way to compare 2018 with 2006. In 2006 the median single-family house size across Greater Phoenix was far smaller (1,741 sq. ft.) than the median house size in 2018 (1,886 sq. ft.). That is a difference of 8%, so the median sales price in 2018 would need to exceed that in 2006 by at least 8% before we could realistically claim pricing had recovered to 2006 levels.

    It is also not fair to use monthly average price per sq. ft. because this is a volatile measure and if one month pops up the next may drop back down again. We can call a recovery only when prices are consistently higher than they used to be.

    We need to use a long term measure and one that incorporates the change in home sizes. For this reason we like the annual average price per square foot. With this measure in mind we can examine the pricing by ZIP code for single-family-homes. Such a chart can be found here.

    The following ZIP codes have an annual average price per square foot for single-family homes that exceeds the maximum achieved in 2005-2009.

    1. Phoenix 85006 – $195.45 versus the peak of $192.44 in July 2007
    2. Eloy 85131 – $114.80 versus the peak of $111.08 in December 2007
    3. Scottsdale 85251 – $271.92 versus the peak of $252.02 in September 2007
    4. Scottsdale 85257 – $202.07 versus the peak of $193.68 in November 2006.

    The following are within 5% of recovery:

    1. Phoenix 85008 – $168.93 versus the peak of $177.47 in April 2007
    2. Phoenix 85013 – $197.84 versus the peak of $207.02 in April 2007
    3. Phoenix 85014 – $203.29 versus the peak of $212.21 in December 2007
    4. Scottsdale 85250 – $240.93 versus the peak of $251.14 in February 2007
    5. Tempe 85281 – $184.28 versus the peak of $193.90 in January 2007

    The following are within 10% of recovery:

    1. Phoenix 85003 – $253.68 versus the peak of $273.60 in February 2008
    2. Phoenix 85015 – $147.76 versus the peak of $160.91 in April 2007
    3. Phoenix 85018 – $294.17 versus the peak of $315.83 in April 2007
    4. Mesa 85202 – $146.49 versus the peak of $159.38 in October 2006
    5. Mesa 85204 – $141.33 versus the peak of $155.00 in November 2006
    6. Chandler 85224 – $158.38 versus the peak of $175.41 in September 2006
    7. Tempe 85282 – $157.25 versus the peak of $166.70 in August 2006
    8. Chandler 85286 – $154.05 versus the peak of $168.13 in September 2007 (note that this ZIP code did not exist in 2006)

    All the other ZIP codes are adrift of their peak levels by more than 10%. Looking at a few of the largest in terms of the number of existing homes, we see

    1. Phoenix 85032 – $165.37 versus the peak of $189.08 (12% below)
    2. Phoenix 85041 – $111.21 versus the peak of $146.24 (24% below)
    3. Mesa 85207 – $161.92 versus the peak of $201.16 (19% below)
    4. Chandler 85225 – $151.67 versus the peak of $171.16 (11% below)
    5. Gilbert 85234 – $147.71 versus the peak of $178.08 (17% below)
    6. Chandler 85249 – $148.14 versus the peak of $182.04 (19% below)
    7. Scottsdale 85255 – $281.60 versus the peak of $325.31 (13% below)
    8. Scottsdale 85262 – $269.89 versus the peak of $374.69 (28% below)
    9. Paradise Valley 85253 – $357.25 versus the peak of $479.21 (25% below)
    10. Scottsdale 85254 – $204.45 versus the peak of $237.63 (14% below)
    11. Glendale 85308 – $147.51 versus the peak of $178.63 (17% below)
    12. Buckeye 85326 – $105.00 versus the peak of $153.92 (32% below)
    13. Goodyear 85338 – $122.49 versus the peak of $167.59 (27% below)
    14. Peoria 85345 – $126.58 versus the peak of $156.04 (19% below)
    15. Surprise 85374 – $137.52 versus the peak of $168.66 (18% below)
    16. Sun City West 85375 – $134.07 versus the peak of $154.94 (13% below)
    17. Peoria 85383 – $147.54 versus the peak of $187.56 (21% below)

    The strongest recovery has been in Scottsdale 85251 where the average $/SF is now 8% higher than during the bubble.

    More generally, locations close to the intersection of the 101 and 202 in Tempe have recovered better than average, as well as several areas north and east of Central Phoenix.

    March 12 – A gap is starting to open up in 2018 new listings compared with 2017 and 2016.

    Today represents a whole number of weeks since the start of the year so we can do a fair comparison. We have seen 24,701 new residential listings across all areas & types. This is down 1.1% from the March 12 reading in 2017 and down 3.0% from 2016. So total supply is down, but the picture is even worse if we are looking purely at affordable homes, say those under $250,000 (which is almost 50% of the market, by units).

    Year to date we have seen only 10,103 new listings of all types across Greater Phoenix with an asking price below $250,000. Last year there were 12,018 and in 2016 there were 13,383. The best year for homes under $250,000 was 2010 when we had seen over 25,000 new listings by March 12.

    Is supply of affordable homes going to get better? I don’t think so.

    There are several factors working against generating more supply at the moment:

    1. Many homes are being taken out of the purchase and long-term-rental markets to feed the short-term-rental market, thanks to the success of Airbnb and similar offerings.
    2. Mobile home parks are being purchased for development into more expensive housing (e.g. Tempe Mobile Home Park (42 sites) recently sold to the Treehouse Group).
    3. Rising interest rates mean that existing loans start to look much more attractive than new loans, encouraging owners to stay where they are instead of moving.
    4. Prices are still rising at 7% or more, so today’s $240,000 house is likely to be next year’s $257,500 house, so no longer affordable by our definition.

    Despite an upward trend in permits, we are unlikely to see affordable supply growing in the short or medium term, unless we start to redefine our thoughts about what is affordable: $300,000, or maybe even $350,000.

    March 9 – The Contract Ratio is our favorite way of measuring the heat of a market, although it does not correct for seasonality. To overcome this defect we like to compare contract ratios for the same date each year. Below we look at how the cities compare with each other and with how they were 12 months ago:

    City Contract Ratio March 8, 2018 Contract Ratio March 8, 2017 Change
    Avondale 148.0 138.7 +6.7%
    El Mirage 135.6 260.0 -47.8%
    Gilbert 128.2 94.0 +36.4%
    Chandler 125.0 97.8 +27.8%
    Tolleson 116.7 103.9 +12.3%
    Sun City West 115.5 48.4 +138.6%
    Mesa 110.1 88.2 +24.8%
    Queen Creek 109.7 77.9 +40.8%
    Buckeye 103.8 71.0 +46.2%
    Glendale 102.1 102.7 -0.6%
    Apache Junction 94.9 76.9 +23.4%
    Laveen 92.4 77.8 +18.8%
    Surprise 88.7 93.6 -5.2%
    Sun Lakes 88.6 56.9 +55.7%
    Tempe 86.5 91.1 -5.0%
    Phoenix 84.8 73.7 +15.1%
    Sun City 83.4 66.0 +26.4%
    Florence 81.9 68.7 +19.2%
    Peoria 77.5 67.3 +15.2%
    Maricopa 72.6 99.2 -26.8%
    Anthem 67.6 64.2 +5.3%
    Arizona City 66.7 54.7 +21.9%
    Goodyear 65.0 58.8 +10.5%
    Casa Grande 63.0 67.2 -6.3%
    Litchfield Park 61.0 48.5 +25.8%
    Scottsdale 37.8 30.1 +25.6%
    Gold Canyon 34.8 32.2 +8.1%
    Cave Creek 34.5 36.6 -5.7%
    Fountain Hills 28.1 24.2 +15.2%
    Paradise Valley 19.5 17.1 +14.0%

    With the contract ratio we are comparing how many homes are already in escrow with the number of homes still freely available. It therefore measures current demand versus current supply and the higher the number, the more it favors sellers over buyers.

    The vast majority of locations are hotter than last year, but there are notable exceptions – El Mirage, Glendale, Surprise, Tempe, Maricopa, Casa Grande and Cave Creek.

    The rise of Sun City West and Sun Lakes suggests that a lot of demand is coming from older people, many moving here from out of state.

    Buckeye and Queen Creek are also much hotter than last year at this time.

    March 8 – The single-family Cromford® Market Index chart for the 17 largest cities is looking like this:

    The West Valley continues to improve with Avondale up an astonishing 19% over the last month and Buckeye & Peoria up 7% and 6% respectively.

    The Southeast Valley is stable and very favorable to sellers, but Chandler at the top is giving up a little ground.

    The deteriorating cities include Cave Creek and Paradise Valley, with the former in danger of slipping into a balanced market.

    March 7 – Looking at the recordings in Maricopa during February we can see some significant changes in 2018 versus 2017.

    16.6% of buyers were investors. This is the highest percentage for 2 years and much higher than the 14.5% we observed in February 2017.

    Second homes are back in fashion. 17.9% of owner-occupied homes were second homes rather than primary residences. This is the highest percentage since March 2014, almost 4 years ago. In February 2017 the percentage was only 13.9%

    It seems that traditional primary residence buyers are fading a little, dropping from 75% in February 2017 to 70% of purchases in February 2018.

    March 4 – Prices are moving upwards faster than last year or 2016. The rate of appreciation, based on the annual average price per square foot across all areas & types within the ARMLS database, reached 7% on March 3, 2018. The last time we saw an overall number of 7% or more was in February 2015, when the appreciation rate was declining fast.

    Now it is has been on a clear upward trend since November 2017.

    Previous periods where appreciation has exceeded 7% were:

    • April 2004 to Feb 2007 (bubble rise and fall)
    • July 2012 to Feb 2015 (rebound after collapse)

    Overall appreciation rates over 7% are abnormal and we therefore need to monitor the market closely for signs of over-heating. You can monitor the overall appreciation rate using our weekly chart.

    March 3 – A little late with the Cromford® Market Index table for the largest 17 cities, but here it is. Only single-family homes are included.

    Clearly the Southeast Valley is out-performing the rest of the valley, holding the top 4 spots. However, both Chandler and Queen Creek saw slight declines and only Tempe retains much momentum.

    The West Valley has started to catch up with significant improvements for sellers in Avondale, Peoria, Buckeye and Peoria. At number 12, Buckeye is now in the highest position we have seen for a very long time.

    The Northeast Valley is bringing up the rear with all components weaker than they were a month ago. The situation in Cave Creek is the least favorable for sellers, although it remains in the seller`s market zone (over 110).

    The Central Valley (Phoenix) has been on a long slow improving trend and is looking very promising for sellers.

    March 2 – Multi-family permits were very strong in January, almost entirely thanks to a huge project in Tempe. We have 1,300 multi-family units year-to-date which is the second highest total in history. 2006 remains the record holder with 1,322.

    March 1 – January saw much stronger single-family permit counts than last year. The Census Bureau reports 1,613 units across Maricopa and Pinal County, up 21% and the highest January total since 2007.

    Big totals came in from:

    1. Phoenix – 326
    2. Buckeye – 161
    3. Unincorporated Pinal County – 124
    4. Gilbert – 121
    5. Peoria – 116
    6. Maricopa – 110
    7. Unincorporated Maricopa County – 106


    © 2018 Cromford Associates LLC

    The data used to create the Cromford® Report is obtained from public records and obtained under license from the Arizona Regional Multiple Listing Service, Inc (ARMLS). Cromford Associates LLC and ARMLS expressly disclaim and make no representations or warranties of any kind, whether express, implied or statutory, as to the accuracy of the data used or the merchantability or fitness for any particular purpose.


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