Market Summary for the Beginning of February from The Cromford Report
The market stability and balance which prevailed between the end of November and mid January seems to be coming to an end. Both demand and supply are now rising, as is normal for the time of year. However it is the rise in supply that is having the stronger effect and this is bad news for sellers.
Sales were very low in January, giving us the lowest January sales total since 2009. Pending listings have risen sharply since the start of January but started at such an unusually low point that they are still at their lowest level for early February since 2008. In fact the weekly pending listing chart looks a lot like 2007 which is not a year we take any pleasure remembering. We expect 2014 to do better than 2007 once we get past the end of February, but at the moment the tepid demand is not making much of a dent in the rise in active listings. If we were going to have a strong spring for sellers then active listings would have peaked in mid January and be falling by now. On the positive side, the new supply is almost all non-distressed, whereas in 2007 we faced an onslaught of foreclosed homes coming to market.
New listings have been arriving at a rate which is about 9% higher than last year, so if demand remains below par we can probably expect to get back to a “normal” level of supply around 32,000 listings (including UCB) during the second half of this year. With supply normal and demand some 20% below normal we are heading towards a classic buyer’s market.
This means increasing concessions from sellers and erosion of their pricing power. The monthly median sales price is already starting to look a little wobbly, both overall and in a number of specific locations including the City of Phoenix. The medians are not assisted by the relative strength in the luxury sector. However the average price per square foot is being given a significant boost by the luxury segment and although the monthly average fell between December and January, the under contract $/SF is still moving upwards.
If current trends stay in place then we expect no significant sales price rises during the first half of 2014. Indeed, if current trends stay in place through the second half of the year then pricing is likely to be lower by January 2015 as sellers compete with each other for the attention of the smaller pool of buyers. However, five months is a long time in the ever-volatile Phoenix housing market and trends may very well change by then.
Here are the basic ARMLS numbers for February 1, 2014 relative to February 1, 2013 for all areas & types:
- Active Listings (excluding UCB): 25,541 versus 17,573 last year – up 45.9% – and up 11.0% from 23,091 last month
- Active Listings (including UCB): 28,526 versus 21,757 last year – up 31.1% – and up 12.7% compared with 25,319 last month
- Pending Listings: 5,723 versus 9,523 last year – down 39.3% – but up 23.9% from 4,667 last month
- Under Contract Listings (including Pending & UCB): 8,595 versus 13,707 last year – down 36.8% – but up 25.7% from 6,895 last month
- Monthly Sales: 4,728 versus 5,928 last year – down 20.2% – and down 20.9% from 5,975 last month
- Monthly Average Sales Price per Sq. Ft.: $125.13 versus $108.05 last year – up 15.7% – and down 1.4% from $126.89 last month
- Monthly Median Sales Price: $182,700 versus $154,900 last year – up 17.8% – but down 1.4% from $185,000 last month
We are seeing an increasing number of price cuts among the active listings and a fairly rapid rise in the average number of days on market for closed sales. The average days on market for active listings is not rising, because there are plenty of new listings coming along that start with zero for days on market. This is not a good sign.
The Cromford® Market Index has started to head downwards again, though it currently remains above 90 at the lower end of the balanced zone. Should it drop below 90, as seems very possible, this will signal that a buyer’s market is fully in effect. Many sellers are understandably reluctant to accept that the market has changed so dramatically in just 7 months, but they will probably need to be very realistic in the coming few months and price and negotiate accordingly.
We will need a significant acceleration in demand to change the current direction of the market. The most obvious potential cause of such a change would be an increase in the flow of money from lenders due to a relaxing of their guidelines, especially for first time homeowners. The lowering of the FHA loan limits has had a noticeable effect in the opposite direction. It will impact the price range from $275,000 to $375,000 in a major way. The introduction of the Dodd-Frank Act provisions has had little noticeable effect so far except by putting more constraints on seller financing by larger investors. However its main provisions are designed to limit mortgage money flow rather than encourage it. In contrast, Money is flowing well to the jumbo mortgage market and, as a result, 2013 was easily the best year since 2006 for the luxury home market.
Another possible positive change in demand would be increased household formation and home buying among those aged 25-35. At the moment this age group is placing stronger demand on rental supply and home purchases seem to be occurring to a lesser extent than for earlier generations.
