Market Summary for the Beginning of October
In September we started to see a change from the summer doldrums that have hung around since June. Before we comment on what’s going let us examine the basic ARMLS numbers for October 1, 2012 relative to October 1, 2011 for all areas & types:
- Active Listings (excluding AWC): 15,562 versus 19,327 last year – down 19% – and up 8% from last month
- Active Listings (including AWC): 21,624 versus 26,869 last year – down 20% – and up 5% from last month
- Pending Listings: 9,714 versus 10,841 last year – down 10% – and down 4% from last month
- Monthly Sales: 6,719 versus 7,645 last year – down 18% – and down 15% from last month
- Monthly Average Sales Price per Sq. Ft.: $100.80 versus $80.33 last year – up 25% – and up 2.7% from last month
- Monthly Median Sales Price: $150,000 versus $114,467 last year – up 31% – and up 2.9% from last month
The change in price over the last 12 months is clearly impressive. There are very few occasions in which the average price per sq. ft. rises by 25%. The only previous time I know of is May 2005 to March 2006 and that was at the height of the bubble. A rise of 2.7% in the single month of September would also normally be startling, but we have got used to big numbers. When the market eventually gets back to normal we should expect to see 2.7% for a whole year, not a single month.
What we have seen is the “coiled spring theory” in action. Supply got extremely low last year but prices refused to react until the fourth quarter of last year. Now prices have moved substantially higher we are seeing signs of the market cooling. Supply is growing as sellers start to take advantage of the higher prices achievable. Some buyers have become discouraged by the amount of competition and higher prices and so left the market, resulting in some softening of demand. Sales volumes though ARMLS are well down. However this is somewhat misleading because a large number of real estate transactions are happening outside of the MLS. Deals between investors, new homes sales, trustee sales, pocket listings and private sales add up to a significant volume which is missing from the MLS numbers but captured by the county records.
In August Bank of America decided to create a new pool of REOs by foreclosing on an unusually large number of homes and setting the credit bid at the outstanding debt, so we should see REO inventory grow over the next 2 months. This will be good news for buyers who have struggled with ever decreasing stocks of REOs over the last 3 years, but the effect will be very short-lived. The age of the REO is almost over. Soon we will have to live with just a trickle. Short sales are down too, but will remain a significant part of the market for the foreseeable future.
September was a very quiet month for foreclosures and it appears that Bank of America stopped its REO creation program just 5 weeks after starting it. The number of Notices of Trustee Sale in Maricopa County was 2,690, the lowest total since July 2007 over 5 years ago. The number of recorded Trustee Deeds was 1,855, down 30% from August and down 34% from September 2011.
Although supply remains well below average, a cooling market trend has set in. Prices will continue to rise in October, but we won’t see frenzy again before next Spring. Below $200,000 we should still expect far too many offers for each listing, but patient and careful buyers will probably find things easier than if they wait until the market enters the silly season again next February.
In the meantime, the institutional buyers with deep pockets are still loading up on homes to turn into rentals. These include the Blackstone Group, Two Harbors, AH4R and American Residential. Smaller scale investors are still avidly picking up anything the big buyers leave behind. There is often not much left for ordinary home buyers, so they will welcome the current cooling trend, if indeed they notice it.
