He thrives when taken out for social interactions and activities. The calendar says that Kettle is seven years old, but no one has told him that. He is energetic and loves to be active and on the move. Fetch is his game and his feet start to dance when he sees the leash. He is a 35 pound Staffordshire terrier mix, perfect to fit on a lap for snuggle time or to take out on an adventure. Home Fur Good is located at 10220 N. 32nd Street in Phoenix. The shelter is open Thursday, Friday and Saturday from 11-4. You can call Home Fur Good at 602-971-1334.
Is it just us, or has 2017 seemed to fly by? As 2017 heads to a close, inevitably we reflect and compare this year to the previous year. Although the final tallies are not in, we still can draw some solid comparisons.
Most homeowners and would-be homeowners (buyers) find pricing statistics the most interesting of all statistics, understandably. Yet it is wise to remember that pricing is a trailing indicator – not a leading one. Pricing trends take time to show up and become meaningful. Further there is a seasonal factor that can obfuscate the market trends. For instance, in a “typical” year pricing rises during the spring buying season and tends to peak in June. Then the second half of the year goes flat on pricing (and can even have a small retreat). Pundits who don’t know or care to factor in the seasonal component of the market can write alarming headlines about the market when fall arrives – only to see it miraculously “recover” again in the spring. Annual prices tell the actual story of what occurred.
At the moment the overall market appreciation stands at 5.8% – but understand that this includes all price points and areas and is simply a market average. Separating pricing into categories tells a far more accurate story. Appreciation under 200K remains strong as demand is outpacing supply. Luxury sellers are having a very different experience – even with supply currently lower than 2016. Some luxury price points have seen a small erosion in pricing. To quote our favorite real estate source, the Cromford Report:
Price trends remain weakest for the high end of the market and despite much stronger sales numbers than last year, the top end remains over-supplied. This is not unique to Central Arizona as we see similar weakness in luxury pricing across most of the USA. The low-end and mid-range still have price momentum and given the deterioration in supply, especially in the Southeast Valley, we expect that to continue for some time.
Interestingly, condos & townhomes are enjoying a faster appreciation rate than single family homes at the moment. This is largely due to the price point and the demand they are able to answer that single family homes simply cannot fill.
Because supply/demand ratios ultimately tell the story of the market and are a leading indicator, let’s turn our focus there.
Given that appreciation has been strongest in the under 500K range – especially under 200K – it should come as no surprise that supply is most constricted under 200K. What started as a promising year of a crop of new listings, fizzled in to only a small advantage over 2016. As prices have risen, the low end of single family homes is evaporating as homes previously valued at less than 200K now rise above that mark. New supply, which usually is typically supplied by builders, is simply not coming. Builders cannot provide single family product at that price point due to land costs, labor costs, and the cost of the commodities needed to build a home (concrete, wood, roofing materials, etc.). Not surprisingly multi-family building has risen to provide needed apartment rentals for those who cannot afford to buy entry level housing. Again the Cromford Report summarizes the situation:
So far in 2017 we are up only 1.15% for new listings over this time in 2016. Overall, the supply remains chronically weak and there is little sign of any improvement… Here we can see the huge reduction in supply that has occurred over the past 4 years. The seasonal pattern clearly shows up, but each year is much lower than the year before. It is starting to look as though there will not be much of a market below $200,000 before too long.
Demand can be far more volatile than supply and more difficult to gage. Improving economic factors (jobs, interest rates, income, stock market, etc) or a decline in those factors can influence the housing market along with supply. The stock market showing sharp improvements can impact the luxury market to the positive, where it has little impact on the entry level market. Rising prices are supposed to have a dampening effect on demand – so that supply and demand in counter-reacting to each other create a balance. This is not always a tidy process, however, as we’ve seen through the last 10 years. So what do the tea leaves say currently about demand? We again turn to the Cromford Report:
…and demand has been slightly weakening for several months now and at first sight it looks slightly weaker again at the start of October, although when supply is poor, it can be very hard to detect weakening demand out there in the market because there is enough demand to soak up all the supply and then some.
Supply and demand intersecting ultimately results in sales. The Cromford Report supplies a lovely snapshot of the sales:
The first half of 2017 was more exciting than the second half is turning out to be so far for MLS sales. 1st Quarter 2017 MLS sales outperformed 2016 by 14% and 2nd Quarter sales were up 7%, so a 2% growth rate for the 3rd Quarter puts a damper on our excitement. Low supply in the lower price ranges is mostly to blame as it’s difficult to have record sales growth if there are fewer people willing to sell their home. There are more people willing to put their home on the market in the higher price ranges however. New listings over $600K were up nearly 10% in the 3rd Quarter and sales were up an impressive 27%.
We hope this gives you an accurate picture of the market so you can ignore any headlines to the contrary.
As the holidays approach, we want to take a moment to thank all our clients and friends whom we are so fortunate to work with. We are truly humbled by the trust you place in us and we are committed to always doing our best to protect your interests. Thank you and Happy Holidays!
Russell & Wendy
If you would like the privilege of living with a cat that knows they are the superior being, then Ginger is your girl. Ginger was born on January 21, 2014 and she will allow you to feed her, play with her and scratch her under the chin until she decides otherwise. Ginger can be very loving and playful and then she will decide she needs alone time. Ginger does ask that she be the only cat in her forever home, since there can only be one ruler. You can meet Ginger at Home Fur Good, 10220 N 32nd Street, Phoenix, Thursday through Saturday from 11am-4pm. If you have any questions please call 602-971-1334.
For those who prefer an article in a Twitter-like format â€“ supply is still constrained, demand appears to be slowing (is this seasonal or an actual decrease?) and we are in the midst of a very â€œnormalâ€ market. For those who prefer details, continue on.
The problem with a â€œnormalâ€ market is that the Valley went through such an extended period that was NOT normal (2004-2011). Long periods of abnormality can start to feel like the new normal â€“ so when normal actually shows up it is apparently unrecognizable as such. Homeowners are understandably confused when reading inflammatory housing headlines meant to snag readers. Headlines such as â€œThe Valley is in a Normal Real Estate Marketâ€ is a snooze fest so donâ€™t be startled when various news sources claim otherwise. To site a few recent examples, Ed Delgado, President and CEO of Five Star announced at a conference for â€œforeclosure specialistsâ€ that foreclosures are going to go up in a number of cities, one of which was Phoenix. Much to the contrary, delinquencies in the valley are lower than any time since 2002, to have foreclosures you must first have delinquencies. Forbes also recently published a headline â€œ58% of Homeowners think the housing market is set for a correction â€“are Bubble Fears Founded?â€ To answer the question â€“ no – bubble fears in the valley are not founded. Housing Wire similarly states that Phoenix is one of the states â€œoverheatedâ€ and â€œoverpriced by double digitsâ€. Hmmm â€“ interesting theory but again not factual.
So to state the facts again (our apologies to those who believed us the first time we spoke to this issue) we are in a normal market. Supply, when constrained comparative to demand, causes prices to rise. Rising prices cause supply to rise and demand to dampen, resulting in a leveling off of appreciation as supply and demand begin to balance or even correct to the buyerâ€™s advantage. Real estate typically goes in cycles of this pattern over and over â€“ the question is only how long each cycle will last. To summarize the current state of the market, we turn to the Cromford Report:
Supply remains lower than last year, but the gap closed slightly compared with last month in terms of active listings with no contract. We are starting to see more new listings than last year. The third quarter is up 2.5% from last year and up 5.5% from 2015. So far the extra supply is not having much effect, but if it continues for several months finding a property could start to get a little easier for buyers.
The monthly sales rate is up only 1.8% compared with a year ago. Both August 2016 and August 2017 had the same number of working days (23) so we have a fair comparison to draw. Since the year over year growth was 5.7% in June and 3.0% in July we again see a continuing slow downward trend in the advantage that 2017 has over 2016 in sales volume. Growth in the annual sales rate has almost stopped with 95,000 proving to be a difficult line of resistance. All these point to a gradual fading of demand. The serious shortage of supply obscures that fadeâ€¦
We still have a seller’s market in most locations and price ranges, but the current trends means the seller’s advantage has very little momentum. Before buyer`s get too excited, the trends are very mild in nature. As such we do not currently see major increases in buyer’s bargaining power coming anytime soon.
A further interesting Cromford Report discussion point is does a normal market mean the valley has â€œrecoveredâ€? The Report brilliantly speaks to this point:
â€¦Many people assume when prices have returned to 2006 peak levels then the market has recovered. However understandable, especially for those who purchased during that time frame, thatâ€™s not necessarily the case. Average sale prices per square foot are still 27% away from the peak of 2006. However, the market could arguably be considered recovered once prices reach the range that corresponds to the long term average rate of inflation, which from 2000-2016 in the United States is 2%. In 2000, the average sales price per square foot for MLS resales was $96. Had the bubble and crash never happened, and annual appreciation stayed between 2-3% per year as normal, then prices would land between $134-$158 per square foot today. Currently theyâ€™re running at $149, which equates to averaging nearly 2.6% annually and a 55% total gain since the year 2000.
So normal and recovered seem to be hand in hand in the valley. That should be good news for jittery homeowners reading way too many headlines. As always, we are here to help you understand your home in todayâ€™s marketplace. We appreciate and welcome your questions and comments.
Russell & Wendy Shaw
Low supply has stubbornly remained the major theme of the housing market for the last three years.Â In fact active counts of homes for sale were lower in only 4 years (2004, 2005, 2012, & 2013).Â In 2004 & 2005 â€œthe bubbleâ€ was underway with heady demand voraciously consuming inventory.Â In 2012 & 2013, buyer demand was stimulated by 2011â€™s â€œbottom of the market pricingâ€.Â Thankfully 2017 is neither a bubble market nor a bargain basement sale â€“ but rather a normal sellerâ€™s market.
Despite the overall low supply of homes for sale, there are certain segments that have been showing an increase recently â€“ such as homes under 175K (unexpected) as well as price ranges over 1 million (yawn -predictable). To quote Michael Orr of the Cromford Report: â€œWhile some areas & price ranges are doing better than others, the overall supply is very low representing only 84 days of inventory. We consider 120 to 150 days normal.â€
Supply is the easier of the two factors (supply & demand) to quantify.Â So how do we track demand relative to supply? The Cromford Report answers this dilemma by using an interesting tool to gauge the state of the market (i.e. supply vs. demand) called the â€œContract ratioâ€.Â The contract ratio specifically measures the number of completed sales contracts relative to the supply of active listings. For those who enjoyed their grade school math class, it is specifically â€œ100 x homes under contract divided by active listingsâ€; the higher the number the greater the buying activity relative to supply.
In August the Cromford Report posted this insightful analysis:
â€œAlthough it is subject to seasonal effects, the contract ratio is a useful tool for examining the state of a segment of the market. If the contract ratio is rising then the market is heating up and if it is falling the market is cooling. It is quite normal for the market to cool during the third quarter since the second quarter is when the peak buying takes place. So anywhere where the contract ratio is higher in August than it was at the beginning of June is bucking the trend and doing well. Here are how the price ranges compare (August 10 versus July 1, all property types):
We mentioned (on August 7) signs of cooling in the $150K to $200K price range for single family homes. However this is swamped by the heating up in several of the higher markets, particularly $225K-$250K and $350K-$1M.
Overall this table is unusually positive with the exception of the market over $1 million and between $125K and $175K.â€
Considering annual price appreciation has been running around 7.6% (with inflation only around 2%) it would be expected for rising pricing to reduce demand.Â This appears to be happening â€“ but it is an early trend and only time will confirm if demand is going to abate enough to offset the low supply.Â As interest rates, income and pricing all affect affordability; dampened demand would be the reaction of a normal market.Â Despite alarmists saying otherwise, this is a normal market.Â As Michael Orr states:
â€œAppreciation is fine for the home owner, but translates into loss of affordability for the potential home buyer. Prices are being driven higher by a natural and persistent lack of supply, not irresponsible speculation. In this situation it is normal for prices to rise until they suppress demand enough to match the weak supply and we reach equilibrium. That is fundamental to economic theory. So we should not be surprised if sales volumes lose some of the momentum they have seen during the first half of 2017.
Of course the nature of demand is always in flux.â€
Whatever the market brings we will endeavor to keep you apprised.Â Of course, we always welcome your comments or questions.
Every day we field calls from sellers checking on what they can do to their home to increase the homeâ€™s value prior to sale.Â These questions center around improvements such as solar (we donâ€™t recommend) painting (yes!) flooring and so on.Â Yet one of the biggest forfeitures of value is â€œto whomâ€ and â€œhowâ€ we sell.
To whom we sell.Â End users always pay the most for any product â€“ whether a home or a car.Â It has the highest value to them as they are the ones with the need.Â Selling to an investor typically brings a lower value because they are not the end user and there is no emotional connection to the home.Â Owner occupants pay more â€“ but even amongst those buyers the value can vary widely depending on how motivated they are and how limited their other options are (i.e. if the home serves a particular need such as dual master bedrooms, handicap accessible, a certain school district, etc.)Â In negotiation, the concept â€œhe who needs the deal the most, gives the mostâ€ proves true.
How we sell.Â When we sell with no competition value typically drops.Â The very premise behind capitalism is that an open market sets pricing.Â The smaller the pool of buyers exposed to your home, typically the smaller the value.Â In other words, you can artificially hold down demand by limiting exposure to your home.Â By owner sales and direct to owner investor offers fall in this category.
Even homes that must only sell to an investor (severe property condition issues or tenants on long term leases) will obtain higher values if they pay attention to â€œhow they sellâ€.Â In short, the way to get top dollar is to expose the property to the most available buyers.Â If an investor is the only option as a buyer, creating competition amongst those investors will typically better protect value.Â What most sellers donâ€™t know is that those investors flooding your mailbox with â€œwe will buy your homeâ€ offers â€“ will also make offers to listed homes that meet their criteria.Â That is good news for sellers wanting an investor offer as a good listing agent can attract multiple investors and make them compete on price and terms for the home.Â Also a listing agent can help the seller understand the real costs behind the â€œyou pay nothingâ€ investor offers.Â Anytime venture capitalists are spending millions funding â€œWe buy homesâ€ companies, you can be assured you are NOT receiving a â€œno costâ€ offer for your benefit.Â Venture capitalists only spend money when they believe there is plenty of money to be made for them.Â Who is paying them?Â The often unsuspecting home owner is paying them in lost equity.
Donâ€™t believe us?Â Let us give you a real life example of an offer we received on one of our sellerâ€™s homes:
Opendoor used a team of local real estate professionals and a proprietary valuation model to determine their offer on your listing at 16947 Durango St:
- Valuation: $230,000
- Service charge, to cover holding costs and liability while finding a buyer: $17,250
- Net offer price: $212,750
- Opendoor cannot purchase this listing if it has the following features: unpermitted additions, leased solar panels, in a gated or age-restricted community
…. The net offer does not include the buyer’s agent commission.
Opendoor will have inspections performed by a licensed, independent home inspector and will submit a Repair Addendum like a traditional buyerâ€¦ Â
The service charge is 7.5% for the listing side, which does not include the buyer commission that must be paid (in this case 3%).Â Those percentages are well above anything we charge in commissions.Â This makes the claim â€œsave on commissionsâ€ dubious at best. But you decide if this example looks like a â€œsavingsâ€ as we listed and sold this very house for our seller.Â Here is what happened when we placed it on the market:
Russell Shaw Sale
Sales price:Â $234,900
Commission: 6% (3% + 3%)
Time on market: 20 days; 33 day close
Sales price vs. list price : full price
Repairs required to close:Â 4 minor repairs
Sales price: $230,000
Commissions and/or holding costs â€“ 7.5% + 3 % = 10.5%
Time to close: 14-60 days
Repair required to close:Â unknown; â€œOpen door will itemize the request repairs with their cost to have the repair completed and will provide the Seller a credit in-lieu of repairs optionâ€
That resulted in 15K more in the sellerâ€™s pocket before Open Doorâ€™s â€œrepair negotiationâ€ which often results in additional reductions.Â This is not to pick on Open Door (or any of their ilk such as Offer Pad, Iknock, etc.) but rather to point out that sellers will always net more on the open market – if their home is marketed to the most buyers possible.Â If the goal is the most money, shouldnâ€™t this be a last resort and not a first?
Russell & Wendy
Recently, a very sweet client who is an avid reader of our newspaper (thank you for both being a client and reader) wondered if we would be doing an article soon about preparing your home for sale.Â I told her that would-be buyers and sellers are so concerned about the state of the market, that lately we have devoted every issue solely to that subject.Â Ever since the debacle of the â€œhousing bubbleâ€ over a decade ago, it is understandable that consumers need reassurance that our recovered market is NOT a new â€œbubbleâ€.Â Fears are best addressed by facts, so for those who need reassurance that we are not in a second bubble we will address that.Â But for those who are considering selling and would like some advice on what to do to prepare, we will address that as well.
With those promises in mind, first let us examine why we are not in a bubble (i.e. repeating the sins of the past).Â No one explains the facts better than Michael Orr of the Cromford Report.Â As he points out:
â€œIn some parts of the valley, the market is so hot that a few people have been drawing parallels with 2005 and expressing fear of a bubble. While I agree that the Southeast Valley, Pinal County and parts of the Northwest Valley are much hotter than they have been for a while, the market is more akin to 2013 than 2005.Â
I think some people forget quite how ridiculous 2005 was. It was exactly 12 years ago that:
Days of Inventory stood at 28 (currently 85)
Months of supply was 0.9 (currently 2.8)
Annual appreciation rate was 27.9% (currently 6.8%)
Dollar volume was up 43.9% annually (currently up 14.6%)
Listing success rate was 84.3% (currently 81.9%)
Average percent of list for closed listings was 99.16% (currently 97.69%)
New homes sales were 42,724 a year just in Maricopa County (currently 13,958)
The Greater Phoenix market has a long way to go before conditions get bubbly, and we should remember how few skeptics there were in 2005 that the market could ever go down. Now there are skeptics everywhere, which is a very good reason that another bubble is unlikely to develop. The next housing bubble is likely once everyone who experienced the last one has retired or passed away.â€
We can only hope we are retired by the next one.Â We have been through two housing meltdowns â€“ the first in 1989 when the S&Lâ€™s went under, and the more infamous and severe mortgage meltdown that began in August of 2007.Â We are hoping 3 is NOT a charm in this case.
Now to our promise to address how to prepare your home for sale, there are some tips that are not surprising but still worth reviewing.Â But first, letâ€™s look at the underlying principles that should guide you in prepping your home for sale.Â These are â€“ never bring your home significantly above the ceiling for your neighborhood (i.e. donâ€™t over-improve for the basic value of the area) and never spend a dollar to get a dollar.Â Any improvements should return in excess of the expense to make the improvement.
Hence, some of the best preparations cost little to nothing.Â Here are our suggestions:
Improve your landscaping. Curb appeal is the first impression made upon a buyer and can determine if they even will enter your home. Mow the lawn, prune the bushes, weed the garden and plant flowers.
Clean the outside. A sloppy exterior will make buyers think you’ve slacked off on interior maintenance as well. Be sure to clean the sidewalks and front doors (no cobwebs!)Â Replace the front door mat if it looks worn.Â Look at the front door â€“ does it need a fresh coat of paint or refinishing?Â A new color can make it pop and donâ€™t forget the house numbers so they can be seen.
Remove clutter and depersonalize. Clutter can make a home look smaller visually than it is.Â Remember in the buyerâ€™s mind (and the appraiserâ€™s) size is equal to value â€“ so you want it to look open and inviting.Â Pack away clutter and make sure furniture is appropriate to the scale of the room. It is also important to depersonalize, but we believe some agents go overboard instructing sellers to have no personal photos of any kind.Â We think some well- placed photos are appropriate, but an overload of photos, childrenâ€™s art and religious symbols can be distracting and impede the charm of the home. Clean up by renting a storage unit if needed for knickknacks, photos, extra or oversized furniture and other personal items.
Organize closets and drawers. Messy closets give the appearance that your home doesn’t have enough storage space.Â Box up extra clothing and clutter.Â If you cannot rent storage, then pick the garage or one bedroom for boxed items.
Take color down a notch. You might like your bright blue family room, but it may sour buyers. Paint your walls a neutral color that will appeal to a wide range of buyers.Â When we are selling a home, we are no longer decorating for the current owner but rather the future owner.
Eliminate bad odors. We can all become a bit nose blind.Â Hide the litter box and spray air neutralizer throughout your home. Â Make sure your home smells fresh.
Some sellers wonder if they should hire a home inspector prior to placing the home for sale.Â If you are concerned that you may have deferred maintenance on numerous items, then it may be worth the money.Â On the other hand â€“ addressing specific concerns such as getting the A/C serviced and a roofer if you have roofing concerns may be the better path.Â Most sellers do not need to pay for an inspection only to have their buyer get one as well.
In closing, donâ€™t miss the point that differing price points have differing standards.Â A $250,000 home will not have the same buyer expectations as a 2.5 million dollar home.Â Curious about the specifics of your home?Â Our preference is to tour the home with you and make specific recommendations based on your unique circumstances.Â As always, we are here to advise and help.
Russell & Wendy Shaw (mostly Wendy)
Supply continues to be the story in our market.Â But like most blanket statements – â€œsupply is downâ€ â€“ the real picture is always a bit more nuanced.Â Supply, like demand, behaves differently depending on the price points.Â Looking at a broad market overview, active listings counts are down.Â When active listings decline in the first quarter, the very time active supply should be building, it is a strong signal that supply is weak.
Not surprisingly, the most constricted inventory continues to be in the 50K-200K range.Â As Michael Orr of the Cromford Report comments:
â€œUnder $200K, total supply has fallen another 20% since last year, when it was already tight, so buyers looking for homes in this price range are going find it tough going, as they have for a long time now.â€
Perhaps not as predictable, active listings rose in every other price range.Â Thatâ€™s right â€“ active listing counts are up in the other prices points!Â As he continues:
â€œActive listing counts fell for the price ranges between $50K and $200K, but rose in every other price range. The greatest percentage rise in active listings over the last month was for $800K to $1M which saw an increase of 10%.â€
Does that mean it is a sellerâ€™s market under 200K but a buyerâ€™s market in every other price range?Â No.Â Again the answers are more nuanced.Â Although supply is up â€“ so is demand.Â The growth in demand is exceeding the growth in supply.Â Increasing supplies are easily being consumed, bringing the supply down compared to last yearâ€™s numbers.Â The Cromford Report continues:
â€œBetween $200K and $2M, supply is down about 10% compared with this time last year. However demand has grown much more strongly for the $200K to $600K range than above $600K, so the balance in the market favors sellers under $600K but is more balanced above $600K.
Over $2M, we have roughly the same supply as last year, which is to say, far more than adequate. In most areas it is a buyer’s market in this top end with the sales rate a little weaker than a year ago.â€
So far closed sales are running about 12% over last year.Â But the under contract numbers are only up by approximately .4%.Â Does that mean demand is weakening?Â Perhaps, but more likely the numbers are being constrained by the lack of inventory where demand is the highest.Â Buyers shopping in the 200K and under range are frustrated trying to find a home that doesnâ€™t have multiple competing offers. As supply in this price range continues to evaporate, that demand is looking less and less likely to be fulfilled.Â Not surprisingly appreciation, particularly in the lower price ranges, continues to climb.
Perhaps the clearest indicator of a healthy market is the â€œlisting success rateâ€.Â This is the percentage of homes that will sell while listed.Â The market average seems to hover around 70% in a reasonably healthy market. As a point of comparison, the listing success rate in 2008 (we shudder recalling) hit a low of 22.8%. Right now the listing success rate is soaring. At the moment, traditional home sellers priced under 200k are experiencing an 88% success rate.Â HUD & REO (foreclosed) homes in the price range are experiencing 100% & 96% success, respectively. Â 500K and under homes are succeeding at an 83% rate.Â Numbers this high havenâ€™t been seen since 2013 when the mix of the market was largely distressed sales.
In short, overall we have a very healthy market.Â Wondering about the specifics of your neighborhood?Â We are happy to provide a supply demand analysis tailored to your home.
Russell & Wendy