Supply and Demand Remain the Story

October 7, 2014 by · Leave a Comment 

As we live and breathe real estate, even the tiniest variation of the same old news is interesting to us. It is our hope that we are not taxing our readers sharing the nuisances of this market.  The big headlines of 2005-2012 are gone, and frankly we couldn’t be happier.  What is good for selling papers, is rarely good for a marketplace because, in fact, drama sells.  So when you read the paper these days and it is claiming alarming trends in our market – a healthy suspicion should be maintained.  The lack of headline news on real estate is not a bad thing and october front page graphicnews should not be framed to make it so.

The story for over a year now has been supply and demand shifts. For over a year, demand has receded to very low levels.  It is understandable that this has created some concern, especially after the marketplace had adapted to being a demand oriented marketplace with investors gobbling up inventory at every opportunity.  At that time “normal” buyers were struggling to compete for properties as cash investors with insatiable appetites seemed to win every battle for a home.  By 2013 the investor portion of the market began withering away – a positive sign in a recovering market.  It is difficult to claim recovery at the same time you are known for being one of the best bargains around.  Vultures rarely circle a healthy animal.  So as the investor market returned to the small portion of the market demand looked anemic and alarming.  The investor withdrawal exposed what true demand existed, a fact that was obscured in the distress market.

So what is causing this low demand? We have addressed this before by discussing the economy, lending guidelines, and the millennials and their buying behaviors.   The one thing we strongly disagreed with as theories go, was the idea that real estate had somehow lost its appeal after the distress market.  If that were true, you would have never seen the high volume of the market in the midst of the distress – and the savviest of buyers (hedge funds) would not have come to Phoenix in force for a buying frenzy.  No the appeal of the West, and Phoenix in particular, for real estate remains.  Just as food never goes out of style, housing doesn’t either.  What does trend is renting vs. buying.  This year, in the valley, renting has jumped in demand as purchasing slumped.  This is a pendulum that moves from time to time depending on economic factors and net migration.  We are of the opinion that demand for housing is there and is being held down by the economic factor of severe lending constrictions resulting from the distress market.  If what fueled unprecedented demand acceleration in the marketplace (insanely loose lending guidelines) then the counter balance to low demand is overly constricted lending guidelines. As Sir Isaac Newton pointed out “for every action there is an equal and opposite reaction”.  We are not advocates for the insane lending that was going on in 2004 & 2005, but neither do we believe the Dodd/Frank bill and restrictions of this kind are any better.  There are valid purchasers who simply cannot get loans at this time due to the lenders fear now that lending risks have been placed back on their shoulders where they belonged all along.  Here are some interesting numbers by real estate expert Michael Orr of the Cromford Report:

“Approved home loans are the fuel that drives the housing market. The year 2000 was a relatively normal year for home loans. With roughly the same level of applications as in 2000, 15% more mortgage applications are being denied in 2014 than in 2000….” And…” The weighted credit score at origination for non-GSE loans stands at about 750. In 2006 it was 670.” (GSE = Government Sponsored Enterprise, as in Fannie Mae & Freddie Mac) 

Alarming? Not really, just the counter balanced reaction to over-lending.  As lenders only make money when they lend, eventually they will loosen their purse strings. It may take a year or two, but memories fade with time and the need to seek profit will likely show up eventually.

Normally such a pause in demand would send the market tipping strongly to a buyer’s market. Although demand faltered and did in fact create a buyer’s market last year, a rather unexpected shift followed – dropped supply.  Normal additions to supply from sellers placing their homes on the market failed to arrive and supply became constricted.  Let’s take the month of August as an example.  To quote Michael Orr:

“New listings have been arriving at a rate which is lower than in any August we have seen since 2001. In the last four weeks we saw 15.6% fewer new listings than last year and 13.2% fewer than in August 2012, the previous low record holder.

It is quite surprising that a slump in demand would be followed by a slump in supply, but it is certainly good news for sellers who might otherwise be facing growing competition from other sellers. If demand were to recover to normal levels now we could be facing a supply shortage fairly quickly.”

In fact, that supply has been so constricted that we have slowly and surely been moving away from a buyer’s market and into a fully balanced market, where we are now. Of course there are marketplaces within marketplaces – meaning there are areas and price points that are varying from this balanced picture. For instance, below 225K demand is showing a slight increase and so properties in this range may experience more than one offer.  Some areas are a “seller’s market” such as Sun City. It is best to get a supply/demand analysis of your specific area to understand “your marketplace”.

Mixed Messages

September 3, 2014 by · Leave a Comment 

It is understandable that both Buyers and Sellers (and if we are completely honest, most real estate agents)  are scratching their heads as to cromford new listings by month for travis sept SMALLthe state of this market.  We have listened to the sides argue we are in a “buyer’s market”, no wait we are in a “seller’s market”!  The underlying fact is that the real estate market is a moving target.  This means that the market conditions are in flux – there is what the market condition is now and then there is the lag until people know where the market is.  If you haven’t fallen asleep at that concept, let us share some interesting facts:

  1. Active listings are down 14% since March of this year. If you’re a seller – low supply – that sounds like a seller’s market doesn’t it?       Of course, if we compare active listings now to this time last year, we are up 28% in supply. That sounds like a buyer’s market doesn’t it?       See how confusing this gets?
  2. Price appreciation for the last year came in at a paltry 1.9% (for non-distress sales). By the way, inflation is running around 1.9%. So essentially, houses have not really appreciated in the last year. The seeds of weakness in pricing started with the market shift that began in 3rd quarter of 2013. But as we stated before, there is what is happening and then when the market knows what is happening – which can cause a lag in price changes.       Indeed this is the case as the softness in pricing that began a year ago finally showed up in this year’s 3rd quarter. So that’s a buyer’s market right?
  3. New listings coming to market began the year up 9% over last year’s new listings. But again, as the market is a moving target, new listings suddenly dried up as the 3rd quarter began, coming in 10% less than the same time in 2013 and 8% less than in 2012. This is notable because in 2012 new listings to market hit the lowest levels since 2000 – a shocking and record breaking event.       Yet in the 3rd quarter we hit the lowest new listings to market ever for this time period.       So that’s a seller’s market right?
  4. Demand was grabbing all the headlines this year, as buyer demand cooled significantly. The causes were attributed to tougher lending guidelines, interest rates climbing, Millennials (i.e. first time home buyers) not buying, and investors going away. Interest rates seemed like a red herring – as when rates dropped there was no corresponding jump in demand. Millennials are in fact not buying. This has been attributed to “seeing their parents lose their homes in the distress market”. Hmmmm, maybe. Millennials seem to be delaying all traditional signposts of adulthood – marriage, children and housing – so it would seem to be a cultural change in commitment, not housing per se. It is certainly causing a boom in rental demand at the moment. Investor demand definitely shifted – going from 33.5% of the single family market purchases in 2012 to only 11.8% in 2014. So, no matter the cause, if buyer demand drops that’s a buyer’s market right?

So let’s try to answer that nagging question. The market is swinging slowly and surely back towards a balanced market primarily due to the weakest arrival of new listings in 14 years.   But, if that is the state of the overall market – it does not preclude the fact that the market is really a series of markets within a market.  Depending on price and location – some markets are definitely in a seller’s market and some are most definitely in a buyer’s market.  How can a consumer know the reality of their market?  At the risk of sounding self-serving you need the analysis of a competent real estate professional.  The study and accurate interpretation of supply and demand in the submarkets is the only way to truly understand your marketplace.  As always we are here to help.  Our thanks go to the one and only Michael Orr for his incredible Cromford Report statistics.

Home Fur Good Animal Shelter – Low Cost Clinic

August 23, 2014 by · Leave a Comment 

home fur good logoLocal animal shelter offers low cost vaccine and microchip clinic on Sundays from 11-3pm.

Home Fur Good Animal Rescue and Placement is a 501(c)(3) nonprofit, no kill shelter located at 10220 North 32nd Street, just south of Shea Blvd.   Home Fur Good has been in operation since 2009.  In January of this year, Home Fur Good moved into its new location and has been warmly welcomed by the community.

Home Fur Good’s mission is to eliminate the euthanasia of treatable, adoptable animals in Maricopa County through adoption placements, medical treatment, promotion of spay and neuter and community awareness.  The low cost vaccine and microchip clinic is open to other rescues and to the public.  The shelter itself is open to the public Thursdays through Saturdays from 11am to 4pm for adoptions. The shelter houses approximately 35 dogs and includes a free roam cat room.  Home Fur Good also does weekend adoptions at the Petsmart located at Tatum and Shea Blvd.  This shelter has rescued over 1,700 cats and dogs since its inception.   Please visit their website: www.homefurgood.org for additional information, photos of adoptable animals and ways to help, including volunteering.

The Scales of Supply and Demand Continue to Tip

July 2, 2014 by · Leave a Comment 

When demand started declining near the end of 2013, the inception of the buyer’s market had begun.  Market watchers held their breath praying for demand to show up – fearing without demand jumping the pile up of inventory that typically occurs in the back half of the year would become an avalanche – but the market shifted again. The normal pile-up of supply failed to show up in significant numbers.  To date, 2014 has proven to be a bit of a head scratcher.  Where does that leave us now?

The best summary of the market comes from our favorite pundit Michael Orr of the Cromford Report:

“The total number of active listings has dropped every day since May 31. Although demand remains very low by normal standards, the lack of a build up in inventory is a slightly encouraging sign for sellers….. Phoenix and Scottsdale have seen a 6% fall in active listings over the last month, while Surprise is down 10%. Chandler is the only major city showing a large gain in inventory with 9% more than one month ago.

As is often the case for this time of year, we see massive drops in inventory for Sun Lakes (down 23%), and for Sun City and Sun City West (both down 13%)

Sellers would dearly like to see a more balanced market than we have experienced in the last 8 months. If demand won’t increase, then a reduction in supply (after adjusting for seasonality) will have the equally welcome effect of improving their negotiating power.

The market balance is still weighted towards buyers, but not quite as much as in April. Demand fell back again in May after some improvement in April, but supply dropped a little faster during May than we expected and this has compensated for the weakening demand. Overall we are not seeing much change over the last few months and we are still eagerly waiting for some more significant developments, one way or the other. Boring is the worst situation if you are in the analysis and commentary business. Luckily Phoenix rarely stays boring for long.

Some misguided souls are still blaming the weak demand on interest rates. Given that rates have moved lower over the last few months and are not far about historic lows, this does not hold water. The best I can say about that point of view is that it is more credible than blaming the weather, especially across the southwest where demand has fallen hardest.

Now we are seeing an increasing number of commentators adding to the discussion of what we believe are more realistic causes of the continued weak demand for homes to buy, not just in Phoenix but across much of the country:

  • low participation by first time home buyers
  • the inhibiting effects of massive student loan debt
  • millennials preference for the flexibility of renting
  • the foreclosure wave in 2008 through 2012 which has introduced a new sensitivity to the fact that home ownership can sometimes be financially hazardous
  • a large tranche of former home owners who have not yet repaired their credit enough to re-enter the market
  • low rates of household formation, especially among 20-30 year-olds
  • a growing wealth gap causing stronger demand for high end homes but leaving large numbers of people renting for the foreseeable future

…With demand having been so weak over the last 10 months it is natural to assume that the market might see an improvement in demand as the next step. This might be dampened by the usual seasonal increase in supply that tends to occur in the second half of each year. However, the current readings suggest the opposite of what we might have expected. Demand is actually weakening a little compared with last month. On the other hand supply is also failing to show any strength and is now fading to a greater degree than demand.  In other words the market for homes to buy is contracting in size….”

So again, we ask ‘where does that leave the valley’s real estate market at the moment?’  We remain in a gentle buyer’s market.  However, a tip in either demand or supply will change the market dynamic. History says demand can increase rather rapidly – especially if buyer’s find a reason to buy (higher rents, lower interest rates, flat or declining prices, etc.)  Will it?  We will keep you posted as the future unfolds.

Market Values – Who really knows?

June 18, 2014 by · Leave a Comment 

Prediction Is Very Difficult, Especially About the Future – Niels Bohr (1885-1962)

Niels Bohr certainly knew what he was talking about –and the intervening years have done nothing to change that sentiment.  Buyers and sellers, and their agents, have continued to struggle to interpret our market movements.  As most of our readers know, demand – and the lack thereof – has been the defining element in this market.  Much speculation has formed around this issue – with some just ignoring 2014 altogether and predicting demand will be “normal” by 2015. Any lacking demand in the resale market has most assuredly shown up in the rental market as people must live somewhere – causing available rentals to drop to very low numbers, in the range of only a 30 day supply.  Escalating demand for rentals eventually result in escalating demand for homeownership as rental rates rise.  At some point it becomes much more attractive financially to own than to rent.

If dramatic market shifts aren’t stressful enough to try to predict and understand, now add in valuation challenges.  Whether buying or selling, determining the value of the home in a highly unpredictable market can be difficult.  The more challenging the establishment of value, the more consumers seem to want to take research in to their own hands.  Uncertainty seems to create the need for multiple sources of information- i.e. automated valuations from the internet. The most famous of these sources (or in our opinion, infamous) is Zillow.  This begs the question – to whom should you trust the valuation of your largest asset or purchase?  To whom should you turn to understand the market trends and shifts?  Understandably, we have our own bias – but let us defer this issue to the one and only Michael Orr of the Cromford Report:  

“Unfortunately Zillow® has decided to provide 12-month forecasts for home values. Since the figure given is a forecast for the Zestimate® value, it does not necessarily have any relationship to real market value. On the other hand, this means it can never really be challenged because the Zestimate is created by Zillow in the first place. In the past Zillow Zestimate’s have often been greatly divergent from real market values. In the cases I have watched they have often been extremely volatile for no apparent reason, sometimes rising or falling by 10% or more in just a few weeks. I have also seen Zestimates that were 80% below or 200% above true market value, though this sort of aberration seems to be getting rarer.

In the past Zillow forecasts for the wider market have not proven to be at all accurate, so I despair at the thought that ordinary members of the public will take them seriously for individual homes. Giving a percentage change to one decimal place gives a false impression of precision for a number that is more likely to be wildly wrong than close to accurate.

In the case of my own home, Zillow is forecasting a loss in Zestimate of 1.3% over the next 12 months. That doesn’t seem too unlikely, quite frankly, but their Zestimate for my home has dropped 2.9% in just the last month and 8.2% in the last 6 months. In fact 6 months ago their Zestimate for my home was ludicrously high – some 20% higher than any other automated valuation I could find. Meanwhile Trulia’s estimated value for the same home has rocketed upward in the opposite direction during the same 6 months and they are now higher than Zillow. Home owners tend to believe the highest number they can find. The variation between these automated valuation tools is enormous and there is no evidence that Zillow’s is better (or indeed any worse) than the 25 or so other tools I have seen.

The fact is that a real appraisal or professional CMA are the only sensible ways to estimate a home value. Even these can vary a lot depending on who conducted them, and Zillow’s Zestimate numbers really should be used for entertainment purposes only. As long as they are used purely for entertainment value they not a problem. Unfortunately ordinary members of the public tend to think there is some real world basis for them, which provides nothing but problems for real estate professions who actually know what they are talking about.

For those interested in how accurate Zillow’s forecasts have been in the past … Zillow Chief Economist: Stan Humphries … in February 2012 predicted that Phoenix metro home values would increase by 0.6% between December 31, 2011 and December 31, 2012.

The actual change in average $/SF was 29.5%, so Zillow was only wrong by 28.9 percentage points.

For the country as a whole, Stan predicted a 3.7% decline in values during 2012 and no housing bottom before 2013. Funny how they never mention that any more.

The Zillow prediction for 2013 was for national home values to rise by 3.3%. Phoenix area values were predicted to rise by 8.5%. Phoenix actually rose by 16.7% in 2013 and the national increase was about 13%. Again there is almost no correlation between Zillow’s forecast and what actually happens. However I must admit that the 2013 forecast was a big improvement over the 2012 one.

In case you think I am picking on Zillow, I am not. Their forecast was actually better than many. We quote Jed Kelko, Chief Economist at Trulia: “Arizona’s home prices are going to fall by 7.2% between Q3 2011 and Q3 2012″. That was possibly the worst forecast in recent history, as average $/SF rose by 26.5% instead. Trulia’s error was 33.7 percentage points. Even this was not quite as bad as several forecasts produced between 2006 and 2012 by S&P / Case-Shiller / Moody’s Analytics many of which have been proven dramatically wrong during that 7 year period…”

If you really want to know what your home is worth, just ask.  I’m not bragging, I’m applying for a job …

From the Cromford Report’s Michael Orr

May 16, 2014 by · Leave a Comment 

Unfortunately Zillow® has decided to provide 12-month forecasts for home values. Since the figure given is a forecast for the Zestimate® value, it does not necessarily have any relationship to real market value. On the other hand, this means it can never really be challenged because the Zestimate is created by Zillow in the first place. In the past Zillow Zestimate’s have often been greatly divergent from real market values. In the cases I have watched they have often been extremely volatile for no apparent reason, sometimes rising or falling by 10% or more in just a few weeks. I have also seen Zestimates that were 80% below or 200% above true market value, though this sort of aberration seems to be getting rarer.

In the past Zillow forecasts for the wider market have not proven to be at all accurate, so I despair at the thought that ordinary members of the public will take them seriously for individual homes. Giving a percentage change to one decimal place gives a false impression of precision for a number that is more likely to be wildly wrong than close to accurate.

In the case of my own home, Zillow is forecasting a loss in Zestimate of 1.3% over the next 12 months. That doesn’t seem too unlikely, quite frankly, but their Zestimate for my home has dropped 2.9% in just the last month and 8.2% in the last 6 months. In fact 6 months ago their Zestimate for my home was ludicrously high – some 20% higher than any other automated valuation I could find. Meanwhile Trulia’s estimated value for the same home has rocketed upward in the opposite direction during the same 6 months and they are now higher than Zillow. Home owners tend to believe the highest number they can find. The variation between these automated valuation tools is enormous and there is no evidence that Zillow’s is better (or indeed any worse) than the 25 or so other tools I have seen.

The fact is that a real appraisal or professional CMA are the only sensible ways to estimate a home value. Even these can vary a lot depending on who conducted them, and Zillow’s Zestimate numbers really should be used for entertainment purposes only. As long as they are used purely for entertainment value they not a problem. Unfortunately ordinary members of the public tend to think there is some real world basis for them, which provides nothing but problems for real estate professions who actually know what they are talking about.

For those interested in how accurate Zillow’s forecasts have been in the past, take a look here:

http://www.zillow.com/research/home-value-declines-pick-up-in-fourth-quarter-but-zillow-forecasts-smaller-declines-in-2012-2282/

In February 2012 Zillow predicted that Phoenix metro home values would increase by 0.6% between December 31, 2011 and December 31, 2012.

The actual change in average $/SF was 29.5%, so Zillow was only wrong by 28.9 percentage points.

For the country as a whole, Stan predicted a 3.7% decline in values during 2012 and no housing bottom before 2013. Funny how they never mention that any more.

The Zillow prediction for 2013 was for national home values to rise by 3.3%. Phoenix area values were predicted to rise by 8.5%. Phoenix actually rose by 16.7% in 2013 and the national increase was about 13%. Again there is almost no correlation between Zillow’s forecast and what actually happens. However I must admit that the 2013 forecast was a big improvement over the 2012 one.

In case you think I am picking on Zillow, I am not. Their forecast was actually better than many. We quote Jed Kelko, Chief Economist at Trulia: “Arizona’s home prices are going to fall by 7.2% between Q3 2011 and Q3 2012″. That was possibly the worst forecast in recent history, as average $/SF rose by 26.5% instead. Trulia’s error was 33.7 percentage points. Even this was not quite as bad as several forecasts produced between 2006 and 2012 by S&P / Case-Shiller / Moody’s Analytics many of which have been proven dramatically wrong during that 7 year period.

Remember the wise words: Prediction Is Very Difficult, Especially About the Future – Niels Bohr (1885-1962)

 

Better Late than Never

May 2, 2014 by · Leave a Comment 

2014 began with a whimper as demand from Buyers waned to historically low levels.  Sellers, who seemed to be missing in 2013, showed up but buyers seemed to be unaffected by the increased selection of homes.  Market watchers kept looking for signs of the buyer drought ending to no avail – until now.  Finally buyers have begun buying again.  Whew, let’s all take a breath.

“Buyers” as a category form two sub-categories – investors and owner occupants.  In previous articles we mentioned that the Hedge firms who had been buying for a few years here have largely ended their buying.  But investors also include the “fix and flip” groups as well as individuals buying a home or two for their personal investments.  We see that investors are buying at the lowest levels in years – a good sign in our opinion.  To quote the one and only Michael Orr of the Cromford Report:

“Except for those unusual periods, which were dramatically affected by government intervention, the last time we saw investor buying activity lower than 16.2% (the current level) was December 2008.”

This tells us that the category of buyers currently in recovery is the owner occupant buyer.  This is a positive sign.  Although the change is only newly in place, if it continues for the next few months it likely will keep our market from swinging to a strong buyer market and prevent pricing erosion.

Interestingly, buyer demand has varied dramatically according to price range.  Predictably, in the 200K and under price range both supply and demand are down.  Supply is down due to the distress product evaporating and the resulting price rises that accompany diminished distressed sales.  The dropped demand at that price come from investors leaving (as this was their preferred price point) as well as first-time buyers opting to rent rather than purchase (either by choice or necessity).

Comparing the low end housing to the high-end and you find a dramatically different story.  As Michael Orr comments:

“For Greater Phoenix in March we had 109 sales of homes priced over $1,000,000. This is the highest March number for million dollar homes since 2008. For homes priced at or below $1,000,000 we had 6,503 sales which is the lowest March number since 2008. This divergence between luxury home sales and the rest of the market is quite striking. However there are still plenty of homes over $1,000,000 for sale so supply is not an issue. It must also be remembered that a home priced at $1,025,000 this year may have been $975,000 last year.”

Needless to say, demand will be the most critical area to watch this year.  Demand will determine which direction our currently flat pricing will take.  A word of caution, don’t be mislead by potential news reports that state our “median” price is rising.  Due to the increase in high end sales and the sharp decrease in low end sales – rising median pricing could be falsely interpreted as “the market price” is rising.  At this time, pricing is flat.

When demand is weak in housing for an extended period, the population must go somewhere – and in this case it means rentals.  Demand for single family rental housing has seen a sharp increase.  Eventually this will be good news for the housing market as first time home buyers leave rentals when owning is cheaper than renting.  We are not there yet, but the signs are pointing to that as a future possibility.  Here is what the Cromford Report says:

The scarcity of single family homes available to rent is getting extreme. Other types of rentals are not so hard to find for rent, but single family homes have dried up, probably because so few new rentals are being created compared with 2010 through 2013.

On January 1 we had 4,377 active single family rental listings. Today we have 2,391. That is a 45% drop in less than 3 months. On March 1 we had 2,806 so they have dropped 15% just in the last 30 days…. if inventory remains as tight as this it is likely that landlords will take the opportunity to push single family rental rates upwards.

So the watchword for now is “demand”.  It is a situation we will continue to closely monitor and so keep our wonderful past, present and future clients fully informed.

Buyers Play Hide and Seek

April 3, 2014 by · Leave a Comment 

The shift from the strong seller market we saw in the first half of 2013 to a buyer’s market in 2014, has created a certain level of disbelief.  Local markets shift fairly rapidly – and changes in supply and demand are generally the cause.  Although we have commented on this shift in past articles, it is worth looking at again because shifts don’t always become trends.  In this case, it is looking like a trend.  Although supply is building, that is not the driving force behind the shift.  The puzzle in today’s market seems to be “where did the buyers go?” 

To quote our favorite real estate guru Michael Orr of the Cromford Report “…the number of active listings continues to grow. Although the total number…is quite normal at 30,314, we would usually be seeing declining numbers by now because March through May is the peak season for active listings going under contract. If the number of active listings manages to grow even slightly during March then it is likely to soar during the second half of the year, unless there is a major change in market direction. … the total today…is the highest we have seen since April 2011 and 60% higher than March 15, 2013.

New listings continue to arrive much faster than last year, but not in excessive numbers. We have seen 26,353 year to date, 11% more than the 23,813 we counted last year. This would normally not be considered excessive, but the shortage of buyers means there are more new listings than the market needs.”

So again, the real problem is the drop in buyers.  Sadly, we haven’t heard much “expert explanation” for this but we have a few theories:

  1.  The major investors that have been heavily buying (because they are well funded hedge funds – such as Blackstone Group and Colony) have largely ceased purchasing in the valley.  We believe this composes the largest percentage of the “missing buyers”.  While this drop does impact our market, we do not consider this purely a bad thing.  Hedge funds purchased to hold and rent for 3-7 years and are not end users.  While this helped push up values in the valley, it did take away properties to end user buyers who could not compete with these cash offers.
  2. The basic economic picture has still not fully recovered.  To obtain loans to purchase properties (as the average buyer must) one must have employment.  Although the employment rate is better than it was at the depth of the Great Recession, it is far from “normal” or “optimum”.  No housing market fully escapes the basic economics forever.  So although we consider the housing market “recovered”, we do not consider the job market recovered.
  3. The Millennials who largely compose the pool of first time homebuyers are not buying in normal volumes.  Some of this is being subscribed to changes in their belief systems as to the value of home ownership – having seen housing equate foreclosure in the distress market.  Personally we believe it has less to do with psychology and more to do with mounds of student loan debt and the lack of financial ability to purchase.
  4. Lending practices have not returned to the standards of previous years.  Locally, FHA loan limits have been lowered down to 271K from the previous 350K range.  Additionally, self employed borrowers even with perfect credit and sizable down payments are struggling to obtain loans. Too many viable buyers are being denied loans.
  5. Prices have risen over the last two years.  Just as rapidly falling prices cause sellers to withdraw from the housing market, rising prices can cause buyers to withdraw as they find renting more attractive.  This seems to be proven by the rental rates in the valley which have been in an upswing since January of this year.  As rents continue to rise due to increased demand (after all if you are not buying, you are renting) purchasing will again become more attractive.  When you can purchase and have a payment equal to or below what you can rent a comparable property for – most renters become buyers.  If rental rates continue their rise – look for the pendulum to swing again to purchasing.
  6. We suspect net migration in to Arizona has faltered recently (see point 2 – jobs and weather seem to drive migration) although the census numbers seem a bit unreliable.

Does the drop in buyers mean that homesellers should despair?  Absolutely not!  But it does mean that the dynamics that drive a home sale are more important than ever – marketing, pricing, condition, location, accessibility  and of course your choice of agent.  You knew we were going to say that, didn’t you? 

As always, we will continue to monitor our market as it shifts.  If you are curious as to your home’s shifting value, feel free to contact us.

The Sub-markets

April 3, 2014 by · Leave a Comment 

Despite a number of naysayers, the market has in fact shifted from a balanced market (which only lasted a few months) to a gentle buyer’s market.  This has been caused more by a decrease in demand, than a huge increase in supply. Supply is still growing in most areas, but only slowly.

But viewing the real estate market as a whole is a mistake made by novices.  The market can be broken down (and should be) in to sub-categories based on price or area.  These microcosms are a better guide to “the market” both for buyers and sellers.  Let’s focus for the moment on a few key areas of change.

Strong movement in favor of buyers:

Paradise Valley, Tempe, Cave Creek, Tolleson

Strong movement in favor of sellers:

Gold Canyon, El Mirage, Arizona City, Sun City, Sun Lakes, Apache Junction

So  when buying or selling, the lesson is know your sub-markets!

Sign, Sign, Everywhere a Sign….

March 4, 2014 by · Leave a Comment 

At the risk of dating ourselves with that song’s line, today’s market reminds us a bit of those words.  What do we mean by that?  Simply that our gentle balanced market appears to have now tipped to a buyer’s market.  At least for the moment.  A balanced market is where supply and demand are in equal supply.  In fact, a balanced market is a supply of 4-6 months.  If supply begins to exceed demand – the shift is to a buyer’s market.  If demand exceeds supply, you are in a seller’s market.  So what shifted?   Supply or demand?  The real answer is both.  The supply of homes coming to market is certainly up from the drought of listings in 2013 – but the supply is only abundant when compared to last year. However, demand is weak – weaker than any year since 2001.  Gulp.  So the real shift and the real story is in the decreased demand.

To better make these points let’s turn to our real estate guru Michael Orr of the Cromford Report:

“ In true Phoenix tradition, the balanced market did not last very long – from October 27 to February 8 to be precise. We are now in a confirmed buyer’s market … Demand is weak …its lowest level since May 2008. Supply is not high, but it is growing fast … its highest level since July 2011. The deterioration in market conditions for sellers is across the board. No geographic area or price range is improving. However some sectors are much more favorable to sellers than others. In general the luxury market and the active adult areas are more favorable for sellers than the rest of the market. In the majority of sectors, prices are now under downward pressure, although they have not responded much yet due to residual seller optimism. However, if current market conditions prevail we are likely to see lower sales prices in many of these areas before too long.”

Going further he states:

“One easy way to observe how weak demand is at the moment is to compare the count of pending listings on January 15 and February 15. In every year there is normally strong growth in this number between these two dates. We have been measuring these numbers since 2001 and 2014 is the first year the increase has been less than 1,000. Even in 2007, which was a very soft year, pending listings grew by more than 2,000 from 5,201 to 7,255. In fact, the previous worst year was 2008 with a growth of only 1,317 from 3,610 to 4,927. In this context 2014′s growth from 5,420 to 6,396 looks very disappointing for sellers. The best year for this measurement was 2005, when pending listings grew from 7,831 to 11,208.”

So what do all these facts mean to the average home seller?  It means that the approach sellers (and their agents) took in 2012 & 2013 will not work in today’s market.  The approach of throwing the home on the market and allowing the velocity of the market to overcome a lack of marketing, inadequate home condition, and faulty pricing – simply will not work in today’s market.  It is a time to get back to basics .  But as in years past, the basics will work.  A properly marketed home will result in a sale.  Happily, some things never change. 

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