Supply continues to be the story in our market. But like most blanket statements – “supply is down” – the real picture is always a bit more nuanced. Supply, like demand, behaves differently depending on the price points. Looking at a broad market overview, active listings counts are down. 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. As Michael Orr of the Cromford Report comments:
“Under $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.”
Perhaps not as predictable, active listings rose in every other price range. That’s right – active listing counts are up in the other prices points! As he continues:
“Active 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%.”
Does that mean it is a seller’s market under 200K but a buyer’s market in every other price range? No. Again the answers are more nuanced. Although supply is up – so is demand. The growth in demand is exceeding the growth in supply. Increasing supplies are easily being consumed, bringing the supply down compared to last year’s numbers. The Cromford Report continues:
“Between $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.”
So far closed sales are running about 12% over last year. But the under contract numbers are only up by approximately .4%. Does that mean demand is weakening? Perhaps, but more likely the numbers are being constrained by the lack of inventory where demand is the highest. Buyers shopping in the 200K and under range are frustrated trying to find a home that doesn’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. Not surprisingly appreciation, particularly in the lower price ranges, continues to climb.
Perhaps the clearest indicator of a healthy market is the “listing success rate”. This is the percentage of homes that will sell while listed. 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. HUD & REO (foreclosed) homes in the price range are experiencing 100% & 96% success, respectively. 500K and under homes are succeeding at an 83% rate. Numbers this high haven’t been seen since 2013 when the mix of the market was largely distressed sales.
In short, overall we have a very healthy market. Wondering about the specifics of your neighborhood? We are happy to provide a supply demand analysis tailored to your home.
Russell & Wendy
New listings to market are tracking almost exactly with 2016. While this would seem to be good news for supply starved buyers – after all it is 6% more supply than 2015 – is likely to be far more disappointing than buyers may yet understand. Yes, new supply levels are remaining consistent with 2016 so far, but demand has risen far more than buyers may realize. Demand is far more elastic than supply – so surging demand cannot be quickly solved with the conversely slow moving supply. To be specific, Michael Orr from the Cromford Report states:
“Unfortunately for buyers, the same number of new listings as last year will not be adequate, since the sales rate in 2017 is much higher than 2016. As of yesterday we had seen 16% more closed listings year to date than in 2016… Homes for sale are going to seem thinner on the ground than last year. Although this is bad for buyers, it is good for sellers and will provide fuel for home price inflation. The appraisal industry can only apply limited braking power when supply and demand are out of balance. “
Of course, not all price points and areas are affected equally. The low end price ranges are notoriously sparse along with the mid-range housing. Further, we see no relief in sight for these ranges. Builders have scaled back on building new supply, largely due to higher land costs and limited labor forces. Foreclosures in Maricopa County (remember when those were the largest source of new listings?) have hit all-time lows and are trending to go even lower still. That leaves re-sale sellers to fill the void, and they are not filling it in adequate numbers. The Cromford Report states:
“This imbalance between supply and demand is true throughout most of the low and mid price ranges, but is less of a factor in the higher price areas, particularly in the outer locations. While this imbalance persists, it is likely to lead to further price rises. We saw a substantial 1.1% rise in the average price per sq. ft. during last month, but the median sales price remained flat for the second month. The average price per sq. ft. is a better reflection of what is going on.
Top appreciating cities (based on the 12 month change in the annual average $/SF) are:
Arizona City (13.9%)
El Mirage (13.7%)
Sun City (9.1%)
Sun City West (9.0%)
Litchfield Park (7.6%)
Casa Grande (7.3%)
Queen Creek (7.2%)
The weakest price trends are in:
Gold Canyon (-0.3%)
Paradise Valley (2.6%)
Sun Lakes (3.5%)
Fountain Hills (3.5%)
Cave Creek (4.5%)”
What is the takeaway from these trends? If you’re a seller in the mid to lower price ranges – you are in a stronger negotiating position than in 2016. If you’re a buyer, your bargaining power is further eroding, so act quickly or shift to areas with a better balance of supply and demand. If you have questions about the market in your area, as always we are here to help.
Russell & Wendy Shaw