The Supply and Demand Seesaw

April 8, 2017 by · Leave a Comment 

The spring buying season is now underway and the current numbers seem to confirm the early signals of 2017.

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%)

Tolleson (11.4%)

Maricopa (10.6%)

Laveen (10.4%)

Buckeye (9.4%)

Avondale (9.1%)

Sun City (9.1%)

Sun City West (9.0%)

Litchfield Park (7.6%)

Casa Grande (7.3%)

Phoenix (7.3%)

Queen Creek (7.2%)

 

The weakest price trends are in:

 Gold Canyon (-0.3%)

Scottsdale (1.4%)

Anthem (1.6%)

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

(Mostly Wendy)

About Russell


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