The market is remarkably stable at this time despite some headlines in the past few months implying otherwise. The “Most Improved” award goes to the luxury market – with Scottsdale, Paradise Valley and Carefree all posting great improvements thanks to higher demand and lower supply (quite a reversal from the 2nd quarter). No matter how interesting the luxury market is – 93% of the sales occur at 500K or below. Therefore a much broader
look is required. Michael Orr of the Cromford Report gives a very succinct summary of the market:
“Inventory in the higher sales ranges has fallen sharply over the last 3 months, as it tends to do every year. This means remaining sellers have much less competition. So far this has not resulted in much improvement in sales prices because it takes a very long time for lower inventory to feed through into pricing. In addition it is usual for inventory to rise just as strongly between October and March so we do not think the luxury market has escaped its problems just yet. If we end up with more luxury inventory in April 2017 than we had on April 2016, then luxury home pricing is likely to continue its current weak trend.
We are seeing a little more inventory at the affordable end of the market in certain areas. If it continues this should have a moderating impact on the high appreciation rates we have been seeing below $200,000. Buyers should also see a mild reduction in the number of competing offers for the homes they want. However the effect is currently only weak and could possibly peter out quickly.
The mid-range continues to enjoy healthy supply and healthy demand plus volume increases far in excess of the low or high ends. I see little to concern us in the market between $200,000 and $500,000 at the moment and for the next few months.
… in the short term the vast majority of our local housing market is looking unusually positive and stable.”
In a stable market, it would seem easy to properly sell a home. Yet, surprisingly, we find the same mistakes being made by sellers no matter the market. Because we are in the position to hear these horror stories, let us give you a quick “Reader’s Digest” version of a few pitfalls to avoid.
Accept a solicitation offer.
The latest trend in exploiting sellers comes from “direct to seller” investors. We’ve all received postcards and solicitations from the “We will buy your house” gang. Whether well-funded by Wall Street (Open Door) or simply a local investor, the basic formula is the same. The promise is to save you money and time – “no commissions” “sell as-is” and the promises go on and on. The devil is in the details. Commissions just get renamed “fees” and “as-is” just means swapping unhandled condition issues for large price deductions. Often times the initial offer drops precipitously as inspections are done and the close date approaches. After all, in any negotiation the party who needs the deal loses. In this case, the losing party is the seller weeks from closing who suddenly finds themselves forced to agree to last minute changing terms.
These investors are using the fact that many sellers are unaware that they can sell a home “as-is” through a traditional brokerage sale. Competition from multiple buyers (even if only multiple investors) will best protect seller’s price. The fact is investors who solicit benefit by the lack of competition for a home and misleading terms at the expense of the seller.
Not list your home on MLS (i.e. believe that both you and buyer can “save the commission”).
The primary reason sellers attempt to sell their home “For Sale by Owner” or use a “Limited Service” real estate company is to “save the commission”. Although we fully understand the impulse (who doesn’t want to “save” money?) the statistics tell a different story. The most recent study of this was posted in ARMLS Stat: “When we test our model against MLS sales only, properties that were sold using a real estate agent via the MLS sell between 8.5% and 9.0% higher than properties not listed on the MLS.” Is it because agents just “know more”? Hopefully your agent in fact does know more (promise us you will select an experienced agent) but that is not the reason. Go back to our first point – it is competition for a home that protects value. That is the purpose of MLS – to employ the 35,000 +/- agents and their buyers to compete for the home. Secondarily, imagine for a moment why a buyer would select a “By Owner” home? Since buyers don’t pay the commission – why would they care if the home is sold by a broker or by owner? They would only care if they could “save the commission”. But isn’t that the very reason the seller is selling by owner to “save the commission”? How do two people save the same commission? Additionally, if you have only one buyer looking, have you really received “top dollar’ from the market – or just that buyer’s top dollar?
Bad Pricing. Thanks to the internet, sellers and buyers have more instantaneous and, sadly, erroneous information at their fingertips. This bad information has led to both underpricing and overpricing of homes. Establishing pricing through an AVM (automated valuation model – for example Zestimates) while fun and interesting, is by no means is an accurate way to determine market value. Algorithms cannot take in all the factors that make up pricing – site selection, competition, property condition, variances in square footage, supply/demand shifts, etc. Ask yourself why after all these years lenders still require an appraisal – where an actual person (gasp!) views the home and compares it to other sales. There is simply no substitute for judgment. Overpricing a home in the critical first three weeks can be a problem not easily overcome with reductions in the subsequent weeks and months. Buyers can view “days on market” and make assumptions about whether this is a “good home” since no one else has purchased it, or exploit the seller’s increasing desperation as the marketing time extends.
Hire an agent you can’t fire. This may be the least obvious of the errors, but it is an error. Why would this matter? Many sellers may be unaware that once they list with an agent, they cannot cancel the listing agreement –even if they are unhappy. Being tied up in a 6 month listing agreement with the wrong agent (bad agent, bad marketing, improper preparation of the home, etc.) can not only rack up days on market but can eliminate the opportunity to sell during prime market periods waiting for the listing to expire. Some agents will “agree to cancel” for a fee. The best protection for you is obtaining the right to cancel at no charge as part of the listing agreement.
While there certainly are other errors we could elaborate upon, we tried to hit some of the most common. Want to know more? As always, we are here to discuss your particular concerns.
The biggest challenge of the 2016 market has been the intensely low inventory in the $175,000 and under market. The situation began in earnest in 2015 and has only accelerated. Any buyer shopping in the $100,000-$125,000 price point for single family properties can share their own tale of misery – as the inventory in that range has nearly evaporated. As we have mentioned in articles past, supply is the harder side of the equation to move – demand being far more mercurial. Unless we get some institutional owners (hedge firms, investors, etc.) to part with their rental inventory – we see no immediate solution to our entry level, single family home supply issue. As in years past, buyers in that price range are currently faced with only a few options: remain a tenant, increase their buying power (i.e. cosigners or increased down payment/income) purchase a condo, purchase a mobile home, or go out of demand areas to lower priced housing.
Demand has also improved over 2015 – but not dramatically (frankly, we are not unhappy about avoiding “dramatic” trends after the rocket ride of the last 10 years). As our guru, Michael Orr of the Cromford Report opines:
“We are now at the point where inventory hits its minimum level in most years. New listings are arriving only 3% faster than last year and we have seen quite a lot of cancellations, especially at the higher price points. We will be looking to see what sort of inventory growth we get between now and the next peak at the end of November.
Demand is currently holding up, some 5% higher than we would consider normal. However the market conditions are probably going to be determined by changes in the supply.“
We have begun to see the occasional headline warning of an impending drop in demand. Let us offer some thoughts on the matter. First, supply and demand are a balancing scale – meaning that when demand exceeds supply – prices go up. Prices going up, cool off demand. Cooling demand increases supply. In other words, this is exactly what is supposed to happen – supply and demand move up and down in a balancing act. Additionally, our market has uniquely segmented behavior specific to price ranges, rather than the more traditional geographic segments. Demand has already fallen in the high end – attributed perhaps to an aging population who are downsizing, the stock market, and hot temperatures (buyers with funds flee the valley in the summer). The mid- range market has been mostly flat, and the low end has been appreciating due to the low levels of supply. Most importantly, real estate markets are local – not national. So any broad statement about “the real estate market” should be met with some skepticism. Here is Michael Orr’s brilliant analysis of our market place:
“In the recent couple of years the market trends have been determined far more by price range rather than the traditional location (location, location). This is contrary to normal market behavior. We are not used to our fastest appreciating markets being those with the worst performing schools and the highest rates of crime. However a few numbers will easily prove my point: The figures below are for all property types within Greater Phoenix.
I highlighted in red the price ranges which went backwards in dollars adjusted for inflation (which was 1.01% this year and 0.12% 12 months ago).
I am not sure why the $800,000 to $1M range should be doing better than those either side of it. It is faring as well as the $400,000 to $500,000 range. The rest of the ranges from $500,000 upwards have not performed so well over the past 24 months. The range between $1M and $1.5M shows the weakest trend here.
In terms of unit sales through ARMLS, the price ranges at or below $500,000 comprise 93% of the total market while those above $500,000 comprise only 7%. So it is fair to say that the market as a whole is keeping housing assets appreciating well ahead of inflation. This becomes even more true as you head down market.
The picture changes when we look at supply rather than demand. Among the active listings on ARMLS within Greater Phoenix today, listings over $500,000 comprise 24%, and those of $500,000 or less only 76%.”
If there ever was a case for avoiding Zillow’s erroneous zestimates, the above would prove the point. Markets are nuanced, and there is no substitute for looking. As always, we will do our best to keep you informed on the real trends in our marketplace.
The trends that were forming in the first quarter of 2016, now are affirmed. As usual, the two most important laws of economics – the laws of supply and demand – are the driving force behind the trends. Demand – the more fluid and fickle of the two- is up. In fact demand has returned to levels not seen since 2013. Supply, the slower moving component, has fractured into distinct market segments. No one captures this market snapshot better than Michael Orr of the Cromford Report when he states:
Below $275K we therefore see continued strong appreciation, short times on market and low cancellation and expiry rates.
From $275K to $350K we see very healthy market conditions with new supply and closed sales both up significantly from last year.
From $350K-$400K the growth in supply was strong, but sales growth was much weaker than average, suggesting there may be a few problems developing for sellers. However from $400K to $500K the percentage growth in new listings was matched by the growth in closed sales. I would describe this sector of the market as normal, healthy and growing, with no major shortages of buyers or sellers.
From $500K to $800K new supply outstripped the growth in sales, so even though there was a healthy increase in volume we see more competition building between sellers.
From $800K to $1M the increases were balanced but we do see 3 times as many new listings as we see closed sales. This is likely to mean higher cancellation and expiry rates and long times to sell ahead. It also means minimal upward pressure on pricing.
The issue for sellers with homes priced over a million is that the number of new listings outpaced sales by at least 3.4 to 1. This is not unusual for this segment, where new listings comfortably exceed closed sales at all times. The bad news is that sales were slightly down (-1.4%) from last year, primarily due to surprisingly poor performance by the segment from $1M to $1.5M. Yet new listings were up almost 15% for homes over $1M. This is a good situation for luxury home buyers, but it is not very good news for sellers who would like to see some appreciation. The current market environment over $1 million is consistent with a flat to slight downward trend in prices, long times on market and high rates of cancelled and expired listings. There are some very fashionable locations (close to urban centers) where this does not apply, but the bulk of the luxury market has reasonably good demand but excessive supply. Because of the good demand, agents will be happy with the transaction volume, but sellers are likely to be disappointed with the sales prices that can be achieved, and how long it takes to achieve them. These sellers hear about prices rising both locally and nationally, but unfortunately it does not apply to them.
The question of why inventory has jumped so markedly in the 500K+ range has garnered some attention lately. National analysts have begun speculating on this trend, much as they did last year when bemoaning the apparent lack of interest in home ownership by millennials (a theory we do not subscribe to).
A theory put forward by several national analysts, particularly Stephen Kim of Barclays, is that a long term secular change is under way. They believe a wave of empty nesters is seeking to downsize, and now that the market has recovered from the crisis of 2006-2009 they are planning to do so in growing numbers. If a large number of baby boomers want to sell their suburban luxury homes at the same time, we are going to see an imbalance of supply and demand. ..We are seeing a rise in discretionary renting, where older homeowners sell their large homes and move into smaller rental homes. They appear to prefer upgrades and amenities to square footage. They are probably using their home equity as a source of funds to enjoy their retirement.
Although we are no analysts, the jump in supply does not seem particularly shocking to us. To our minds, this is the same “coiled spring” theory that demand operates on – so why not supply? When demand is artificially held down for an extended period of time, the recoil once released is greater than expected. So too, we believe, does supply follow the same “coiled spring”. The homeowners who lost their homes in the greatest volume were those in the lower end of the market. The higher end homeowners faced with negative equity – simply had to wait out the market. Having waited for years for appreciation to make home selling an option again, that coiled spring released numerous sellers back in to the market. At least according to our theory.
Whatever the reason, supply and demand continue to be an interesting equation in our housing market. No matter the reasons, we will do our best to keep you informed on housing trends. As always, we appreciate the continuing confidence of the clients we are so lucky to serve.
February showed some signs of life for homes going under contract after surprisingly lackluster activity levels in January. But as we warned, trends take time to form, and so a good or bad month does not make a year. 2016 had been heralded by most to be a likely breakout year. Demand was expected to leap due to the continuing rise in rental rates, the boomerang buyers returning to the market (those who lost their homes and return to buy after credit recovery), Millennials beginning to buy, and the valley’s overall positive net migration. Despite the compelling reasons for a demand surge, the indicators so far have been underwhelming. Demand has remained in a pretty neutral range, neither retreating nor advancing significantly. The number of homes under contract is higher in 2016 than in the same time in 2015 by approximately 8%. That would be encouraging if that % was growing rather than eroding.
Interestingly the purchasers are much more dominated by local buyers – up by about 18%. Buyers with out of state addresses are running 8% less as they did in 2015. Anyone tracking the weakened Canadian dollar will understand why very few Canadians are buying these days – down 64% compared to January 2015 (but they are wisely selling – up 26% from a year ago).
The new listings to market are up over 2015 by 6.2%. This is higher than 2014 and 2013 as well – notoriously low years for homes coming to market. The low rate of homes coming to market in the last 3 years was the market’s saving grace (at least for sellers) given that demand was also lower than normal. With demand in neutral, a continuing arrival of new inventory is starting to shift the balance of the market in some areas and price points. Michael Orr of the Cromford Report offers this interesting breakdown by cities:
The active listing count has increased in all the major cities, as is normal for the time of year, but the largest percentage monthly increases are in:
- Goodyear 17%
- Scottsdale 17%
- Tempe 15%
- Surprise 15%
- Avondale 12%
- Chandler 12%
These increases give buyers a lot more choice. Scottsdale now has more active listings (including UCB) that at any time since 2011.
Queen Creek stands out by having the smallest increase of less than 2%, unusually low for the time of year.
Among the secondary cities the fastest growing active listing counts are in:
- Apache Junction 28%
- Sun City 20%
- Buckeye 18%
- Sun Lakes 16%
- Anthem 16%
- Cave Creek 15%
- Sun City West 14%
- Maricopa 12%
- Paradise Valley 10%
- Tolleson 10%
The inventory in the 55+ active adult areas is growing significantly faster than usual. Sun Lakes has the highest number of active listings (including UCB) since early 2011. Cave Creek beats this by having the largest number of active listings since 2010.
Conspicuously slow growth in active listings can be seen in:
- Litchfield Park -1%
- Laveen 0%
- Casa Grande 2%
Despite these geographically supply shifts, we cannot overemphasize that price point is still a major factor in the supply/demand analysis. Below 200K, we still see very constrained inventory with multiple offers being the norm. Even with demand in neutral, it is outpacing and exceeding supply. We see no relief in sight at the moment.
We will continue to watch 2016 and report the trends that affect our clients. As always, we are here to evaluate your particular neighborhood and provide a supply/demand analysis so you can make informed decisions.
As we approach the last quarter, we have a few benchmarks that reveal market trends this year. Rather than trying to sweep this in to one cohesive thought – we simply offer you some observations in no particular order of importance.
Much like our weather, the real estate market has “seasonal patterns’. Keep this in mind when the headlines scream “the real estate market is declining” as they often report in the back half of the year. Two things happen once the spring buying season is over, less luxury homes sell (thereby dropping the average price per square foot of sales – as smaller and less expensive homes dominate the mix) and the volume of home sales begin to gradiently taper monthly as we head towards the end of the year. These two factors can look like a “declining market” rather than a yearly seasonal pattern that is both expected and normal. As our local real estate guru Michael Orr of the Cromford Report comments:
“So the apparent drop in pricing in the overall market is an illusion. The real cause is a big shift in the luxury market with strong sales of homes under $1 million compensating for weaker sales over $2 million. This is a normal pattern every year, but this summer the effect is particularly strong because the super-luxury homes had such a successful spring season.”
The Luxury market performed very well the first half of the year.
Although typically posting the smallest number of sales in the market, the luxury market still has the power to fascinate. Fascinate it did this year, posting some remarkable numbers. Here is what Michael Orr shared about July (a month that often is a rather tepid one for luxury sales as those buyers typically flee for cooler climates):
“Luxury single-family home sales in the Northeast Valley remained surprisingly strong during July 2015. There were 354 closed transactions over $500,000 in the Northeast Valley though ARMLS, up 25% from last year. Almost all the strength was concentrated in ranges below $1 million. Over $1 million, sales were up only 2% while between $800,000 and $1 million sales rose an astonishing 69%. The top end went suddenly quiet with only 5 closed sales over $3 million, down from 16 in June. Unit sales over $500,000 were the second highest we have seen for any July since 2000 with July 2005 still holding the record at 479.”
The Supply/Demand situation
The supply/demand front remains much as it has this entire year. New listings coming to market are still very weak when compared to historic trends. In fact 2013, 2014, and 2015 all posted anemic amounts of homes for sale. While agents bemoan this trend (after all, who wants a store with nothing on the shelves?) it has actually been beneficial to sellers. This year’s normal demand levels juxtaposed against the below average supply – led to very constricted supply in some price ranges and areas. This helped prices not only stabilize, but in most cases to gently increase.
“Overall demand is nothing special, but it is still much stronger than last year. Supply remains weak overall and although new listings are arriving at about a 5% higher pace than last year, this is well below long term average levels…
Active Listings…: 19,459 versus 23,900 last year – down 18.6% …Under Contract Listings (including Pending & UCB): 9,705 versus 9,066 last year – up 7.0%….Monthly Sales: 7,942 versus 6,858 last year – up 15.8% …
… We may see a little more supply over the next few months for the popular ranges between $150,000 and $400,000. This may in turn bring a little welcome relief for the average buyer and stop the market getting even more favorable for sellers.” -Michael Orr
The “solar lease” trend.
This is a rather controversial subject – as solar leasing companies have done a very good job in selling the 21st century solar which is dramatically different from the 20th century solar some of us (cough) are old enough to recall. While “going green” is a wonderful ecological trend and one we happily support, we are often asked “will a solar lease add value to my home”? Sadly we must report the answer is “no”. In fact, our experience thus far indicates just the opposite. Buyers may happily accept a “no strings attached” solar unit (i.e. one that is owned by the seller) leases however pose a challenge. First, the buyer must qualify for the lease – not only in terms of credit worthiness, but also it must be factored in to their debt/income ratios. Secondly, buyers seem to dislike the idea of a long term commitment (many leases are 30 years) that they cannot be freed from. These factors not only fail to increase value, but in some cases prohibit a sale or even slightly reduce the value of the home. While this is not a popular answer, it is the current reality. Perhaps this will shift with time. Only time will tell.
So there are few tidbits about our current market trends. As always, we will strive to keep you posted on the shifts that continue to “normalize” our market.
Real estate affects everyone here in the valley – even those who don’t buy or sell. So being a Realtor, I get to see firsthand the level of interest the subject attracts. The second most common question I get asked is “How’s the market?” (The most common one being “Are you that guy on TV?”)
For the 800k seller in north Scottsdale? Or the 250k seller in Avondale? The answers are very different. Buyers in the 800k range have many homes to choose from. Juxtapose that to Avondale which currently has the hottest seller market in the valley. Glendale is just behind Avondale -but still a red hot market for sellers. Hot seller markets are simply markets that have lots of buyers – and too few sellers. It is always supply and demand.
The sticking point is that supply and demand numbers are not universal to an area or price point. So when the news reports “it’s a red hot seller’s market” take a moment and look at the valley as a series of sub-communities – each with their own numbers.
To quote directly from Michael Orr’s Cromford Report:
“Multiple offer situations are increasing. If buyers are wanting to spend more than $500,000 then they are in luck – supply is much more plentiful above that mark, though a few very popular areas like Arcadia have relatively slim pickings. During May even those upper price ranges saw a downward trend in active listing counts, but not enough to cause any real problems for most buyers. If today’s normal demand can cause supply to drop as much as it did in the last month, then buyers are going to have an even harder time if demand were to grow. This is especially true for the entry level market which is desperately short of homes for sale or rent.
The price trend is now very different for the low end, where strong appreciation is likely, and for the high end where a gently drift sideways is more likely, except in those areas where inventory is unusually low…
We note that the monthly median sales price has increased much faster than the monthly average price per sq. ft. The low end of the market is not pulling its usual weight due to the painfully low levels of supply in so many areas. This generates insufficient sales to keep the median down at its natural level. Prices are not really improving as much as the median suggests, except in a few very affordable areas, which may not remain so affordable for much longer…
The growing sense of justifiable optimism in the housing market tends to bring out ever more ridiculous articles in the media, usually forecasting doom and gloom ahead. Some even pretend to use mathematics to justify their case.
As John Kenneth Galbraith said (or was it Ezra Solomon; we don’t even know the past for certain), “The only function of economic forecasting is to make astrology look respectable”.
We will continue to stick to reporting the present and very short term forecasts. Right now the Greater Phoenix housing market is experiencing more than usual upward price pressure due to a chronic shortage of affordable housing to buy or rent. The majority of new development is focused on the mid-range or luxury markets, not the affordable market, for understandable business reasons, so there is no imminent solution to this shortage of affordable homes.”
Wondering if it a good time to sell for your price and neighborhood? Most likely the answer is yes. As always, the best answer is a researched answer. We simply need an address to give you a real answer to that question – anytime.
After a year and a half of the real estate market being in the doldrums – low supply and low demand – demand has fully corrected. In fact, demand is now in a “normal” range. Supply however, has failed to follow. In fact supply is down about 15% from last year. That is great news for sellers.
In the last 2 weeks of February, demand finally began increasing. That increase appeared to primarily come from first time home buyers. Even that picture has shifted a bit, and now demand is largely coming from the move up buyers. This move up buyer has allowed improvement in higher price points as well as in most geographic areas. In real estate, this is the “trickle up theory” – that improvement begins in the lower price ranges and migrates upwards. If demand remains strong, and supply continues to be constrained, then with time, prices follow.
Supply and demand trends tend to follow certain patterns, ultimately adjusting with the effect of coming in to balance. For example, when supply stays low but demand accelerates, the first signs of the shift are multiple offers – often pushing contract prices above listing prices. Then the appraisals begin to come in “low” (as rising prices are not supported by historical prices) often forcing sellers to accept less and thereby artificially holding down prices. Eventually enough demand creates buyers who will pay above appraisal or enough attractive cash offers, and prices begin their climb. Higher pricing then encourages more sellers to come to market, and as supply builds price appreciation moderates. Supply and demand then are brought back in to balance.
Where are we currently in this cycle? At the moment, we are seeing multiple offers with contract pricing pushing upwards, only to be depressed by low appraisals. If this trend continues, we likely will see price increases in the next few months.
Summing up the market shift is our favorite guru, Michael Orr of the Cromford Report:
Now we are fully into the height of the prime selling season it is becoming clear that it is not the first time home buyer who is making the biggest impact. It is the move up price ranges that are doing best compared with last year.
Here are the price ranges which have growth dollar volume the most between March 2014 and March 2015:
1. $350K-$400K – up 46%
2. $300K-$350K – up 40%
3. $500K-$600K – up 40%
4. $275K-$300K – up 28%
5. $200K-$225K – up 26%
6. $800K-$1M – up 26%
7. $250K-$275K – up 26%
8. $175K-$200K – up 24%
9. $2M-$3M – up 23%
10. $600K-$800K – up 21%
11. $400K-$500K – up 21%
All ranges below $125,000 are delivering lower dollar volume than last year and so are the ranges over $3 million and between $1.5 million and $2 million.
The mid range and the lower luxury ranges are where we are seeing the most strength and this is in stark contrast to last year.
All in all, encouraging news for most sellers. After a year and a half, it’s nice news to report.
While sellers are gaining the upper hand in the marketplace this spring buying season, they don’t have power in all areas. Let’s evaluate where buyers are winning and losing. Relatively strong supplies (which give buyer’s potentially more bargaining power) currently exist in:
Chandler –supplies have been rising since early March and are about at the same level as last year
Fountain Hills – starting to fall but higher than any time since 2010
Gilbert – active listings are climbing in 2015 (although still below 2014)
Scottsdale – listings are slightly down from last year but still plentiful
Laveen – listings are up and at equivalent levels of 2012
Cave Creek & Paradise Valley – both areas have abundant supply and are hitting new highs for supplies
Gold Canyon- listings are more plentiful than last year
Where can buyers expect tough competition for homes? The west valley is particularly low in supply, largely because housing is most affordable there. Glendale, Tolleson, El Mirage are seeing multiple offers and stiff competition from buyers for homes. As demand is up in all areas, smart buyers will learn the dynamics of their particular shopping area to learn how to win.