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Cave Creek, Arizona Real Estate and Homes for Sale |
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Our Local Market Report
Cromford Commentary – August 2 - Market Summary for the Beginning of August Market Summary for the Beginning of August The market deteriorated sharply in July, and much faster than we have experienced for a very long time. Since the changes during July were so dramatic we are going to spend a lot more time than usual examining what is going on. Much of the weakness in demand can be explained by the "air pocket" caused by the expiry of the tax credit at the end of April. Many eligible buyers brought forward their home buying decisions into April from May, June and July. Sales were temporarily boosted in May and June, but like a hangover, the sales volume dropped very sharply in July. If this were the only issue, we could look forward to a recovery by September. However when we look deeper into the supply numbers we can see clear evidence that other factors are working to deteriorate the market further, particularly at price ranges below $225,000. The market above $300,000 has been affected much less, in part because homes priced above $800,000 were ineligible for the tax credit. Let's review a few key numbers, all of which are giving negative signals. These are for all areas and types within ARMLS:
Note that the overall supply of active listings has only increased by 3.6%. It is the fall in demand that has had by far the largest impact. Let's review how sales per month and pending listings have performed over the last six months: These charts tell a obvious story, but a dramatic fall in demand was largely expected after the expiry of the tax credit, so this potentially masks other factors affecting the market balance. Although the increase in supply is much less obvious, it is highly concentrated in particular market segments and more detailed analysis tells us much more about what is going on. The details are quite ominous for the low end of the market once we look more closely. The trend is also running counter to the normal seasonal pattern, which also tells us something unusual is going on here. The overall weekly active listing counts look like this for the past three years: At first sight this does not look remarkable. But note that the upward trend between May and August is not something we saw in 2008, even though the market in 2008 was still struggling to break out of its precipitous price decline. It is completely different to 2009 when the supply plunged at an unusual rate. In normal years active listings decline between May and August because this is the prime selling season of the year. In fact the only years we have seen active listing increase between May and August are 2005 to 2007 when the residential real estate bubble was in its collapsing phase and active listings were rising very fast almost all the time. Let's break out the supply into various market sectors to see what is really going on. The following table is for single family detached in Greater Phoenix and segments the market by price range. It counts active listings but excludes those in AWC status (with a signed contingent contract).
We note four major things: 1. The split at $225,000 where supply below that point has increased but supply above that point has declined 2. Single family detached supply has increased by 11.4%, much more than other dwelling types 3. The large reduction in supply of homes above $500,000 4. The huge increase in supply of homes below $100,000 The large reduction in supply above $500,000 would be excellent news for the luxury sector if it weren't for the fact that demand has also retreated by a significant percentage for most price levels. Only the market above $3,000,000 has seen demand persist at the same level over the last three months.
We want to combine the measurement of supply and demand into a single statistic. The short term change in the balance of supply and demand is probably best illustrated by the inventory based on monthly sales (i.e. months supply). This is a volatile measure but has the advantage of reacting quickly to change over the short term, emphasizing where the changes are strongest.
The market below $225,000 is clearly suffering by far the worst. The months supply numbers are not desperately bad in absolute terms. We saw much worse ones in 2007. It is the rapid nature and scale of their deterioration that is alarming and we conclude that the short term outlook is poor for the market under $225,000. Above $300,000 the picture is more mixed with several ranges improving over the last three months: $300,000 to $399,999, $600,000 to $799,000, $1,000,000 to $1,499,999 and in particular over $2,000,000. In fact the range above $3,000,000 is recording its lowest months supply (24.6) since the summer of 2006. At 9.5, the inventory for the range $600,000 to $799,000 is also the lowest we have recorded since the summer of 2006. So these price sectors are doing pretty well. Yet the ranges $400,000 to $499,999 and $1,500,000 to $1,999,999 are doing relatively poorly. Obviously this is a complex picture. We will come back to look further at geographic segments, foreclosures and pricing in subsequent posts.
Cromford Commentary as of July 22, 2010 July 22 - Large Increase in REOs for Sale Large Increase in REOs for Sale Since April 29 there has been a remarkable increase in the number of lender owned single family detached homes listed as active on ARMLS. After peaking at a record level in mid January 2009, this number had been trending very much lower for 15 months, but reversed course at the end of April 2010. The upward trend has been accelerating during the first three weeks of July. To examine this market change more closely, we want to look at the cities ranked by the increase in REO supply, and to emphasize the change we will exclude those listings with contingent contracts (AWC).
You can also see the changes over this period in the chart: Active Listings by City - Special Listing Conditions A few small cities bucked the trend but most show a significant increase in the supply of single family detached REOs. Although REOs do not form a large part of the supply in absolute terms, their increased presence has a large effect on market confidence because of their extremely low pricing. REOs were reducing in number and in high demand between February 2009 and April 2010, and so the overall market performed fairly well, ending the precipitous price decline that started in mid 2006. In fact REOs reduced from 28% of the supply in January 2009 to less than 13% in April 2010. However REOs now constitute 17% of the supply and this is on an upward trend again despite the growing numbers of short sales. The additional supply is NOT because the banks are foreclosing on more homes. That rate has been fairly steady for two years now. The main change is that buyers' appetites for REOs has reduced, and this is evidenced by a drop in REO sales volumes and the contract ratio for all REOs falling from 131 to 68 during the same 11 week period measured above. We can see this also in the lower numbers of bidders and weaker pricing at the foreclosure auctions. Lower demand causes the supply to stay active longer and build up inventory. The consequence is that the market is now much more frail than it has been for over a year and unless this trend reverses quickly it could get considerably weaker still. When demand is faltering, sellers have to lower prices to re-kindle buyers' interest. Lenders seem to be reacting very quickly. The average asking price per sq. ft. for active single family detached REOs in Greater Phoenix has fallen from $87.06 at the end of April 2010 to $81.36 today.
July 20 - Big Changes in the Mix of Dwelling Types Big Changes in the Mix of Dwelling Types From 2000 until the end of 2008, single family detached homes represented 82.4% of sales in Greater Phoenix through ARMLS measured by unit, and 88.7% of sales measured by value. Condos (including town homes, apartment-style homes, patio homes and gemini/twin homes) comprised 15.4% of unit sales and 10.4% of dollar volume. Mobile homes (including manufactured, modular and pre-fabricated homes) represented 2.2% of the unit sales and 0.9% of dollar volume. Here is a table showing this: 2000 to 2008 ARMLS Sales in Greater Phoenix
Note that the market share in dollars is quite different from the share expressed in units. The lowest year for single family detached was 2007, while the market was in the doldrums but prices were still high. Urban high-rise developments and condo conversions were peaking prior to the rapid decline of this market in 2008. 2007
During 2008 and 2009, single family detached homes came to dominate the residential resale market to a much greater extent than normal. 2009 was a bumper year for sales of single family detached with a large number of them being distressed sales or lender owned properties. 2008
2009
In 2010 this situation is now reversing, with sales of condos and mobile homes increasingly taking a larger share. 2010 YTD to July 20
Year to date sales of single family detached homes number 43,329, which is 0.5% lower than at the same date last year. Year to date sales of apartment style homes are up a staggering 89.5% at 2,861, while town home sales are up 39.9% year to date compared with July 20, 2009. Further details are shown below:
Note that the average value of single family detached homes and loft style homes have increased while those of the other dwelling types have decreased. Where prices went down, sales went up. Where prices went up, sales went down. No surprises there!
July 18 - Mid Month Pricing Update and Forecast Mid Month Pricing Update and Forecast It is time to resurrect the monthly pricing forecast which had been suspended after our office fire in February. Each month about this time we will look back at the previous month, analyze how pricing has behaved and report on how well our forecasting techniques performed. We also give a forecast for how pricing will move over the next 30 days. For the monthly period ending July 18, we are currently recording an average sales $/SF across all areas and types of $89.38 - down as much as 3.8% from $92.90 on June 18. This is in line with the gloomy price prediction we made below, in the news item dated June 21 Today the pending listings for all areas & types show an average list $/SF of $87.52. This figure has fallen quite sharply since the beginning of July - it was $89.53 on June 30 - and is currently the lowest we have seen since March 29, 2009. This suggests further weakness in pricing over the next 30 to 40 days, giving back yet more of the sales pricing gains of the last fifteen months. Our mid-point forecast for August 17 is currently $87.36, which is 2.26% below today's actual reading, and we have a 94% confidence that it will fall within ± 2% of this mid point, i.e. in the range $85.61 to $89.11. The lowest number seen so far was $82.11 on April 6, 2009, so we still expect to be some 6% or so above that level, but we also expect to have fallen 6% from the $93.01 we saw on June 16, and that decline will have taken just 9 weeks. The short term fall in sales price per sq. ft. that we are experiencing now and forecasting for next month is due to a combination of effects:
The downward movement in sales pricing was set in motion by contract signings a few months ago. Will it reverse? Probably not in the near future. We see inventory growing and demand falling at the moment and the seasonal pattern tends to work against us too. It is now over two and a half months since the expiry of the tax credit. It clearly brought a lot of demand forward from May and June into April and we can see evidence for that in the rise and steep fall in the pending listing counts. Since the beginning of July, something else seems to be happening. Active listing counts are now growing at an accelerating rate and sales volumes are falling faster. This suggests to us that there may be other market factors creating new weakness in previously strong demand and a renewed growth in the already high supply. We originally thought it might take until the end of August to detect these effects, but watching the numbers daily as we do, the pattern is emerging faster than we expected. These changes are not happening across the board but appear to be concentrated in specific price ranges and geographic areas. However these price ranges and geographic areas are broad enough to have a major effect on the overall averages.
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(480) 323-0855 Dominion Real Estate Partners
6501 East Cave Creek Rd. Suite 6
Cave Creek, AZ 85331
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