MARKET NEWSDaily Observations from the Cromford Report

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May 4 - The initial estimates for April in Maricopa based on Affidavits of Value are as follows:

  • Overall sales were down 13% compared to April 2021

  • New home sales were down 15% while re-sales were down 13%

  • The overall median sales price was $479,422, up 27.5% from $376,000 in April 2021

  • The new home median was $496,431, up 25.5% from $395,452 in April 2021

  • The re-sale median was $475,000, up 26.7% from $375,000 in April 2021

The typical home in Maricopa County rose $100,000 over the last 12 months.

These figures are for single-family homes and townhouse / condos combined, though the market is still overwhelmingly dominated by single-family detached homes.

 

May 3 - The supply situation has changed a lot in percentage terms since the beginning of April. Although the number of active listings remains low by long term standards, a few segments of the market have seen buyers suddenly faced with almost twice as many homes to choose from.

Here is how it varies by price range for single-family detached homes:

  • Homes under $400,000 have increased from 638 to 644 (+1%)

  • Homes between $400,000 and $500,000 have increased from 874 to 1,118 (+28%)

  • Homes between $500,000 and $600,000 have increased from 586 to 878 (+50%)

  • Homes between $600,000 and $800,000 have increased from 632 to 893 (+41%)

  • Homes between $800,000 and $1,000,000 have increased from 312 to 431 (+38%)

  • Homes between $1 million and £1.5 million have increased from 268 to 364 (+36%)

  • Homes between $1.5 million and $2 million have increased from 92 to 171 (+86%)

  • Homes between $2 million and $3 million have increased from 90 to 151 (+68%)

  • Homes over $3 million have increased from 234 to 254 (+9%)

These numbers are for active listings without a contract. That is, they exclude UCB and CCBS active listings.

We can see it is the price range from $1.5 million up to $3 million that has experienced the largest increase.

It is unusual to see such large percentage increases and extremely unusual for them to occur during April.

May 2 - Cromford® Public subscribers who glance at chart TA12 or TA13 will notice that an unusual "city" has knocked Scottsdale into third place for annual average price per square foot. While Paradise Valley remains at number one, Tortilla Flat 85190 makes number two for the first time.

The average of $545.98 per sq. ft. was achieved in 2021 for a single-family home of 1,566 sq ft. set on 20 acres near Mud Spring Canyon within the Tonto National Forest. And yes this remote spot is within Maricopa County. It was first marketed in 2015 for $1,350,000 and failed to sell after 2 years. It finally changed hands for $550,000 in 2020 which seems like bargain for anyone who likes wonderful desert views, horses, boats and getting away from it all. Apache Lake is only 2 miles away.

It was resold in 2021 for $855,000, putting it high up our $/SF table. These transaction did not involve ARMLS, so they are not visible in the main Cromford® Report data..

The strangest thing about its location is that, although it is within Tortilla Flat AZ 85190 from the USPS point of view, you cannot easily visit Tortilla Flat by vehicle along AZ highway 88 because that road has been closed since 2019 due to storm damage following the Woodbury Fire. To get from this home to its local postal counter would take a round trip of 220 miles lasting about 5 hours and 30 minutes. That must be some kind of record I think.

Parts of the Wild West are still very wild.

For pictures of the property see 2015 MLS listing 5358916.

 

May 1 - Supply has been arriving in greater quantities over the past few weeks, This applies to both rental and for-sale listings.

The most dramatic rises are in rentals. There were 2,550 new rental listings created in the last 4 weeks, which is up 45% from the same 4 weeks of 2021. For 2022 year-to-date we have seen 26% more new listings (10,072 versus 7,995).

Residential for-sale listings added over the last 28 days number 10,476, up from 10,387 in the same period of 2021, a 0.9% increase. Year to date we have seen 40,198, down from 40,580 last year.

The problem for the market is that this extra supply is coming just as demand is dropping fast.

The for-sale active listing count (excluding UCB and CCBS) across all areas & types has jumped 27% in just 4 weeks. This is even faster than we experienced in April 2005. That's a scary percentage, even though the absolute numbers remain small. If this growth rate persists through May and June, the market will be very different by July.

April 30 - Although the market is cooling, prices are still on a strong upward trajectory that will be maintained for several months at least. Supply is increasing while demand is falling, but the gap is so large that it will take a long time for these two elements to achieve balance, even if the current trend continues.

The price increases over the past 2 years have been extremely large, but should not be surprising to Cromford® Report subscribers, given the very high levels reached by the Cromford® Market Index since mid-2020. They will of course be surprising to followers of the CoreLogic Monthly Home Price Insights reports, who have forecast that price increases would be very weak from mid-2020 onwards. In fact in June 2020 they told us that home prices would fall by 6.6% by June 2021. A year later in June 2021, they projected that prices would rise by 3.2% by June 2022. It is hard to imagine anyone being more consistently inaccurate in forecasting home prices.

 

 

 

 

 

 

 

 

 

 

 

 

 

The averages are for single-family detached homes only. The cities are listed in order by total dollar volume.

April 28 - Here is our latest table of Cromford® Market Index values for the single-family markets in the 17 largest cities

April 22 - Comparing today with April 22, 2021 for active rental listings on ARMLS:

  • Singe-family detached rentals have grown from 728 to 1,561 - a 114% increase

  • Townhomes are up 45%

  • Apartment-style homes are down 12%

That is a large shift in the mixture, with apartments harder to find but a dramatic increase in the number of single-family detached homes available to rent - the most since April 2020.

The average rent being asked for single-family detached homes is down again to $1.63 per sq. ft. per month. It was $2.03 this time last year. So not only do prospective SFD tenants have more than twice as many ARMLS listings to choose from, they are on average being asked to pay 20% less in rent per square foot.

Yet, almost everybody is saying rents are going up. Not in Phoenix they're not.

With rents going down and mortgage rates and home purchase prices going up, the argument for buying over renting is starting to look significantly weaker.

April 9 - The luxury market has been on a frantic run in the last 12 months with remarkable increases in price during that period. For example:

  • The annual average $/SF has increased from $472 to $631 in Paradise Valley - a rise of 34%

  • The annual average $/SF has increased from $459 to $600 in Arcadia - a rise of 31%

  • The annual average $/SF has increased from $361 to $461 in the Biltmore District - a rise of 28%

  • The annual average $/SF has increased from $348 to $452 in North Scottsdale - a rise of 30%

 

There still appears to be a great of momentum in the same direction and we expect these annual averages to continue to rise throughout 2022. We say this because the 3-month average $/SF is already much higher than the annual average, at $713 in Paradise Valley, $651 in Arcadia, $504 in the Biltmore District and $506 in North Scottsdale.

April 2 - As statisticians, we rarely focus on individual houses, but prefer a large sample size so we can be confident our deductions are sound. However, our wise friend Tom Ruff brought our attention to one particular one-story single-family home in Desert Ridge (Phoenix 85050) with a very interesting history.

Originally built in 1998 by Shea Homes and sold that year for $189,468, it has had 10 owners since that date, its most recent sale being for $707,500 in 2021.

The most interesting sales were the last 4:

  1. Purchased by Zillow in 2019 for $512,500

  2. Purchased by a new homeowner in 2020 for $453,000

  3. Purchased by Opendoor just 7 months later for $778,400

  4. Purchased by another new homeowner in 2021 for $707,500

So the first homeowner managed to make a gross profit of $325,400 after owning the home for just 7 months. That's quite some flip.

In contrast, Zillow managed to lose $59500 (12%) on a home they owned for 10 months, while Opendoor managed to lose $70,900 (9%) on a home they owned for 4 months.

I will leave you to draw you own conclusions about this story.

April 1 - There are a number of different techniques for measuring how hot the market is right now. All of them report that it is pretty toasty.

One of our favorites is the average percentage of the sales price compared with final list price. Here is a ranking of many the cities and towns within Maricopa and Pinal according to that measure at the end of the first quarter. The numbers are for single-family detached homes only:

Cave Creek and Chandler are stand-outs by this measure at the moment. Scottsdale and Fountain Hills are much higher in this table than we normally see, as evidenced by the numbers from 2 years ago, as the COVID-19 pandemic started to dominate proceedings. Only Gold Canyon and Paradise Valley are still seeing their average homes sell for less than list price.

March 31 - Here is our latest table of Cromford® Market Index values for the single-family markets in the 17 largest cities

Over the last month, 5 of the 17 cities have improved for sellers while 12 have deteriorated for sellers. This is a worse picture for sellers than last week, and the average change in the CMI over the past month is -3.2% whereas it was -1.4% last week. The cooling of the market has started to increase, but it remains extremely hot compared to normal.

Surprise was again the weakest city, down 14% while Tempe was again the strongest, up 10%.

The maximum declined 9% from 668.1 to 607.6 while the minimum also declined from 265.4 to 263.3

Despite the cooling, these are all very high CMI readings and they suggest that pricing will continue to move higher over the next several months.

March 30 - The Cromford® Public charts covering single-family and multi-family permits have been updated to include February unit counts.

The multi-family unit count for February was a relatively modest 1,039 for Maricopa and Pinal counties. This is the lowest count since August, but these monthly counts are pretty volatile and it would be foolish to draw too much of a conclusion from a single month of data. The annual rate of 16,187 remains very high - the third highest we have recorded, exceeded only by December 2021 and January 2022.

Multi-family permits are some 60% higher than the long-term typical count of 10,000 per year.

Single-family permits for Maricopa and Pinal counties totaled 3,155 in February. This is the highest total since April 2022. However, it is not higher than the long-term typical rate since 1996. We saw a collapse in permit counts in 2008 which recovered very slowly. The lull lasted until 2020. But typical monthly rates between 1996 and 2007 were around 3,000 and they have resumed at that level since 2020.

The overall picture is that multi-family permits are well above normal while single-family permits are at a normal level.

March 29 - The latest S&P / Case-Shiller® Home Price Index® numbers were published on February 29.

The new report covers home sales during the period November 2021 to January 2022.

Comparing with the previous month's series we see the following changes:

  1. San Diego +2.50%

  2. San Francisco +2.35%

  3. Tampa +2.33%

  4. Seattle +2.02%

  5. Dallas +1.89%

  6. Miami +1.83%

  7. Las Vegas +1.70%

  8. Phoenix +1.69%

  9. Denver +1.61%

  10. Los Angeles +1.59%

  11. Atlanta +1.47%

  12. Charlotte +1.26%

  13. Washington +1.11%

  14. Portland +0.91%

  15. New York +0.86%

  16. Detroit +0.71%

  17. Boston +0.66%

  18. Chicago +0.64%

  19. Minneapolis +0.50%

  20. Cleveland +0.33%

 

Phoenix has dropped 2 places to eighth place but remains above the national average, which was 1.41%. No city declined month to month. Given that the market data does not include any of the Spring selling season, these are particularly strong numbers, particularly for the West and South of the country

Comparing year of year, we see the following changes:

  1. Phoenix +32.6%

  2. Tampa +30.8%

  3. Miami +28.1%

  4. Dallas +27.3%

  5. San Diego +27.1%

  6. Las Vegas +26.2%

  7. Seattle +24.7%

  8. Charlotte +24.4%

  9. Atlanta +22.5%

  10. San Francisco +20.9%

  11. Denver +20.8%

  12. Los Angeles +19.9%

  13. Portland +17.7%

  14. Detroit +14.0%

  15. New York +13.5%

  16. Cleveland +13.3%

  17. Boston +13.3%

  18. Chicago +12.5%

  19. Minneapolis +11.8%

  20. Washington +11.2%

 

Phoenix is top of the year-over-year table for the 32nd consecutive month.

The national average was 19.2%, up from 18.8% last month.

March 9 - We have taken a look at total dollar volume for January 2022 and compared it with January 2021, using chart DV13 from Cromford® Public.

  • Dollar volume was up 19% from $4,089M to $4,852M - all thanks to higher prices, since unit volume was almost the same

  • New home dollar volume was up only 3% from $711M to $732M due to lower unit volume

  • Normal MLS dollar volume was up only 7% from $2.668M to $2,854M

  • Normal non-MLS dollar volume was up 40% from $431M to $603M

  • Investor flip dollar volume was up 154% from $250M to $635M

  • Distressed sale dollar volume was flat at $28M

 

iBuyers tend to have a normal non-MLS purchase followed by an investor flip, so the rise in these numbers is partially due to the ramp up in transactions from iBuyers.

There is also clear evidence that more transactions are happening without hitting the MLS. This reflects high levels of investor activity.

March 5 - Although the re-sale and new homes markets continue to show very little sign of weakness, the same cannot be said of the rental market.

The vast majority of rentals do not hit the MLS, so we have to be careful because of the poor sample size. However the ARMLS rentals database shows us that the market is nowhere near as favorable to landlords as it was this time last year. Here is why we say that:

  • Available supply is up from 1,543 to 2,138 units, a rise of 39%, meaning tenants are getting more choice

  • New rental listings are up 20% year to date compared with 2021, so supply is arriving faster

  • New rental listings are up 26% over the past 4 weeks, compared with 2021, telling us that the increased supply trend is strengthening

  • The average lease list price per sq. ft. is $1.80, down from $1.93 this time last year

  • The average lease list price per sq. ft. peaked at $2.01 on May 22, 2021, fell back then peaked again at $2.00 on Jul 29 before falling again - it is unable to convincingly break the $2 resistance level and has made no attempt to do so in the last 7 months

 

These conditions suggest that the era of quickly rising rents in Greater Phoenix may be coming to an end. A large amount of new rental supply is coming on board this year, judging by the number of multi-family permits issued in the last 2 years. Rent looks likely to stay fairly flat, which will change the buy versus rent equation as home prices and mortgage rates continue to increase. In the longer term, this could seriously dampen demand for homes to buy.

Interestingly, the supply of active listings varies a lot by dwelling type.

  • apartments to rent are down 33%

  • townhouses to rent are up just 1%

  • single-family detached homes to rent are up 99% - there are 1,546 versus only 777 this time last year.

We are seeing single-family subdivisions under construction intended to be 100% rentals. There are many examples, and not just here in Arizona, but a typical one is Malone Place Parke (MCR 1561-18) in Queen Creek. American Homes 4 Rent has created their own homebuilding subsidiaries. There are 97 single-family homes going up here which will not have affidavits of value since they will be eligible to claim a genuine B7 affidavit exemption. The opportunity to grumble again about Zillow's misuse of the B7 is hereby declined. The investors in these projects should keep in mind that demand is not infinite.

The most likely source of more supply of single-family homes to buy is if landlords tire of owning them. This could be because they have trouble finding tenants for them or they facing declining rental incomes. A house that has no rent coming in becomes a serious problem for its owner who remains liable for the property taxes, maintenance, HOA dues, etc.. Landlords will then compete with each other for tenants and rents will start to drop. Some landlords will drop out and sell their investments.

This is likely to be a slow moving trend in the market but it should be easy to detect, as long as you are watching the correct numbers. US birth rates are very low by historic standards and with the baby boomers reaching advanced ages, we can expect natural growth in the population to be small, or even negative. Population growth will be entirely dependent on incoming transfers from other states or foreign countries. Ivy Zelman has been bearish on the housing market for a couple of years, primarily because of these demographic trends. She has been completely wrong about the market so far, but she is right that the demographics are fundamentally unfavorable for housing in the longer term. In Arizona we are atypical in that so many people have been moving here. This hides the weak natural growth in population (births minus deaths) and has driven our prices up faster than almost any other part of the USA. This will not last forever.

In Arizona, we have a history of building more and more homes until there is a very obvious reason to stop. There will come a time, and nobody knows exactly when it will be, when we have built enough shelter for the population and demand sinks below supply. I seems likely that we will see that in rentals before we see it in homes for purchase.

 

March 4 - The data from Maricopa County affidavits of value is now available for February, although bulk sales by Zillow are almost completely excluded because of their decision to claim an inappropriate exemption from filing affidavits. So far there does not seem to be any government (county assessor or recorder) effort to challenge that spurious claim. This means our records are much less complete than normal, so this should be borne in mind when reading further.

  • There were 9,073 closed units during February, down 3% from February 2021

  • New build closings numbered 1,269, down 14% from February 2021 - the new home market is closing fewer units than 2020 or 2021, but dollar volume is higher

  • Re-sale closings were 7,804, down 1% from February 2021 - it would have shown growth if Zillow bulk sales had been possible to include

  • The overall median sales price was $455,000, up 27% from $359,100 in February 2021 - it is up 5% in 2 months.

  • The new home median was $477,741 - up 26% over the past 12 months and up 7% in the last 2 months

  • The re-sale median was $450,000, up 28% over February 2021

The new home unit counts are disappointing those who would like to see more supply, but there continue to be a lot of home construction that is held up because of material shortages or limited access to skilled labor. There is also a shift in favor of Pinal County which is not included in these number because data from Pinal comes to us more slowly than Maricopa.

Increases in new home prices were lagging behind re-sales for much of 2021 but have been catching up in 2022.

All the figures above relate to single-family and townhouse/condo properties combined.

February 27 - The monthly average sale price of closed listings across the ARMLS database has shown absolutely no sign of deceleration in 2022 so far. The latest reading for February 26 is $558,942. This is not shocking, given the absurdly lop-sided market balance, but impressive for several reasons:

  • It is an increase of $11,246 IN A SINGLE WEEK - a rise of more than 2% in 7 days

  • We burst through the $550,000 barrier just 18 weeks after bursting through the $500,000 barrier

  • The $450,000 barrier was exceeded exactly 1 year ago

  • The $400,000 barrier was exceeded in August 2020

  • The $350,000 barrier was exceeded way back in June 2007, just as everyone realized the bubble had already burst

 

There are still many ill-informed observers predicting falling prices in the near term. They are very much mistaken. The fact that there are so many is in itself evidence that we are not in a bubble. When bubble conditions exist, there is almost universal jubilation and euphoria. Doubt only sets in after the peak has been reached and denial goes into overdrive.

The skeptical reaction to predictions of further price rises is direct evidence that there is plenty of room left for Greater Phoenix home prices to increase. We have not got anything like the absurd over-confidence that characterized early 2005 and led us to call the bursting of the bubble in 2Q 2005. By 3Q 2005 all the key market indicators were headed south, but very few paid any attention. Those that did pay attention kept quiet about it and sold their real estate holdings while it was still easy to do so.

Please pay attention to the same mathematical signals now. They will not mislead you like human opinions will.

February 26 - The average price per square foot for active listings just hit $350 for the first time, measured across the entire ARMLS database. This includes listings in UCB and CCBS status.

Two years ago, just before the COVID-19 pandemic really gripped the nation, the same measurement was $251. So the average $/SF for active listings has risen by 40% since then.

Is there much sign of this upward trend stopping?

Frankly, no - not for some time yet. Active listing counts remain stubbornly low and although demand is faltering a little, it remains far higher than can be satisfied by the paltry level of supply.

February 25 - For tho558.942se who like bad news, we can report the first significant rise in Pending Foreclosures since 2009.

Across Maricopa County we have 737 foreclosures pending, which is up 51% from the low point of 488 in mid January.

In fairness we should point out that the long term average is 10,786 between 2002 and 2021, so 737 is still extremely low. December 2009 still holds the record with 51,022.

737 foreclosures are significant for the households affected, but does not amount to a hill of beans compared to the overall Phoenix market. However, we should keep one eye on these numbers to see if they are heading back to a normal level, which would be about 10 times where they currently lie.

February 24 - Here is our latest table of Cromford® Market Index values for the single-family markets in the 17 largest cities

 

Over the last month, 12 of the 17 cities have improved for sellers, mostly due to falling supply. The average change in the CMI over the past month is 6.0%, down from 9.1% last week.

5 cities have moved in favor of buyers, though they all remain extremely unbalanced in favor of sellers.

Demand is falling in most areas, but this is not leading to an increase in supply. The majority of commentators on the housing market tend to assume that the market weakens if interest rates rise, which they certainly have done over the past 2 months. However the housing market is not that simple. An immediate effect of rising rates is that existing homeowners are less inclined to move home. To do so they would have to pay off their cheap mortgage and take a new and more expensive one. They would also have to join the frantic battle that is inherent in trying to buy a re-sale home these days. No fun at all. Even buying a new homes is tricky, because of limited releases and lotteries. Many people choose, quite sensibly, to stay put. This makes supply go down and also makes demand go down. This reduces the amount of work for real estate agents, loan originators and escrow officers.

Currently we have a battle between supply and demand to see which can go down fastest. In many areas, supply is winning that battle, which means prices are under even more upward pressure, not downward pressure. Only in Goodyear, Fountain Hills, Scottsdale, Avondale and Glendale have we seen the opposite. With all 17 cities showing CMIs above 250, there is no chance of prices weakening in the short to medium term. However volumes are likely to fall away as we move forward.

None of these changes are yet dramatic, so we should not expect to see a big swing in the market in the near term. However we should always remain vigilant.

February 22 - The latest S&P / Case-Shiller® Home Price Index® numbers were published on January 22.

The new report covers home sales during the period October 2021 to December 2021.

Comparing with the previous month's series we see the following changes:

  1. San Diego +1.82%

  2. Miami +1.79%

  3. Dallas +1.66%

  4. Tampa +1.57%

  5. Seattle +1.46%

  6. Phoenix +1.35%

  7. Charlotte +1.34%

  8. Atlanta +1.21%

  9. Denver +1.11%

  10. New York +1.11%

  11. Los Angeles +1.00%

  12. Las Vegas +0.97%

  13. Detroit +0.89%

  14. San Francisco +0.85%

  15. Portland +0.84%

  16. Boston +0.71%

  17. Cleveland +0.61%

  18. Chicago +0.58%

  19. Minneapolis +0.40%

  20. Washington +0.38%

Phoenix has risen 2 places to sixth place and remains well above the national average, which was 0.92%. No city declined month to month.

Comparing year of year, we see the following changes:

  1. Phoenix +32.5%

  2. Tampa +29.4%

  3. Miami +27.3%

  4. Dallas +26.0%

  5. San Diego +25.9%

  6. Las Vegas +25.5%

  7. Seattle +23.9%

  8. Charlotte +23.8%

  9. Atlanta +21.9%

  10. Denver +20.2%

  11. Los Angeles +19.3%

  12. San Francisco +18.8%

  13. Portland +17.9%

  14. Detroit +14.5%

  15. New York +13.7%

  16. Boston +13.4%

  17. Cleveland +13.3%

  18. Chicago +12.2%

  19. Minneapolis +11.4%

  20. Washington +10.5%

Phoenix is top of the year-over-year table for the 31st consecutive month. This means that buying a home in Phoenix has become more expensive at a far higher rate than any of the other 19 cities.

The national average was 18.8%

February 19 - The weekly chart showing days of inventory (excluding UCB and CCBS) across all areas & types has just moved higher than 12 months ago. This is the first time we have seen a year over year increase since June 2019.

Another small indicator that the market has reached a peak and may possibly start a cooling phase. This came after a relatively strong week for new listings at last.

February 18 - Here is our latest table of Cromford® Market Index values for the single-family markets in the 17 largest cities

 

Over the last month, 16 of the 17 cities have improved for sellers, mostly due to falling supply. The average change in the CMI over the past month is 9.1%, down from 12.1% last week.

However the picture is not quite as positive for sellers as it looks at first sight. If we look at how the CMIs have moved over the past week, then there is far more evidence of a change of direction. The CMI is lower now than last week in Avondale, Goodyear, Maricopa, Scottsdale, Surprise and Tempe. Among the secondary cities we see lower CMIs in Apache Junction, Arizona City, Casa Grande, Gold Canyon, Sun City, Sun City West and Tolleson. So we have a more mixed picture moving forward.

Supply continues to drop, so the new trend is not due to a growth in active listings, and buyers have as difficult a time getting an offer accepted as ever. However the demand signals are starting to fall, with closed listings counts a little unimpressive compared with what we regard as typical for the season. Optimists can argue that closings are limited by the lack of supply. While there is some truth to this, there was just as severe a supply shortage last year, but more homes were going under contract. Listings in pending status remain healthy, so the problem does not lie there. It is listings in UCB and CCBS status that are most underwhelming. In Phoenix for example we had 750 UCB and CCBS single-family listings on February 17, 2021 and we only have 558 on the same date this year. This is a decline of 26%. The average drop in UCB & CCBS listings across all areas & types in the ARMLS database is 22% for the same dates.

While demand from investors, particular large scale buy to rent investors, remains strong, demand from owner occupiers is in a clear falling trend. No doubt, fewer people are able to afford the monthly payments when purchase prices continue to rise and interest rates are increasing. According to Freddie Mac, the average interest rate on a 25 year fixed rate loan rose from 2.96% in December to 3.45% in January. That is a 17% increase in just one month. Ouch.

I assume that investors reckon that if people cannot afford to buy a home, then will become prospective tenants for them. However these large scale investors are going to be facing increased competition over the next few years. The number of multi-family building permits is at record highs (see the Cromford Public chart), and we are likely to see a large number of newly constructed rental apartments coming available. The number of people needing a home is not inexhaustible and eventually construction will re-balance with the needs for shelter.

Because of the large amount of money being invested in the multi-family sector, our expectation is that the supply of multi-family units will eventually balance with demand much earlier than for single-family units. This means that the market for single-family homes, our primary focus, is likely to stay healthy for longer than the overall market. Single-family homes are being removed from circulation for many reasons, such as:

  1. more of them are being converted to use as long-term rentals

  2. more of them are being converted to holiday rentals (Airbnb, etc.)

  3. fewer sellers want to give up their cheap mortgage rates, which they would have to if they moved

  4. large numbers of baby boomers are aging in place and not excited about moving home at this stage in their lives

These factors mean we are likely to see shortages of single-family homes to buy for a long time yet. However the demand for them will start to fade when rents stop rising. This will happen when developers have trouble filling all the apartments they have just built. The first sign will be when you see big signs next to the freeway about incentives for new tenants.

 

February 17 - The number of single-family active listings (excluding UCB and CCBS) continues to fall. At the same time, the average price of these listings is reaching new heights.

A few examples:

  • Phoenix has dropped below 600 listings. It was over 1,200 as recently as mid November. The average price of an active listing in Phoenix is over $900,000.

  • Scottsdale has dropped below 300 listings. There were about 400 this time last year. The average price of an active listing in Scottsdale is now over $3 million

  • Peoria has dropped below 100 listings. There were more than 200 as recently as mid November

 

February 16 - We just published our monthly days inventory chart for all areas & types and note that it shows a new record low of 28 days.

The lowest inventory recorded during the bubble of 2005 was 31 days, in March 2005. By March 2006 this had more than quadrupled to 128.

I wonder what we shall see in March 2023.

 

February 15 - It looks like a gentle cooling trend has developed over the last week:

 

The Cromford® Market Index hit a peak of 474.7 last week and has since faded back to 470.8.

This is not due to supply, since that is still falling, but due to a weakening of demand. Closed sales counts are lower than last year and not increasing as strongly as we would expect at this time of the year. This is enough to stop the market getting even hotter, but does not change the fact that we are still in an extreme seller's market. Demand would need to collapse to get back to balance with supply.

New listing counts have been low over the past few weeks and there is still no sign of the supply situation improving. Dramatic increases in supply is what is needed to correct the imbalance in the market. If demand were to drop to the level that supply started to build again, this would take us towards balance. But this would likely occur at a slow pace that could take a very long time to reach anything close to normality.

February 14 - It is unusually tough to be a home buyer in Youngtown. There are NO active listings available today. There are not even any Coming Soon.

There are 13 listings in UCB status, if you fancy your chances with a backup offer. I wouldn't get too hopeful.

There are another 17 listings in pending status, so we have none available and 30 under contract, which makes the contract ratio infinity and the inventory 0 days.

Since the contract ratio cannot go higher than infinity and the inventory cannot go lower than zero, this is as bad as it gets for buyers.

Now I know Youngtown is not a big town. There are just 2,364 parcels showing up on Monsoon and Wikipedia says it has a population of 7,056, but I have never seen it completely sold out before. This is not just sold out of single-family homes, this is sold out of all homes. The assessor says there are 1,946 single-family homes in Youngtown, and 140 condos.

Youngtown was founded as a retirement community in 1954, the name of the town being intentionally ironic. The age ordnance was deemed unenforceable by the state attorney general and all age restrictions were lifted in 1999.

February 13 - The average price for annual closed sales across all areas and types is a slow-moving and non-volatile measure, thanks to its large sample size. It takes a lot of change in the market to drive this number in any particular direction and the trends are long-lasting. It is therefore a number that can be relied upon, unaffected by short-term or even seasonal trends. You can see the long term picture is this chart.

Today we measured a figure over $500,000 for the month of January, the first time it has broken through the half-million barrier for a calendar month.

The same month last year, we measured under $400,000. The magnitude of the rise in prices over the last 2 years is staggering.

During the bubble years, the maximum value attained was $339,029 and this was for the month of August 2007. What is important to realize is that the bubble started to deflate in April 2005. This was the month that the CMI changed direction. It crashed hard and fast, probably the fastest and most violent deflation of a housing market in history. Yet it took 2 years and 4 months before the annual average peaked. It started to drop in the 29th month following the first detected sign of the bursting of the bubble. The annual average rose another 41% during those 28 months. But 2007 was a desperately bad year for home sellers of any kind and 2008 saw prices collapse.

The monthly average closed sales price, a much more volatile and unreliable indicator, still increased continuously between April 2005 and June 2006, giving us 15 months for optimists to cling to hope, but by June 2006 the disaster was inevitable. In fact it had been crystal clear from August 2005 onwards, as all the market indicators turned sour. But remember that severe price drops did not really take off until 2008, 3 years after the first signs of a problem. This is how the housing market works in extremis. It still changes direction very, very slowly like a giant oil tanker at sea.

We are not in a bubble in 2022, but for the sake of illustration, just suppose we were and the CMI had started to turn down, as it has in fact this week. If we were to experience a crash as violent as 2005-2008 then it would still be roughly 30 months before the annual average hit its peak. That puts us in July of 2024. In this thought experiment, 2022 would still be a very good year for sellers, but 2024 would be very bad. Severe price collapses would not occur until 2025. I should emphasize that I am not expecting this scenario. The CMI moving down is not an indication of a crash, but it is a necessary pre-condition for one. The are dozens of other pre-conditions, and almost all of them have not occurred. If they started to fall like dominoes, then we would be sounding the alarm bells. We are not.

We can safely conclude that anyone anticipating home prices falling in 2022 is kidding themselves. They have not understood how slowly the market changes direction, even at its maximum rate of change.

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