The Cromford Report: Phoenix Edition

Cromford Report

Brought to you by The Jason Predovich Team

By Leyla Nelson

Unlike the past few years the Phoenix housing market is much more positive with very low percent of foreclosures, steady growth of sales and prices on the market as well as increase in listing success rate, etc. There is still a shortage of supply, but builders continued to add more inventory to the market, especially within the range of $275,000 to $500,000. The Cromford Market Index shows insufficient inventory available for the buyers, and months of supply is about 2.4, all that together with normal level of demand is confirming the sellers advantage on the market. We see housing prices up, where buyers were willing and able to pay about 97-98% of original listing prices. The average price per square foot, which is mainly considered in the context of appreciation on the housing market, has been growing as well. For the monthly period ending June 15 average price per square foot was at $151.10 for all areas and types of properties across ARMLS, which was up 0.4% as compared to the previous month. Pending listings for all areas and types showed an average list price of $154.91 per square foot, up 0.6% as compared to May 15. 95% of those listings were normal, with REO – 1.8% and 3.1% in short sales and pre-foreclosures, where the latter exceeded last month’s level.

At the same time, monthly median sales price have been up from $230,000 in mid-April to $245,000 in just two months, indicating an increase of 6.5% in a short period of time. However, to be fair the most progress in this indicator is made every year between April and June. So, it would not be unusual to stay within the same range by the end of the year, like it happened in 2015 where the monthly median sale price was $214,900 in June and remained at $215,000 at the end of the year, and in 2016 it was $228,000 in mid-June and finished the year at $227,500.

Generally, the upward trend in pricing looks very optimistic. Monthly average sales price per square foot in the long-term perspective have been going up since the third quarter of 2011. If the prices keep going up there might be more supply on the market as people who acquired properties earlier might be interested in selling their homes. But, of course, we need to consider other factors besides price that make people move: need in downsizing/ upsizing due to change in major life stages, different lifestyle preferences, economic and political changes, foreign currency rates, etc.

The Cromford Report’s favorite way to measure appreciation is to look at the annual average price per square foot for all areas and types, measured on a weekly basis. The advantage of this measure is that it is extremely stable and non-volatile, especially across a large geographic area. Although the price is always a trailing rather than a leading indicator, the difference between the annual average price per square foot today and last year is an excellent guide to how strong the market has been in the very recent past. Remember though that this tool is also good to use for smaller areas, but keeping the sample size reasonable is very important.

The gap between 2013 and 2014 reduced during the latter part of 2014 indicating a significant weakening in the market. In 2015 the annual gap continued to close until April but started to widen from October onwards. The gap has been gently widening since then which indicates we are in a market that is gradually getting stronger. The current gap is 5.8%. Last year it was 5.09% and the year before 4.78%. However, in June 2014 it was 15.0%. As long as the gap continues to widen, even just by a little bit, the market is displaying strength. If it starts to narrow, then it is reasonable to experience some concern about a slowdown.

APPRECIATION BY CITY

Now, if consider annual appreciation by city based on annual average price per square foot,we will see that Avondale is one of the leaders with appreciation rates around 9% to 10%. Then followed by a big cluster between 6% and 7%, including Goodyear, Surprise, Queen Creek, Peoria, Mesa, and Glendale.

Phoenix is trending lower from a consistent 7.4% to around 5.9% and is one of the weaker performers in recent months. It is unusual that it is behaving differently from the cities in the cluster above. Chandler and Gilbert are in 5% range, while Cave Creek is on a rising trend.

Tempe used to be one the higher performers but has weakened in recent months. Appreciation has dropped from 7.7% last year to only 4.4% this week.

Scottsdale is steady at around 3%, a lower rate that all of the other big cities. This is because it is dominated by the luxury market which has seen much lower appreciation than the rest of the market. Despite this overall weak trend in luxury homes, Paradise Valley has improved significantly. Last year at this time it was showing negative appreciation, but has recovered to 4%. However, it is one of the most volatile of the cities due to its relatively low annual sales count.

It is interesting to note that some cities look quite different using this measure than the one based on median sales prices. When in doubt, the Cromford Report recommends the price per square foot measure over the median measure.

APPRECIATION BY PRICE RANGE

If we look at appreciation by the price range, we can see that properties within the list price range from $100,000 to $175,000 hit record 5.4% to 7.6% annual appreciation. Homes within $200,000 to $350,000 list prices are within the range of 3.2-3.5%, $350,000-$500,000 demonstrates appreciation 2.1%-2.6%, while annual appreciation in $600,00 to $1M is under 1% of appreciation – 0.6-0.7%. Only two price categories showed negative dynamics: under $100,000 – 0.8%, and $1.5M-$2M – 0.6%. Luxury market is appreciating 1.9% within the range of $2M-$3M, while properties over $3M show positive 4.4% appreciation.

The Cromford Report forecast for the mid-July average monthly sales price per square foot is $152.16, which is 0.7% above the mid-June level with 90% confidence for the indicator to be within $149.12 to $155.20, implying about 0.7% increase in prices over next 30 days. However, we need to remember that we are approaching third quarter, which always demonstrates seasonal drop in sales, mostly caused by lower sales in luxury market and less by drop in the rest of the market. Upward pricing trend is mostly likely to resume after end of September.


Mrs. Leyla Nelson, MBA The “Cromford Report.” For more information, email asel@cromfordreport.com.