The real estate market in greater Phoenix in 2017 outperformed the last five years in sales volume. The number of home sales by Dec. 1 raised from 81,169 in 2016 to 86,832 in 2017, an increase of 6.9 percent. Traditionally, sales peak in the second quarter, particularly in May and June, slowing down by the end of the year with a small rally around November. The trend of home sales is obviously upward, and is a positive sign, along with the fact that normal listings (not short sale or foreclosure) represent a clear majority of transactions. Short sales represent a very small percentage of the market now.
If we consider the breakdown of these sales by price range, things get even more interesting. Home sales under $175,000 are way down as of Dec. 1, there were 18,246 homes sold compared to 23,008 in 2016, indicating a 20 percent drop.
Let’s consider dynamics of other price ranges, comparing all sales by Dec. 1, 2016 and 2017:
- $200,000-$250,000: Up 17.5% from 15,220 in 2016 to 17,885 in 2017 (20.5% of sales).
- $250,000-$300,000: Up 16% from 10,858 in 2016 to 12,599 in 2017 (14.5% of sales).
- $300,000-$400,000: Up 20% from 11,289 in 2016 to 13,556 in 2017 (15.6% of sales).
- $400,000-$500,000: Up 23.5% from 5,022 in 2016 to 6,200 in 2017.
- $500,000-$600,000: Up 19% from 2,355 in 2016 to 2,804 in 2017.
- $600,000-$800,000: Up 29.3% from 1,871 in 2016 to 2,421 in 2017.
- $800,000-$1 million: Up 21.4% from 857 in 2016 to 1,040 in 2017.
- Properties in the $1-2 million range had sale increase of 19.6%.
Overall, the trend for sale volume looks positive and optimistic, but we need to remember to consider the supply and demand of homes on the market for better understanding and forecast. With sales going up, the number of active listings has been dropping. By Saturday, Dec. 2, 2017, there were 20,856 homes for sale (including UCB), in 2016 by the same date the number of homes for sale were 23,892, showing a 13 percent drop.
The trend over the last few years shows an obvious drop in overall homes for sale. In general, new builds helped the situation, but that impact significantly varies through price ranges. The good quality sign is that the market is dominated by homes for sale that are not classified as short sale or foreclosures, but the problem of insufficient quantity of homes for sale is very topical.
It is interesting to note that on the comparison of growing sales, homes under contract (including pending, CCBS and UCB) are also down from 9,368 (Dec. 1, 2016) to 9,176 (Dec. 1, 2017), which represents a drop by 2 percent. Homes under contract indicator has been in positive trend since 2014 but unlike sales it demonstrates slowdown in 2017. This might be explained by the fact that some listings were included into the MLS past the sale when deeds were recorded. This could be done for purposes of getting a credit for a transaction, giving credit to the selling agent, or creating a comparable.
Drop in homes under contract might be perceived as a reflection of demand slightly losing steam, however, it can be considered differently due to many listings being given UCB status rather than pending. We might need to adjust our expectation of this previously better working correlation between sales and under contract data. Nevertheless, demand indicators have been weakening gradually within the last few months. Despite increasing demand since 2014, it has been cooling down since December 2016, when the index reading was 107.7 versus 101.6 in December 2017.
Buyers should not get too excited by these trends because they are so minor. We are still in a market where demand exceeds supply and any change in the balance is quite small. The balance in the market has continued to get more favorable for sellers rather than for buyers. The seller’s advantage has been increasing since 2014.
Since sellers remain in charge of the market in most sectors price is responding accordingly. The monthly average sales price per square foot is up over 6.9 percent from the last year $154.62 (Dec. 1, 2017) versus $144.60 in 2016. Average sales price per square foot has been growing since 2011. The median sales price went up to $244,900 versus $225,000 in 2016. The current reading is up 8.8 percent from December 1, 2016.
Appreciation is fine for the homeowner and, if growing, is usually perceived positively. We need to remember though that it also translates into loss of affordability for the potential homebuyer. If the prices are driven higher by a persistent lack of supply, which would not be unfair to say to a certain extent, with appreciation of 7.5 percent it should not be surprising that demand is tailing off.
If demand were not decreasing in the face of such strong prices it could have led to suspicion of the illogical enthusiasm associated with a bubble. As it is, the market is well behaved and shows none of the symptoms that can be associated with a market bubble. With too few homes for sale at the low and mid-range and too many at the top end, prices have been rising quickly at the bottom end, moderately for the mid-range, and falling moderately at the high end.
There are a few changes going on the market nevertheless:
- Townhomes, condo homes and new homes are gaining market share.
- Multifamily properties are booming and spreading across the Valley.
- Sales volume is picking up in several of the more expensive areas.
- Sales volume is dropping the lowest price ranges, mainly due to lack of supply.
The short- and medium-term outlook for the greater Phoenix housing market is good, but there are a few things to consider that impact supply and demand.
One of the trends that is going to bring challenges for the real estate market refers to demographics: as of now Arizona’s population increase is concentrated in the older age groups since inmigration is dominated by retirees. At the same time, birth rates are weak and getting weaker, falling at the fastest rate ever seen. So, natural population growth is unlikely to be much of a factor in driving future housing demand.
This will have a number of economic effects, not just on housing. Besides that, at the moment, there are few upcoming changes including taxation changes and lending practices. The view of the changes to the U.S. taxation will depend on how it might impact financial advantage of owning a home compared to renting. Also, as this article goes to press changes have been announced on FHA mortgage loan amounts. At the end of the day, the affordability of a home for a buyer is a huge factor, so we will see what changes that will bring to the market.
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