June is the transitional month where we go from the frenzied buying of spring into the quieter summer months. As if to rub it in, the end of June treated us to some very high temperatures. The housing market does the opposite. It cools off until outside temperatures drop back below 100 degrees.
The luxury market is the one that takes the biggest hit over the summer (along with the over-55 and vacation homes). People with lots of money tend to find somewhere else to be other than Phoenix. We can see this clearly – in May there were 13 sales of homes over $3,000,000. In June there was only 1. This is quite normal. The Canadians prefer their summer weather to ours.
Here are the basic ARMLS numbers for July 1, 2013 relative to July 1, 2012 for all areas & types:
- Active Listings (excluding UCB): 15,692 versus 12,935 last year – up 21.3% – and up 1.5% from 15,466 last month
- Active Listings (including UCB): 19,463 versus 19,794 last year – down 1.7% – and flat compared with 19,467 last month
- Pending Listings: 8,892 versus 10,197 last year – down 13.1% – and down 8.0% from 9,662 last month
- Monthly Sales: 8,196 versus 8,133 last year – up 0.8% – and down 11.1% from 9,224 last month
- Monthly Average Sales Price per Sq. Ft.: $118.80 versus $100.33 last year – up 18% – and down 1.1% from last month
- Monthly Median Sales Price: $180,000 versus $140,064 last year – up 28.5% – and up 2.9% from last month
Though slightly higher than June last year, closed sales through ARMLS this June were nothing special. We saw more sales in June 2009, 2010 and 2011. However in those years we had a lot more bank owned homes available. If we take out the 128 out of territory sales, we are left with 8,068 which can be split up as follows:
- 184 were HUD sales
- 512 were REO sales
- 1,082 were short sales
- 6,290 were normal sales
Clearly the trend is for the market to go back to predominantly normal sales.
This is the third month in a row we have seen year over year growth in the total monthly sales rate. Prior to this we saw lower sales rates between March 2012 and March 2013.
We have just 2.2 months of supply, including UCB listings. If we exclude those UCB listings we have 1.9 months of supply. The UCB counts are plummeting now that short sales are declining.
The average days on market for monthly sales is down to 66 days from 72 last year. However the average days on market for active listings is still up at 109, which tells us that the inventory of active listings still contains many homes that are unlovable or over-priced. Attractive homes at realistic prices are few and far between and usually last only a few days before they go under contract.
The dollar volume for June was $1.95 million. 18.9% higher than June last year and the highest June total since 2006.
The number of new listings added in June 2013 was slightly less than June 2012. However from July through November we should start to see the number of active listings grow. We will watch this trend carefully to see if it is stronger or weaker than normal. So far the higher prices have done absolutely nothing to motivate more sellers to emerge. Supply remains very low.
The appreciation rate is currently in the high teens. With a big drop in luxury sales, June gave us an increase in the median sales price and a fall in the average price per sq. ft. This is also normal. Luxury homes have virtually no impact on the median but contribute heavily to the price per sq. ft. Our short term outlook is still for pricing to remain in a tight range around $120 per sq. ft. for the next couple of months.
The disappearance of short sales is also reducing the pending listing counts. The number of pending listings dropped by another 8% between June 1 and July 1. Stiff competition, rising interest rates and rising prices may be taking some of the wind out of some buyer’s sails. The Cromford Demand Index™ is back down to 100.5, only a fraction above normal. However it makes very little difference to the direction of the market at the moment because supply is the controlling factor, not demand. The Cromford Supply Index™ has fallen even faster than demand and is down at 61.2 which really is a remarkably low number. Because supply dropped faster than demand, the Cromford Market Index™ is slightly higher than last month at 164.2. Remember that for prices to get downward pressure this would have to drop below 100. That is not looking at all likely for the foreseeable future.
There are no promising sources of new supply:
- delinquent borrowers – already back to normal levels of delinquency
- pre-foreclosures – dwindling fast
- banks – not going to happen (they hardly have any left)
- investors – not going to happen (most homes are leased and appreciating nicely, no good reason to sell now)
- ordinary sellers – many still underwater and those who aren’t are scared they won’t be able find a new home because of the short supply
- new homes – permits are still being issued at only one third the normal rate
We are now seeing what happens when the whole country under-builds dwelling units by about 3.6 million homes over 5 years. The creation of new homes is vastly exceeded by the creation of new households. The disturbance to the market is going to be large and doesn’t seem to have been widely appreciated yet. Only the home builders themselves, a few specialist housing analysts and isolated individuals seem to be aware of the enormity of the situation. The general public appears to be focused on relatively minor issues like interest rates, the foreclosure inventory, high unemployment and (especially) investor-owned homes. These may slow down price rises in a few areas, especially those that have no population growth or have been slow to handle their delinquent loans, but most of the country is in for a shock. The home building industry will have to grow from around 900,000 a year to over 1,500,000 a year just to stop the home shortage situation getting more extreme. That is probably not even feasible with the current construction labor shortages. Note that these annual numbers include multi-family as well as single family and condos.
Although we will see a relatively quiet period for the next 3 months, there is still immense upward pressure on pricing due to all the homes that were never built between 2008 and 2013. This effect is starting to hit in areas other than Arizona, especially those with strong population growth rates. California is only just behind Arizona in its speed of clearing up the foreclosure mess and in the urban areas like San Francisco, San Jose, San Diego and Los Angeles they are already starting to see eye-popping appreciation, even greater than the 18% we currently have in Phoenix. We will just have to get used to not being in the spotlight. Our time at the top of the Case-Shiller® chart is coming to an end, but home price appreciation is not.