The big slump in demand is now 12 months old and as yet is showing very little sign of ending. It has already lasted much longer than almost anyone expected. With that as background it may seem surprising that the market has been improving for sellers over the last 4 months. The nadir was on March 17 when the Cromford® Market Index had dropped to 83.7. The improvement is not large and is almost entirely due to a fall in supply. When buyers are severely lacking in urgency, sellers usually choose to up the stakes by dropping prices. This is NOT what has happened in 2014. Although we have seen plenty of price cuts, these were mostly from levels that were well above market. Very few sellers have been prepared to discount their homes below market. Sellers have chosen instead to either take their homes off the market or simply wait. Neither side is showing a sense of urgency.
We expect active listings to grow between August and November, but the current arrival rate of new listings is the lowest in 14 years and the increase is therefore likely to be much weaker than we expected back in March. If this continues then it will keep the Cromford® Supply Index in check and prove beneficial to sellers.
Eventually demand will return to more normal levels, because everything in housing tends to be cyclical. It is anybody’s guess when this return will get under way, but we expect to be the first to notice it happening. There is precious little to report yet.
Here are the basic ARMLS numbers for August 1, 2014 relative to August 1, 2013 for all areas & types:
- Active Listings (excluding UCB): 23,900 versus 16,456 last year – up 45.2% – but down 2.2% from 24,440 last month
- Active Listings (including UCB): 26,887 versus 19,779 last year – up 35.9% – but down 2.9% compared with 27,695 last month
- Pending Listings: 6,079 versus 7,755 last year – down 21.6% – and down 5.4% from 6,426 last month
- Under Contract Listings (including Pending & UCB): 9,066 versus 11,078 last year – down 18.2% – and down 6.2% from 9,664 last month
- Monthly Sales: 6,805 versus 8,076 last year – down 15.7% – and down 6.4% from 7,271 last month
- Monthly Average Sales Price per Sq. Ft.: $126.53 versus $119.65 last year – up 5.8% – but down 2.3% from $129.56 last month
- Monthly Median Sales Price: $196,790 versus $185,000 last year – up 6.4% – but down 0.1% from $197,000 last month
Similar to last month, active listings (excluding UCB) rose 4.9% between July 1 and August 1 in 2013 but fell this year by 2.2%. This weakness in supply is very unusual, but is hardly getting noticed because it is overshadowed by the prolonged weakness in demand.
There are a few strong areas in Greater Phoenix where demand exceeds supply. These include Sun Lakes, Sun City West and Sun City. Clearly baby boomers are doing their bit. Paradise Valley, Scottsdale, Fountain Hills and Gold Canyon have all improved their balance because supply has declined faster than the rest of the valley. In general, the higher you go in price range the better demand has held up.
All the talk of loan underwriters getting more flexible has not resulted in much change in buying patterns so far. Mortgage applications are low. Perhaps potential buyers assume they will either get turned down or have to provide too much documentation. Nationally too, purchase loan application rates remain weak according to the July 30 report from the Mortgage Bankers Association.
Across Greater Phoenix in July we saw 16 closed sales of homes priced over $2,000,000, down from 22 in July 2013. However the first and second quarter of 2014 saw more sales over $2,000,000 than last year and it is still possible that the third quarter could repeat this feat. We still have 39 listings under contract for homes of $2,000,000 while there were only 25 at this point last year, so the outlook remains pretty good.
Based on current trends we expect that the annual appreciation rate is probably going to stick in the 3% to 7% range for a few months before declining to zero plus or minus 2% by the end of December.