May continued to be a good time to be a seller in most areas & price ranges. Demand quickly recovered from well below normal in January to slightly above normal by mid April and it has stayed there throughout May with barely any detectable change. Meanwhile supply continues to drop for an ever-widening collection of areas & price ranges, giving plenty of problems for most buyers who are bumping into each other at the few listings that remain. Multiple offer situations are increasing. If buyers are wanting to spend more than $500,000 then they are in luck – supply is much more plentiful above that mark, though a few very popular areas like Arcadia have relatively slim pickings. During May even those upper price ranges saw a downward trend in active listing counts, but not enough to cause any real problems for most buyers. If today’s normal demand can cause supply to drop as much as it did in the last month, then buyers are going to have an even harder time if demand were to grow. This is especially true for the entry level market which is desperately short of homes for sale or rent.
The price trend is now very different for the low end, where strong appreciation is likely, and for the high end where a gently drift sideways is more likely, except in those areas where inventory is unusually low.
Here are the basic ARMLS numbers for June 1, 2015 relative to June 1, 2014 for all areas & types:
- Active Listings (excluding UCB): 20,351 versus 25,555 last year – down 20.4% – and down 5.4% from 21,512 last month
- Active Listings (including UCB): 24,595 versus 28,950 last year – down 15.0% – and down 3.1% compared with 25,387 last month
- Pending Listings: 7,819 versus 6,965 last year – up 12.3% – but down 1.7% from 7,951 last month
- Under Contract Listings (including Pending & UCB): 12,063 versus 10,360 last year – up 16.4% – but down 1.7% from 12,276 last month
- Monthly Sales: 8,293 versus 7,509 last year – up 10.4% – but down 2.3% from 8,490 last month
- Monthly Average Sales Price per Sq. Ft.: $136.19 versus $127.65 last year – up 6.7% – and up 0.5% from $135.45 last month
- Monthly Median Sales Price: $211,000 versus $192,500 last year – up 9.6% – and up 4.5% from $202,000 last month
We note that the monthly median sales price has increased much faster than the monthly average price per sq. ft. The low end of the market is not pulling its usual weight due to the painfully low levels of supply in so many areas. This generates insufficient sales to keep the median down at its natural level. Prices are not really improving as much as the median suggests, except in a few very affordable areas, which may not remain so affordable for much longer.
May was another good month for high end sales, though this time it was those priced over $2 million that over-achieved the most, with 34 closed transactions compared with 18 in May last year.
The growing sense of justifiable optimism in the housing market tends to bring out ever more ridiculous articles in the media, usually forecasting doom and gloom ahead. We will continue to stick to reporting the present and very short term forecasts. Right now the Greater Phoenix housing market is experiencing more than usual upward price pressure due to a chronic shortage of affordable housing to buy or rent. The majority of new development is focused on the mid-range or luxury markets, not the affordable market, for understandable business reasons, so there is no imminent solution to this shortage of affordable homes. Slow growth in incomes has been stunting home purchase demand in Arizona for some considerable time, but we don’t need more demand to drive price increases. The chronic lack of supply will do that all on its own. The upward price pressure will probably be counterbalanced by the seasonal effect which pulls average prices lower between June and September each year. After that, well who knows? The correct answer is: nobody right now. But if you keep your eyes on supply and demand measures, you will know before almost everyone else, which we think is an important competitive advantage.
This commentary was provided by Michael Orr of the Cromford Report. Michael Orr is the Director of the Real Estate Center at the W.P. Carey School of Business at Arizona State University.