April continued the trends we saw in March with significant improvement in demand and volumes, though different price ranges are experiencing very different supply dynamics.
Overall demand has returned to just above normal with little to no sign of further momentum beyond this point. Currently the supply situation is the most important thing to watch and this is what determines how much competition buyers will experience.
Here are the basic ARMLS numbers for May 1, 2015 relative to May 1, 2014 for all areas & types:
• Active Listings (excluding UCB): 21,512 versus 26,205 last year – down 17.9% – and down 3.5% from 22,303 last month
• Active Listings (including UCB): 25,837 versus 29,590 last year – down 12.7% – and down 2.3% compared with 26,436 last month
• Pending Listings: 7,951 versus 7,199 last year – up 10.4% – and up 1.2% from 7,853 last month
• Under Contract Listings (including Pending & UCB): 12,276 versus 10,584 last year – up 15.8% – and up 2.4% from 11,988 last month
• Monthly Sales: 8,363 versus 7,572 last year – up 10.4% – and up 6.0% from 7,887 last month
• Monthly Average Sales Price per Sq. Ft.: $135.88 versus $130.27 last year – up 4.3% – and up 2.9% from $131.99 last month
• Monthly Median Sales Price: $202,000 versus $190,000 last year – up 6.3% – and up 1.0% from $200,000 last month
From a seller’s perspective there is a lot of encouragement in this batch of numbers, though buyers might be dismayed to see price per sq. ft. rise by almost 3% in a single month.
For the market as a whole we currently see 3.1 months of supply, which is significantly below normal, but not excessively so. However, when we look at the single-family market by price range we see certain price bands with much lower supply:
• $100K-$125K – 1.3 months (versus 2.3 on May 1, 2014)
• $125K-$150K – 1.4 months (versus 2.3)
• $150K-$175K – 1.6 months (versus 2.6)
• $175K-$200K – 1.8 months (versus 3.0)
These price bands are seeing mostly unexceptional demand, but exceptionally low supply, which is leading to multiple offer situations and strong upward price pressure. The situation is even worse for buyers than these numbers suggest, because “supply” includes many UCB listings which are only soliciting backup offers in theory and not in reality. Before Zillow these would have been in pending status and not considered part of “supply”.
Excluding the UCB listings, we get the following numbers:
• $100K-$125K – 0.8 months (versus 1.8 on May 1, 2014)
• $125K-$150K – 0.9 months (versus 1.9)
• $150K-$175K – 1.1 months (versus 2.3)
• $175K-$200K – 1.3 months (versus 2.6)
Demand is actually lower than last year between $100K and $150K with only 1,040 sales in April 2015 versus 1,192 in April 2014, but the lack of fresh inventory is having a dramatic impact on this sector of the market. A few years ago we had almost 7,000 active listings between $100K and $150K. Now we have just 909.
The price band from $175K to $200K is extremely popular at the moment with 825 closed sales in April, the highest total since July 2005. $200K to $225 is another popular price range with 555 closed sales in April, the highest total since September 2006. For $225K to $250K we have to go back to June 2007 to find a month with a higher total than April 2015’s 624.
As we move upmarket from $250K, things become a little easier for buyers because supply is less scarce. Once we get above $400K there are more active listings than last year and most buyers are having a much easier time with less competition from other buyers. In other words, demand is good but supply is plentiful at these higher price points.
April was an outstanding month for closed sales for homes over $3 million, with 19 in all and $81.4 million in dollar volume. We have to go back to June 2006 to find a month that exceeds that total.
Although many are feeling more optimistic about the market, and justifiably so, the lack of supply of entry-level homes is a very troubling sign. The most obvious source of new supply would be the large number of homes that are currently owned by landlords and used as rentals. However vacancy rates are low, rents are rising and these landlords would probably buy more properties if they could rather than sell them off. There are remarkably few new homes being built below $200K and if this situation persists, it is going to remain a very competitive struggle for buyers. Prices are likely to rise faster than earnings. This is good for current homeowners but bad for those currently renting and wanting to get started in home ownership. This could become even more of a problem if mortgage interest rates rise, adding to affordability problems for the first time home buyer.
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.