The market price is a function of supply and demand.
~ Tina Tamboer-Glatfelter, Cromford Report
“oh, oh! It’s going up! It’s going up!”
”Oh, no! Now it’s going down, it’s going down!”
It sounds simple, but people get sucked up in the passions of the moment. They forget that price is a function of supply and demand.
100 is the magic line on the Cromford Supply Index. As you can see from the graph, below, we are below the horizontal supply line of 100. It’s gone down, down, down, so today, in 2013, we are right about where we were in 2004.
On the Cromford Demand side, we are higher than on normal demand—people have been talking about the high demand, but look, the demand was much higher in 2009.
Tina’s point is not that the demand is super high and therefore that’s what’s making this happen. It’s that the supply is super low. So, yes, the demand is above average, but it’s not at 150!
The Supply Index and The Demand Index transform to show us when there is a seller’s market or a buyer’s market.
In Tina’s presentation at the Get Your PHX March 26 Market Briefing, she showed how the market index was at 300 market index before the recession, which is when many people bought their homes. See how the market index comes up a little bit in 2009?
This is where it becomes a seller’s market for just a short amount of time because people needed to use that first time home buyer’s tax credit. Then that went away and it dropped. Now we’ve been climbing up, steadily.
One of the most common questions Realtors hear is ‘When is the best time to sell my property?’ Often a seller wants to sell at the peak of price, when they can get the most for their investment. However, their answer should be to sell during a seller’s market, when there’s more demand than supply. Price is a trailing indicator, meaning that it’s in response to leading indicators such as supply and demand. By the time our market peaks in price, and the media reports on it months later, the seller on the fence is too late to the party.
The Cromford Market Index is a tool that combines supply and demand data for the Phoenix Metro area to give clients a bird’s eye view of whether we’re in a seller’s or buyer’s market. From this chart we can see that the peak of the seller’s market was Spring of 2005, after that the index took a dive and seller’s only had 7 months of advantage before reaching balance. Prices, however, continued to rise until peaking from 2006-2007 when buyer’s took solid control of the market.
Today we find ourselves in a seller’s market once again and consumers are wondering if it’s a good time to sell. Currently the answer is yes, but if supply increases or demand decreases you don’t want to get stuck on the fence.
~ Tina Tamboer-Glatfelter, Get Your PHX Team/Cromford Report
What’s a normal market?
Most people do not know what a normal market looks like.
For the last 10 years, we’ve been in either a severe up-swing, or crash, or coming out of it. In a more normal market, though, you’re going to fluctuate back and forth on this range among either side of this 100 line of the seller’s market/buyer’s market index line. So what’s happening is you get people reacting more extremely than they would in a normal market. Have a look again at those green circles again, below.
Low and behold, here we are, today, right back where we were in 2004.
If you bought in 2004, you’re probably in a good place to sell it. If you bought in 2009, 2010, 2011, you’re probably also in a good place to sell it. This is important to emphasize. You’re starting to see people put things on the market, which is good, because it’s a seller’s market.
When you factor in what we’re seeing in terms of distressed and non-distressed single family inventory, foreclosures, and short-sales, and then look at it all in context, you’ll understand why equity seller is returning. That’s next week.
If you want to sell (or buy), please give me a call at 602-456-9388 or email me at email@example.com.
[rollercoaster pic: Upsilon Andromedae]