I have clients from time to time who get very worried about an interest rate difference of .01%, 5.45% vs. 5.40%. Sure, it can make a big difference on a 30 year loan, if you stay there for 30 years. But putting it all in perspective, is that difference worth not buying the house that you want right now and then going back on the market for a house that may cost more, or for which the interest rate will have gone up by more than that same .01%?

 Those fears of “getting a bad” deal over .01% get put in to perspective when you look at the buying power that we have now versus 2003 or 2006.

 Have a look at the chart below. For about $1,060 (P&I only), you got a $201,715 house in 2003. You got only a $195,331 house in 2008. But today, you got a $246,648 house.

So, right now –as in this summer– we have a lot of houses listed higher than they should be, a lot of buyers who are sitting on the fence and incredibly low financing.

You get my drift here. If you are thinking of buying a house, now is the time. Call me at 602-456-9388. 

Our friends Michael Orr and Tina Tamboer at the Cromford Report continue to give us great data and perspective on where the market is these days. 

Interesting trend: there are about 50% more homes listed this year than last, but about 23% fewer homes under contract. See the nifty images below and this Cromford summary:

• Active Listings (excluding UCB): 24,440 versus 15,692 last year – up 55.7% – but down 4.4% from 25,555 last month
• Active Listings (including UCB): 27,695 versus 19,463 last year – up 42.3% – but down 4.3% compared with 28,950 last month
• Pending Listings: 6,426 versus 8,892 last year – down 27.7% – and down 7.7% from 6,965 last month
• Under Contract Listings (including Pending & UCB): 9,664 versus 12,663 last year – down 23.5% – and down 6.6% from 10,360 last month
• Monthly Sales: 7,254 versus 7,924 last year – down 8.5% – and down 4.0% from 7,558 last month
• Monthly Average Sales Price per Sq. Ft.: $129.46 versus $120.13 last year – up 7.9% – and up 1.5% from $127.51 last month
• Monthly Median Sales Price: $197,000 versus $182,500 last year – up 7.9% – and up 2.5% from $192,250 last month

Further, they expect prices to sit at about the same range for a while:

“We continue to expect the price range between $125 and $135 per sq. ft. to be a natural resting point after the rapid rise from $78 that has occurred since September 2011. It will take a big change in market conditions for prices to move significantly out of this range.”

So, what does this mean? Michael and Tina would have finer analysis than I would, but based on what I’m seeing in the field, I think there are a lot of sellers who are listing higher than the market will bear, while the buyers are not coming out (see last month’s analysis to see the painful public policy reason why).

So, what does this mean for you?

If you are a seller, DON’T do these two things:

1) “We will list 10% higher than our agent suggests so that we have some ‘wiggle room’ to negotiate.” This is not a good strategy. First, if you list at the right market price and you don’t like an offer, don’t take it. Second, if you list too high people won’t even consider looking at the property, let alone making an offer. You will sit on the market for too long and your house will become “stale.” Then you will get mad at your agent for not marketing your home properly. While it could be possible that your agent did not market your home property. But, more likely you are losing possible buyers.” If you don’t trust your agent’s price analysis, spring for a $300 appraisal. You will probably save yourself a lot of heartache.

2) “We don’t have to renovate anything. The buyers will want a new kitchen, anyway.” The buyers might  do this, if you are listed below market price. But, more likely they won’t look at the house at all. Unlike 2009-2011, buyers are expecting houses to show well. Of course, there are folks who want fixer-uppers. We are even listing a good opportunity. But, the percentage of the buying market who wants that has decreased substantially.

If you are a buyer, you have more negotiating power. There are a lot of folks who are pricing as if it is 2013, when the market climbed dramatically in the first half of the year. We just are not seeing that right now. We are not declining, but we are not popping upward, either.

If you need more information about the market, or your particular situation, please contact me at 602-456-9388.

If you joined us at the last Quarterly Market Briefing, you saw that we are in a bit of an odd market. Properties over $500,000 are selling quickly because financing above that price (jumbo) has opened up, after years of severe restrictions. Properties under about $200,000 are dropping in price because most of the investors and distressed properties have left the market. Everything, everywhere, is more likely to sell if is properly staged, updated and renovated –unlike the gritty days of the recession.

In a market that Cromford Report founder, Mike Orr calls “boring”, we are seeing a pretty flat market without as much activity as last year –and we are going in to summer. The high-end homes stop selling then as those folks leave the state for the summer. The “middle class” and “working class” homes continue to sell as these folks stay in Phoenix, but might move to a bigger house or a new school district. 

Orr points to several causes for a weaker market, which I find more credible, especially the idea that an entire generation of potential home buyers has been undermined by decades of higher university tuition and therefore higher debt. But, don’t get me started on the way our legislature has failed eduction. It almost makes me want to run for office.

To quote Orr:

Now we are seeing an increasing number of commentators adding to the discussion of what we believe are more realistic causes of the continued weak demand for homes to buy, not just in Phoenix but across much of the country:

• low participation by first time home buyers
• the inhibiting effects of massive student loan debt
• millennials preference for the flexibility of renting
• the foreclosure wave in 2008 through 2012 which has introduced a new sensitivity to the fact that home ownership can sometimes be financially hazardous
• a large tranche of former home owners who have not yet repaired their credit enough to re-enter the market
• low rates of household formation, especially among 20-30 year-olds
• a growing wealth gap causing stronger demand for high end homes but leaving large numbers of people renting for the foreseeable future

Back to me: So, what are you to take from all of this? Two things:

1) If you are a buyer, get in the game now while sales are low, other buyers are delaying for all the reasons above. You will be one step ahead later, especially as interest rates have only one way to go –up. This is where I rock on my figurative rocking chair on my imaginary front porch and tell you that I wish I would’a bought my first house a couple years before I did. I’d be fair bit better off, I’ll tell ya. Whipper-snappers!

2) If you are a seller, you are still doing better than you were even a year ago, because sales for nicely-renovated and properly priced homes are good. Just expect to update that kitchen, or bathroom, etc.

See below for two charts.

1) The number of active listings in CenPho between about $150k to $500k are shrinking in number. So, if you are looking, there is a decreasing number of homes to see (probably through the summer). If you see something that looks good, expect it to be gone in hours or a day. So, be ready to move quickly.

2) The Cromford Index tells whether we are in a buyer’s market or a seller’s market, and to what degree.  The dividing line is 100. So, we are squarely in a buyers’ market, but not as far in to that category as we were in 2008-09. However, this may be just a condition through the summer. 

We hosted our Quarterly Market Update on April 22nd with the help of Jeannie Bolger of Nova Home Loans and our friends at Old Republic Title, featuring Tina Tamboer of the Cromford Report.

Here is what we learned:

1) The seller’s advantage, which has been dropping for a while, has started to manifest concessions for the buyer (some closing cost and price concessions).

2)  Overall sales volume is down 26% Year over Year for March, but that reduction is from distressed properties going away. The number of “normal” sales has stayed almost exactly the same as last year.

3) Average prices are still going up because the market share of sales has shifted away from distressed sales and more towards normal sales, which generally have a higher price per square foot. In other words, more sales in the luxury market have a higher impact on average sales per square foot than they do on the median sales price trend line.

4) Normal active listings are sitting longer in MLS because investors have left for the most part because:

a. First-time and “Boomerang” buyers often don’t have the cash reserves to fix up a property

b. These consumers often purchase a smaller property in good condition at a higher $/SF over a bargain larger home for the same price that needs work. In other words, the days of listing a property without having done improvements first are gone. Buyers expect nice properties, rather than distressed properties. 

5) Homes in historic neighborhoods are still commanding higher prices as more people want to live in CenPho and downtown.

 This is a market in shift. If you need some help figuring out the best strategy to buy or sell, please contact me at ken@getyourphx.com or 602-456-9388.

Cromford Indx and Concessions

Loss of Distressed Properties -2014

“So,” people ask me, “if we crossed in to a buyer’s market in most places in November, why are prices still going up and why are people continuing to list?”

Okay. Nobody actually asks me that specific question. At least not in your average public setting, like in line at the store or while ordering a latte at Lux. But it’s instructive and I’m going somewhere with this. So, please, humor me.

The answer is that the perception of what the market is doing lags the data by 3 to 6 months. So, look at this chart. The market crossed to the buyer’s favor in November according to the data (the purple line crossing 100), but the people listing and buying homes did not start behaving that way until 3-6 months after that. 

So, really, that time when we just crossed that 100-line of the index represents market equilibrium. Unlike the orange line from 2009, which was a severe buyer’s market.

Even though the data shows that sellers are losing advantage, the sellers set their prices based on what they saw in the market last year –because they hear from their friends and the newspaper that the market is really hoppin’.

This year buyers have not been coming out, so the prices drop after the homes sit on the market for a while. That is why the listing success rate took a header at the end of last year, and is just starting to recover. See Chart.

So, does this mean that prices are going to start tanking soon? “No”, says our friend Tina Tamboer of the Cromford Report. “Prices will level out.” How does she know this? She doesn’t for sure. But, she says, we are not seeing signs of economic distress, job losses, etc. This indicates that there will still be a strong enough demand to prevent price drops. She sees two causes: (1) people are still clearing out past bad credit and (2) younger folks are just getting employed long enough to buy a home.

That is one reason why homes under $200,000 are dropping in price, but homes above that are increasing in price. 

So, what does this mean for you? It means if you are waiting for prices to drop for houses over $200,000, you are not likely to see it. If you are waiting for prices to drop under, $200,000, you may see that for a little longer, but buyers are likely to start entering the market soon.

I can help you see the forest through the data and buy or sell the right home. Call me at 602-456-9388.

Howdee all.

This market is in flux and we don’t know exactly when it will shift back to a seller’s market. Smart buyers are taking advantage of this window.

W are seeing listing numbers continue to grow while the Cromford Market Index (the measure of whether and by how much we are in a buyer or seller’s market) continues to fall to the buyer’s advantage. We have not seen the buyers come out and get active. So, there is some downward pressure on home prices. 

We’ve seen drops in home prices in our area. Two of our listings have dropped in price just last week. We don’t know how long this will last, for two reasons.

First, interest rates will rise this year. While they are not expected to rise dramatically, when people see them begin to rise, they will begin to buy homes.

Second, once prices drop to the point the market correction is completed, the buyers will start buying and prices will continue what I expect to be a long upward trend in CenPho.

If you have any questions about buying or selling your home, please contact me at 602-456-9388 or ken@getyourphx.com.

Make it a great week!

Ken

Active Listings in Phoenix Continue to Increase

But the Cromford Index is telling us that this is more of a buyers' market.

Last week, I noted that we are in a buyer’s market. I know this because of the The Cromford Report –outstanding data analysis group here in Phoenix. They’re kind of like the Case-Schiller Index –except for Maricopa County, and, you know, ACCURATE!

Today, I want to give a little refresher for those who may not be familiar with The Cromford Report and explain this index, which is specific for The Cromford Report. The Cromford Report was started by Michael Orr, who’s a mathematician from Oxford, and the director for Real Estate, Theory and Practice at ASU.

This index is an algorithm that Orr put together to let us know whether or not we are in a seller’s market or a buyer’s market compared to the last balanced market, which was in 2001-2002.

This slide shows that we are in a buyer’s market.

Anytime this yellow indicator is above 100, it’s a seller’s market or a seller’s advantage, where demand is outstripping supply. When it’s below 100, it’s a buyer’s market.

That means there are more properties than buyers out there to absorb them. When we’re right in this little yellow area, that’s what we consider balance.

The reason why this indicator is important is it’s the very first thing to move when there’s a shift. The very last thing to respond is sale price. So when this moves, you get about a three month advance notice of a shift in price.

See in 2005-2006 how that index dropped dramatically below that yellow line  –that was LONG BEFORE we saw prices start to drop. See the image below, for an example of that lag in prices and perception.

As long as this is above 100, pressure is on prices to go up. As long as it is below 100, pressure is on prices to go down. When it’s at balance, prices will stabilize.

When this indicator shifted, you had one to six months to get out of your property while the prices were still going up. When prices are trailing the indicator, it’s lagging. Once it crossed over the yellow line, it took six more months for our prices to peak.

So in Phoenix, our prices, our raw sale price, didn’t peak until 2006. We actually a year and a half advance notice.

That’s the power of The Cromford Report.

Next week: You’ve probably seen all of the price appreciation and all the fun that comes along with seller’s market all within the last two and a half years, but this shift is significant because it’s not a crash. That line dropping below the yellow line in 2005. That’s a crash. Where we are right now, is not a crash. It’s an adjustment to the market, and we might see this bounce around this line a little bit as we find our new normal. But next week, I’m going to show with the evidence in The Cromford Report where we are and why.

If you are buying or selling you need to pay attention to see where things will go. Got questions? Give me a call me at 602-456-9388.

It is official: we are in a buyer’s market again. 

The new year came along and the listings have been coming on, but the buyers are not yet active.  

But, I believe they will be soon, and we might be in a rush again. How do I know? Look at the Cromford Index, below.

The index keeps dropping (meaning it is an increasingly strong buyer’s market), yet the active listings keep climbing. Those prices are going to have to come down and/or buyers will have to come on the market in order for those homes to sell.

I know you’ve heard this before, and at the risk of sounding like a used car salesman, I’ll say it: the time to buy is now. 

If you are buying or selling this is the time you need to watch very closely to see which way it will go. Call me at 602-456-9388 with questions. 

Last week we talked about the headlines on the state of real estate in Phoenix as reported by the news media. We saw that the problem is, no one can see beyond about 3 to 6 months’ time, which is why organizations often contradict themselves in their predictions. To really nail this issue we’ll look soberly at two final headline topics. To assist me is Tina Tamboer, from the always insightful The Cromford Report.

First up, Affordability:

Look at how fast and ridiculous these headlines occur.

August 13, 2013, Housingwire – “Only 69.3% of homes were deemed affordable.”

That’s actually a very good number. Between 60% and 75% is normal. If it’s much higher than that means that luxury is not selling. You have to have a certain percentage of luxury in your market. Day after day after day, you can see headlines about how horrible that roughly 69% is, but it’s actually a good number. ~ Tina Tamboer, The Cromford Report

August 14, 2013, DS news.com – “Housing Affordability Drops To 4-Year Low Ends Rates, Prices Rise”

To say that housing affordability drops to a four-year low makes a person feel like saying, “Oh my God, ‘We’re in a bubble.’ But when you look at it, we were in such crazy affordability. When 87% of all homes that sell are affordable to a family making the median income, that’s really high. That just means that there isn’t any luxury selling; that that $500,000-$900,000 market is dead. There was no jumbo financing available for anyone to buy that doesn’t conform to a conventional loan. So, as the jumbo financing came back in is when you see that luxury market start taking market share and then you see your affordability rate go down. People think it’s bad, but it just means that luxury is coming back.  ~ Tina Tamboer, The Cromford Report

August 16, 2013, Wealth Daily – “One Homes Aren’t Affordable.”

August 18, 2013, USA Today – “Housing Affordability Falls With Rising Prices”

August 26, 2013, NBC news – “Home Prices Across the US Defy Gravity.”

September 17, 2013, The Week – “Is Housing Affordability Going Down The Drain?”

Look at that one month spread between mid-August and September 17. The headlines have affordability just dropping down until they declare it’s going down the drain. Such dramatics. Seriously? Give me a break.

Here’s an example of conflicting headlines. Even on the same day. This is about interest rates.

October 1, 2013, US Finance Post – “Mortgage Rates Rise For The First Time In Three Weeks, October 1.”

October 1, 2013, Zillow – “30-Year Fixed Mortgage Rate Continued Downward Spiral.”

October 2, 2013, Mortgage News Daily – “Mortgage Rates Paralyzed By Uncertainty.”

So how’s the consumer supposed to gather their information online? Do you believe everything you read? If you see on the Internet it must be true, right? It’s hard to figure out what the truth is, among so much drama and so many differing opinions. Unless you’re knee-deep in this stuff every day it can become very difficult to figure out whether you should buy or not.

The answer is knowing what to pay attention to more than who and educating yourself.

That’s really the key.

That’s where the data comes in to help you on your individual level. For example, it’s true the data shows that payments today are similar to those in 2008. But it also shows that they’re similar now to 2003 levels. It’s just above $1000 a month. At the peak of 2005, you would’ve paid $1900 a month for a 2000 square ft. home, paying $375,000. Today, that same home is just over $250,000 and your payment is just over $1000 a month; which is just where it was in 2003. So actually, now we are at 2005 prices and 2003 payments. ~ Tina Tamboer

All the media talks about is that affordability is the lowest it’s been since 2008. They just didn’t go back far enough. If you go back farther, that’s where you see that we’re not in a bubble. We are not in a bad situation.

This chasm is what a bad situation really looks like:

The point of this graph is the comparison between where we were in mid-2006 and where we are now at the tail end of 2013. We’re not seeing anything very alarming. We’re coming back down to normal (blue rectangle) after a period of extremely unusual affordability.

If you want to buy or sell, and you want the truth in the headlines you’re reading, please give me a call at 602-456-9388 or email me at ken@getyourphx.com.

In my October Market Briefing, The Cromford Report’s resident expert, Tina Tamboer, talked about about the Phoenix housing recovery not being expected until 2015 “Memory Lane predictions”.

These are a combination of predictions that never happened or that were completely wrong. An example is the Phoenix housing recovery prediction you’ll see from this how much things change as we move forward in time. The January 31, 2011 prediction. According to ABC 15 coverage of the Phoenix housing conference, the 2009 recovery was predicted in 2012; in 2010, they predicted recovery in 2014; and then in 2011, they change it again to 2015.

Listen to all of these predictions that never came true.

Zillo.com said that housing prices were going to appreciate 6.5%, but it turned out to be well over 26%. On August 6, 2012 Case Shiller predicted that Phoenix area home prices would decline year over year in Phoenix but they didn’t change that to a decrease of 9.5% by the first quarter of 2013, followed by a no change, flap Priceline between the first quarter of 2013 in the first quarter of 2014. Not only did neither of those come true, in fact, Phoenix ended up being the number one city in Case Shiller’s own index in 2013. So not only did the first prediction not come true, but the second prediction of no change between 2013 and 2014, we’ve actually seen prices continue to increase with no stabilization of pricing occurring so far this year.

On May 8, 2012 Phoenix business Journal predicted that Phoenix home prices would fall 11% that year. None of these came true. The only one that came true was on May 3, 2012, when CNN money predicted that buying a home won’t get much cheaper. This is the only thing that was anywhere near correct. Super general and not helpful in the slightest.

Let’s look at some news quotes from years past regarding shadow inventory.

It was widely reported in 2011 that shadow inventory would take close to four years to clear. Just over a year later, MSN real estate, said, “Remember the Looming Shadow Inventory? Never mind.”

This next one is really hilarious: Forbes reported in April of this year that not only are we in a bubble, but also, we have shadow inventory. Never mind that these are two mutually exclusive things. You cannot have a bubble and shadow inventory at the same time. One drives prices down. The other is artificial appreciation. These are two completely different extremes.

Doubletalk, Bubble Talk.

All of these analysts are basically fighting amongst themselves:

CNBC – 30 April 2013, “Boost in Home Prices Doesn’t Equal Bubble”

CNBC – 1 May 2013, “Why the Fast Rise in Home Prices Doesn’t Equal a Bubble.”

Yahoo News – 29 May 2013, “Real Estate Euphoria: Is America in a New Housing Bubble?”

The Economist – 7 June 2013, “No US Housing Bubble.”

NuWire Investor – 12 June 2013, “Reports Show No Phoenix Housing Bubble.”

CNBC – 22 June 2013, “Housing Market: from Recovery to Bubble. Already?”

CNBC – 10 September 2013, “CNBC: We’re in Another Housing Bubble.”

Housingwire – 23 September 2013, “Experts: We Are Not in a Housing Bubble.”

The most credible source would be The Economist. NuWire is pretty good. CNBC is just trying to get eyes on their articles. It’s interesting to see how CNBC has changed their headlines between April and September. “We’re a bubble.” “We’re not in a bubble.” “Oh my God, where in a bubble.” “False alarm. No bubble.”

If we look at headlines from 2012 and 2013, regarding jobs and employment, you’ll find the same confusion confliction.

It just shows that we have a lot of confusing, conflicting headlines in the news media.

As a consumer who is not an expert in all of the different indicators, you don’t really know what to think regarding prices and appreciation. All of that can create insecurity in a buyer. Buyers don’t like uncertainty, so headlines like that can create a lot of skepticism. In truth, skepticism is a healthy thing. It keeps our prices from going too crazy.

The whole purpose of showing you these predictions is for you to see that people who do that much predicting this far in advance really don’t know what they’re talking about. The Crawford Report, however, gives what Tina Tamboer calls “headlights”:

If you feel like you’re driving at night in the real estate market, the Crawford Report just gives you some headlights to know if there’s a curve in the road up ahead. We don’t know what the weather is like in your destination. You can do some pretty good predictions on short-term level, but once you get past 3 to 6 months from now, you become a lot less accurate.”

Next week:
Affordability & Interest Rates Headlines recap and what The Cromford Report headlights show in the realistic next 3 to 6 months.

If you want to buy or sell, and you want my headlight view for the next 3 – 6 months in your desired location, please give me a call at 602-456-9388 or email me at ken@getyourphx.com.