Are they just uninformed people? Those who declare “The Bubble is coming! The Bubble is coming!”? We know we’re not in a bubble, based on the first four parts of this series, but where do the voices of doom come from?

I’ll tell you something: earlier this year, before I sat down and took a good hard look at the facts and figures, before I started laying the foundation for my market analysis briefing (upon which this series is based), before I did all, I’ve got a tell you I was worried that we were getting into minor-bubble land.

But Get Your PHX/Cromford Report team mate Tina Tamboer talked me off that ledge.

People are seeing agents listing properties at irrationally high prices. This doesn’t necessarily mean we are in a bubble. What it means is: agents are listing properties at irrationally high prices just because their clients want them to go fishing for a higher price.

Their buyers are telling them, “I want you to list it here, at this amount.”
Their agents may tell them, “Uh, that’s a little high for the comps.”
And the seller says, “No. I want to list it here.”

Agents advise, but can ultimately only do what they’re told. If a client wants to list it high, you list it high. Other people see that pricing, then they try to list it high, etc.

Remember I said in the summer things slowdown in terms of sales?

I’ve indicated in green lines, below, the first and second quarters between 2001 and 2013. Right now, we’re just hanging out close to our long-term average.

Which means what, exactly?

This year, watch for prices to go up for the first two quarters [like they always do]. People will be listing furiously. You still are not going to see the number of listings you saw during the bubble. When you get into the summer, at the beginning of that third-quarter, and all the way through the third quarter, you’re not going to see a slump, but a plateau.  ~ Tina Tamboer, Get Your Phx/Cromford Report

People go on vacation and fewer people list. Glance back to all those sections with the green lines. Note that regardless of the severity or abundance of sales, Q1 and Q2 sales always increase, followed by a plateau. So here’s the take away: if you are thinking of listing, it is better to list it and sell in the first two quarters.

Right now, we’re just at the beginning of the second quarter. You still have just shy of three full months. If you put a property on right now, chances are – unless you’re priced way above market – you’re going to get your house sold in a matter of weeks. If it’s a nice, clean property in central Phoenix and most parts of town, you’re going to sell pretty quickly.

Once you get to the summer, you might see activity slowdown, and prices fall back a little bit.

Do you really want to risk that?

When you get into the end of the year, what happens? Look back up to the chart again at Q4 over the years. You’ll see that end of the year home selling is not as good as beginning of the year. Why? Because in October, November and December, people are beginning to think about holidays, which is why sales slowdown at the end of the year. The conclusion is the same: the best time of the year to sell your home is in the first two quarters.

The first quarter of 2013 ended a week ago. You’ve got less than one quarter left.
If you’re thinking of getting your home out there, talk to me.
We’ll get it out there.

Please give me a call at 602-456-9388 or email me at ken@getyourphx.com

[megaphone man: Shrieking Tree ]

After the bubble comes the recovery. In part 3 of my series on why we’re not in a bubble, you saw how non-distressed homes are taking on a greater role in the market. The final bit of proof that we’re not in a bubble goes like this…

The chart below is from part 1 of our analysis. Recall that the little spike in 2009 (green box in Market Index below) where we saw people taking advantage of the First Time Home-buyer Tax Credit.

And then the banks brought a few more things like foreclosures and short sales on the market, as we were struggling to get out of that. There was a little dip their between 2009 and 2010 in prices and a shot back up. We had a lot of inventory on the market. These are normal home sales people who were up against distressed inventory so they had to bring their prices down.

Distressed only

When we look at distressed-only prices in this next chart, we still have this jump.

 

On the far right of this chart, on top of the horizontal blue line, is where normal (non-distressed) sales prices are at $202, 382.

If you draw back into the past, you run into this green box on the left. Look at where the price lands and to see that it’s not the same. Actually, before that, that price landed in late 2004. It’s a different measure, because the last time we saw the price going up, it was the last quarter of 2006 (the right side of the green box on the left).

The last time we saw prices like our non-distressed number of $202,382 going up was at the end of 2005. The conditions were much different –buyers paid very little down payment, they had little skin in the game, sellers could choose their appraisers and lenders were going mad.

The last time we saw them going down was at the end of 2008. In terms of price increase, distressed home sales still have 45% to go in order to get up to $202,382. But that’s probably not going to happen. Back at the worst of it, distressed homes sales had 102% to go to reach normal.

We’ve come a long way in terms of prices coming up on those distressed homes, so yes, if you can into a distressed home, that’s great, but there are very few of them around.

And this, dear friends, is why were not in a bubble:

• Distressed homes are still pulling prices down.
• Inventory might be tight, but it’s not as tight as you thought it was (we talked about this in part one).
• Distressed property inventory is really tight, but the normal property inventory is growing at a regular pace.
• Normal property prices are still relatively low compared to what we saw before the bubble.
• If those $202,382 prices for normal homes were in the same landscape where we saw the same conditions that were happening pre-bubble (like in the last chart we reviewed in part 2 “Return of the Equity Seller”, with things like 100% financing and the like, I’d say yeah, we’re in a bubble, and we might be really worried.
• We’d be way, way above our long term trend line (part 2) if that was happening.

Where do the voices decrying “We’re in a bubble!” come from?

What does the answer have to do with the coming summer?

That’s next week!

If you want to sell or buy, please give me a call at (602) 456-9388 or email ken@getyourphx.com. I can get it done!

Last week, I promised to show you the real kicker. Here it is: Non distressed homes are taking on a greater role in the market. The distressed houses are going away.

What did the line look like for non-distressed homes? These are people who didn’t necessarily lose their home but their values went down. Watch what happens here, ‘cause this is the real kicker that reveals why it is we’re not in a bubble.

This chart is for Maricopa County, Median Home Sale Prices: NON-DISTRESSED SALES ONLY

The red arrow indicates the 18% pricing increase in the bubble. This was bubble-pricing at the beginning of the bubble. The large red circle that follows is what a real bubble looks like.

Now look at where we are now in this next chart. Look at the matching 16% increase at the far right of the chart, marked in blue.

We’re just matching the increase of Q4 2003-2004! Ask yourself:

What did it take to get us to where we were at the outset of the bubble? Recall those three big components from my part 2 analysis, last week. Are those at play here in the market again?

No.

We don’t have 100% financing.
We don’t have mortgage cash backs.
We don’t have schemes.

People have to have money. You have to 3.5% down, minimum for FHA. The conditions before are not the same now:

Mortgage lenders have to go to class and get licensed, just like agents now. Lenders didn’t have to do that before. You have to have some skin in the game nowadays, but you didn’t really have to have that back then. We’re not seeing those kinds of things. So for normal home prices, that dashed light blue line  in the chart above,  we’re right on the normal.

The normal home sellers and buyers are just kind of hanging out. When you look at what the prices are today

(~ $200,000 – per the number of the far right side of the above chart) and then look back into the past at the last time we were at that point, in the fourth quarter of 2004 (~ $193,950), you start to see what your equity is.

In the graph above, if you bought your home in the green box on the left, 2001 to late 2004, you had equity. If you bought it in the box on the right, late 2009 to now, you have equity. Now’s the time to sell.

Next week: Welcome to Recovery Mode (part 4)

To sell (or buy) please give me a call at (602) 456-9388 or email ken@getyourphx.com.

In Part 1 of my “Riding the Rollercoaster” post from last week, I hope I made it clear what a normal market looks like, why it’s  important to remember that the market is a function of supply and demand, and why price is a trailing factor running two months behind the market.

A person’s natural question when they learn these things is “Oh, is this another bubble?”

Now, we’re going to show you why we don’t think it’s a bubble.

We think we are  normalizing.

Don’t Burst My Bubble

Here’s evidence that we’re not in a bubble. Below is a graph of distressed sales in percentages for Maricopa County.

• The grey background is all the sales from the Multi Listing Sales Data.
• “Lender owned” is in red. See how from 2010 through 2012 it’s going down, down, down. This red line is a percentage of sales, relative to the orange and green lines. Add up each point on a different colored line and you get 100% of sales.
• “Short sale” is in orange. See how it’s been fluttering pretty steadily up and down since 2001 and then in Dec 2012, it drops, drops?
• “HUD” in blue has always been around 3% or so since 2001. Really consistent, regardless of recession activity.
• “Traditional Sale” is in green. Just a nice, even climb, upward.

So as two of these have been declining—Lender Owned, since 2010; Short Sales, since Mid-2012—and with HUD Sales always at regular levels, only Traditional Sales are going up.

On average, over the long term were getting back to the point where a certain percentage is always going to be foreclosures. Before this pre-recession bubble, nobody knew what a short sale was. Agents didn’t know what to do with them; they didn’t even know how to process them. The vast majority of agents never had to deal with them before.

Appreciation by Transaction Type

This next chart shows the monthly average sales price per square foot. At the far left of the blue line is December 2009 when we were at $123.70 per square foot. So even though we have more properties coming on the market, which we know from the previous chart and its evidence of increasing Traditional Sales,

It’s not like you’re seeing this radical push up in price, says Tina Tamboer-Glatfelter (Get Your PHX Team/Cromford Report)

What Tina means by this is that you have more things on the market that are normal. If this were a bubble you’d look at all the properties and you’d see them all go up in price. Here, you’re seeing more come on the market, but they’re still not up in price. They’re at the same price per square foot.

Maricopa County Median Home Sales Prices

The faint blue dashed line is the long-term trend line. Back in January 2001, at the far left, the median home sales price for Maricopa County was $139,500. The dashed long-term trend line continues upward to the right. If we had a forever normal market, you’ll always see this nice long slide upward. At my last market analysis gathering on March 21, Tina showed us what happened in the bubble and why.

Look at the spike up on the left of the Matterhorn shape. Why did it go up like this? You had 100% financing, people were getting cash back from their mortgages, and you have all these schemes.

And then there was that one day when somebody couldn’t sell their house for more than they thought they would. And then their neighbor, who had all this extra money taken out of their house, suddenly found that their house wasn’t worth anything, and then there was Wall Street, which didn’t help, and then it all started to tumble apart.

So now track your eyes at the tipping point of that mountain to the right, where in 2007 you had foreclosures, people couldn’t sell houses, nobody could get financing to buy up the houses that were sitting there, and you had unemployment. So that’s when we hit that lowest, lowest point in January 2009. The lift in the line between the bottom of January 2009 and that first little peak is when people were trying to get that first time home buyer’s tax credit. Then it dropped again. That’s the best effect we could do with that tax credit.

Then the lowest median sales price that we had was $123,150 in March 2011. Right now, April 2013, we’re at $180,000. You can see that on the far right of the graph. See how we’ve had a 23% increase in the median home sale prices since March 2011?

The Skinny.

If we were in pace with that long-term dashed trend line of a normally rising market, we’d be at the $200,000 mark. But because we’re at the $180,000 mark, this means that we still have some time here. The point is that we’re still $20,000 under a normal median sales price.

We’re not at a bubble yet.

But the real kicker is this:  …and I’m going to show you that very thing next week.

In the meantime, if you want to sell or buy, please give me a call  (602) 456-9388 or find me at ken@getyourphx.com

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!

Like Transformers.

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 ken@getyourphx.com.

[rollercoaster pic: Upsilon Andromedae]

We’ve known it intuitively and anecdotally for a long time, but here is some great news that proves it: home values next to light rail are stronger.

In a recent blog by Michael Melaniphy (President and CEO, American Public Transportation Association (APTA)) he said:  “Average sales prices for residences in close proximity to high-frequency public transit were more stable during the recession”. This is not a guestimate, but backed up by strong data drawn from a nationwide report commissioned by APTA and the American Association of Realtors®.

The five cities upon which the study was based are a representative sample of the types of high-frequency public transit systems throughout the U.S. The five cities were Minneapolis-St. Paul, San Francisco, Chicago, Phoenix and Boston.

“During the last recession, residential property values performed 42 percent better on average if they were located near public transportation with high-frequency service.” ~ APTA and the American Association of Realtors®

Enter Phoenix’s $2.9 million Sustainable Communities grant (2011, from the Department of Housing and Urban Development) for Reinvent PHX —  a way to produce sustainability action plans for the five districts along the existing light rail line and establish a new transit-oriented model for urban development along the city’s light rail corridors.

As the nation continues to assign us with the unofficial title “World’s Least Sustainable City”, we’re still a “Bird on Fire” worth writing books about and paying attention to.  You may recall that in November last year, I wrote about Phoenix leading the Nation in Innovation and Efficiency.

A year ago, January, Native American Connections built a community for our growing, city-dwelling Native American populations in the mixed-use, mixed-income apartments of  the Divine Legacy, just across from the Campbell & Central light rail station.

In my post last September, I mentioned a great story on KJZZ’s Changing America series where the reporter talked about how retirees are moving into downtown areas and urban cores along the Valley Metro light-rail line.

And as The Atlantic noted in a post a couple days ago, it looks like Phoenix’s walkability gamble just might pay off.  Light rail homes gives people quicker access to alternate ways to get around town, access to jobs, and lower transportation costs in walkable areas.

All of this is particularly important if you are thinking to list your home. If you bought before about 2004 or between about 2009-2011, you are probably in a really good position to sell.

In the immortal words of one Hannibal Smith, “I love it when a plan comes together.”

If you want to buy or sell the right property near public transit, please give me a call at 602-456-9388 or email me at ken@getyourphx.com.

[metro image: King Chung Huang]

You’ve heard me going on about how prices are up and I told you they were going up two years ago. Okay. Enough of that crowing, Clark.

Let’s talk about what this means. 

See the 3-month moving average for per square foot home prices in the downtown and CenPho neighborhoods, above. The 6-month moving average is a little less extreme, but it will because if averages with homes that sold 6 months ago. 

If you are a buyer, expect this to continue. In a presentation I did with The Cromford Report’s Tina Tamboer last week, I predicted that homes in the CenPho areas will probably go up another 15-20 % this year. Tina was a little more conservative, pointing to a typical summer price plateau.

If you are a seller, think about selling before that plateau hits in June, or hold off until the autumn. 

Why not hold off until next year if you are a seller? Two reasons:

1) If everybody does the same thing (and they often do in markets), then we are looking at a severely tight and unstable market. You don’t want to sell during that.

2) The Cromford Index (see below) shows that this is a very strong seller’s market. Historically seller’s markets don’t last forever. A seller’s market happens any time the index is over 100. This seller’s market may be waning, especially if interest rates go up –as they have been doing.

So, you might be thinking, “Clark, how can you be telling both buyers and sellers to act at the same time?” Well, I’m not, really. What I’m saying is keep an eye on these indicators as you think about what is best for you, regardless of the market. This is not a stock market where you can trade back and forth easily. But you need to think ahead of the trends. Call me at 602-456-9388 if you want help doing that.

Y’all know that I dig The Cromford Report.

And not just because I respect Michael Orr, who founded The Cromford Report and who has been chief analyst and editor since its inception in 2006. The fact that Mike holds a master’s degree in Mathematics from the University of Oxford, has been investing in real estate since 1976, and is director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business at Arizona State University, should say something about his credentials.

I’ve mentioned to you in the past that the data in The Cromford Report™ comes from public records and under license from the Arizona Regional Multiple Listing Service (ARMLS) is another source of confidence. Reputable organizations like The New York Times and Get Your PHX regularly refer to The Cromford Report for daily real estate market insight in the Greater Phoenix residential market should come as no surprise. What the magic soup, secret spices, and mathematical wizardry is that makes the data into the graphs, charts, index, etc. at The Cromford Report™ is a mystery, but the results are certifiable.

I first wrote about The Cromford Report in March 2011. I’ve been citing it more frequently, lately, and I’ll be doing more so in the months to come.  If you are a real estate investor in Phoenix, you need to subscribe to The Cromford Report.

The Market Index

If there’s one thing you really need to pay attention to on The Cromford Report, it’s The Market Index. If the market gauge is over 100, it’s a seller’s market. Below 100 is a buyer’s market.

Look at the Market Index for today.

This Index is really handy. Based on this number, well over 100, are we in a seller’s or a buyer’s market?

If you follow The Cromford Index (or you’ve been reading my posts), you’ll know that number has been on the rise for the last year.

Historically, you can see what things looked like before and compare it with today.

Back in September, 2010…

Let’s back up to April 2005 and take a look at the Market Index was in context of the years leading up to 2010.

This is Central Phoenix, all areas and types of residential homes, between 2002 and 2009…

At the peak, in April 2005, the Market Index was way, way over 100, making it whose market? (I know. You don’t even have to look; some of you may not want to). Right now, today, the index is 160-ish. We’ve been seeing this coming for a long time.

Here’s the skinny.

This is a VERY HOT seller’s market.

It will not always be that way. If you’re thinking of selling, you have to get in there now. It’s been going up since late last year, but do not assume prices will go up forever. We know they don’t. We know they won’t. It’s so easy to lull yourself into a false sense, especially when you don’t track invaluable resources like The Cromford Report.

“If I just wait 6 months, the prices will be really high” they say.

Yeah, and maybe, if everyone waits six month, there will be no inventory, and the bubble will burst. Or, maybe, interest rates will go up, and then the bubble bursts.

Move on it now. Contact me when you’re ready. I’ve got your back.

I can be reached on my cell at 602-456-9388 or via email Ken@GetYourPHX.com

Quick announcement: I earned the HomeSmart Diamond Club award for 2012. In the eyes of HomeSmart, I bought or sold an impressive amount of property for my clients in 2012. I’m particularly proud of this because I started as an agent just about the time the recession started. I did that on purpose. I knew that if I was tough enough to make it through the rough times, I would be that much better an agent for my clients (and myself) when times got better. I know that I made the right decision.

Foreclosed properties are almost down to long-term, “normal” levels. There is no shadow inventory. But you’ve heard me tell you why a hundred times by now. In February, there were fewer than 1,000 recorded residential trustee deeds in Maricopa County for the first time since September 2007.

But if you want to understand the most important driver of cost, you need to look at inventory, which we do regularly here. See the chart, above. See how the average days on market for all homes has dropped from over 160 in early 2011 to about 60 today. This number is lower for cheaper properties and lower for homes in CenPho, in many cases. 

So, what happens when inventory goes down? Price goes up! 

Expect more of that, as home builders are still not building as quickly as they once did. Most importantly, they are not building in the CenPho area. Further, people who might have been thinking of selling are hearing about price increases and they may be holding off, hoping for even higher prices before they sell. We really need those houses on the market to keep prices from rising too quickly. (Price increases are good, but not when they create the conditions for another bubble!)

Further, further, sellers are listing their houses at inflated prices just to see who will bite –people are biting and appraisers are supporting those prices.

Further, further, further, interest rates continue to stay low. So there are a ton buyers for very few houses. What do you do? If you are a buyer, don’t hesitate. Get out there. If you are a seller, I would not wait too long either. I think we have the makings of a mini-bubble. There is an equal chance that you could wait to list your home only to find that mini-bubble burst and prices are lower than they are today.

If you are thinking about listing you home (even for short sale), please give me a call and let’s meet. If you are thinking of buying, let’s grab a cup of coffee and talk about your plans. We can build a strategy that gets you the home that you are looking for.

Call me at 602-456-9388.