The average website visitor reads from a screen at 180 words/minute. I’ve already used 15, so I better get to the point of the matter. Which is this:

The only thing that really affects our supply and demand of homes in Maricopa County is people going out of, and people coming in to, our County. ~ Tina Timboer, The Cromford Report

That’s right, folks. Migration.

There used to be other things that affected supply and demand (and we’ll get to those in part 2 of this market analysis) but not any more. Some of you are looking to buy. Some are looking to sell. After you hear what I have to share with you, you may want to rethink your plans. Or, you may find your plans are confirmed by what you learn.

Some of you may want evidence that what I’m about to tell you is certifiable and trustworthy. I’ll tell you. It’s because it comes from The Cromford Report. For those who’ve not been following my blog posts for long, you don’t know how much I admire this report. If The Cromford Report were touring like The Grateful Dead or Phish, I’d follow them around. If Ben & Jerry’s were looking for a new flavor, I’d suggest they call it ‘Cromford’. Don’t just take my word for it. Listen to what Tina Timboer, the absolute Guru of all things Cromford, has to say:

Prices will continue to go up in Maricopa County for the foreseeable future.

How do we know this? Because Michael Orr, the founder of The Cromford Report is an Oxford educated mathematician. Because he is the Director for the Real Estate Theory and Practice of ASU. Because he personally cleans up all the public record data for ASU’s Real Estate department. Because The Cromford Report does not buy/sell property, but is solely an analytical firm. Michael Orr puts together all the data at The Cromford Report. Nobody knows the real estate market better than Orr.

Let’s get back to supply and demand. You’ve been hearing a lot about interest rates and you want to know what the long-term trend will be? How will interest rates affect buying/selling homes? Next week, I’ll share what Tina had to say about the macro view on the issue of supply and demand here in Maricopa County and how we know that prices will continue to go up in the foreseeable future. Yes, because Michael Orr said so, but more importantly, it’s why he says so.

Trust me, you’ll nod your head and think, “That makes perfect sense. I should look at the macro view more frequently before I hear the news tell me the Case–Shiller Home Price Index says homes are selling for X amount nationwide. Which is just like saying the average temperature in the country is 76 degrees, but golly it’s 110 degrees in Phoenix!”

Exactly. Come back next week to hear what the supply and demand “temperature” really is in Phoenix and why.

To buy or sell, informed and with confidence, give me a call or email me at 602-456-9388 or email me at ken@getyourphx.com

  [migration photo:  Billtacular]  

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

This week I want to talk about how data informs my gut sense. What does it mean when I talk about different types of ‘data’ in my posts? A hugely reliable source of my data comes from The Cromford Report.  The Cromford Report takes data directly from the Multi-Listing Service, which is the most accurate report of sales in Arizona. In this next graphic, you’ll see what the Cromford Index does. Two things you need to know about this chart on Phoenix for the last 30 days:  Above 100 and below 100.

Look at the two gauges on the left and right sides. Anything over 100 is a seller’s market. If the arrow is in the green, it’s good for sellers; red, it’s good for buyers. As you can see from the 30-day chart at the bottom of the graphic, the supply is really flat right now. That’s because we’re not getting a new supply of homes into the available inventory, which means it’s a seller market. Between buyers (the Supply Index gauge on the left) and sellers (Demand Index gauge on the right) you’ll see demand is pretty flat (in the yellow zone). In an ideal world, buyers and sellers are equal in getting what they want.

 Macro

This chart below is for Phoenix, for the last couple years.

You can see here, in the pink, that it became better for sellers in 2011. It’s at over 100, so it’s better for sellers. Since 2011, it’s been increasingly better for sellers, there was a little drop off at Christmas 2012, but then it’s popping up again. The long-term Crawford Index tells us that things have been getting better for sellers for a while –for much longer than the media was reporting.

Can I get any worthwhile information on just a month worth of data, or must I have a year’s worth of data to be able to offer any real value?

With the Crawford stuff, you have to look at the micro and the macro, balance them out, and end up with the gut feeling (many authors on decision making whom I’ve read say that the gut reaction is the more accurate than we might think). You have to be in the business and see lots of data to get that gut sense.

Micro micro

Check this out, we can look at zip codes also in The Cromford Index.  Isn’t that cool? This is a micro-micro example of using data. This data shown in the chart below is for $100,000 to $250,000 on Phoenix zip codes for 85003, 85004, 85005, 85012, 85013, 85015. This is SFR in Maricopa county. It’s a 6-months moving sales, and it’s really janky because there aren’t that many homes in that price range.  It’s a pretty small area for home prices.

I have used this kind of data in the past (3/26/10 – “Data is right. Media is wrong” and 8/25/09 – “Can I Say I Told You So?” to make my cases about I saw (based on the data) and felt (based on my gut instincts) was going to occur.

Was I right just because of the data?

Not at all. I took the data and used it to get the gut instinct. You’ve seen me put up images of supply, inventory, and demand, on this posts and in the past, and you’ll see them in posts to come, but what I’ve found is you use the macro and the micro data, but in the end you have to go with your gut.

Next week, we’re going to talk about data as it relates to up and coming areas. I can tell you now what my gut instincts tells me:

The micro data shows price increases, but I also know that people are getting priced out of historic neighborhoods, so they’re going next door. I know those neighborhoods. And not just from an aesthetic perspective, but from gut instinct.

Give me a call, buy or sell.  Go with your gut.

I was listening to the news recently. They were siting the Case-Shiller index talking about what the average home price was in America. This always seemed absurd to me. You could tell me that the average temperature in America is 75° and that doesn’t help me plan a trip. So I got to thinking, it would be great to have a sort of one-stop shop where people could come in and talk to people like Jeannie Bolger, Mike Orr, or myself.

So this past Tuesday, that’s what I did. We had a room of about 25 people. Some were buying houses, some selling them. Some were investors, some realtors, some mortgage brokers. Some were just curious. Another reason I did this was because I just wanted my friends to have this information. I know the market. I work hard to understand the market. We’ve been fighting some of the same myths over the past three years and I wanted to clear the air.

I covered several things in my presentation:

• The home delinquency rate in America and in Maricopa County
• The inventory that’s currently out there
• Some interesting trends hidden inside the data.

Much of my briefing was based on Mike Orr’s Cromford Report. (Thanks to Mike Orr and Tina Tamboer for allowing me to share their work at the presentation and here as well.) I’m a huge fan of this report. If The Cromford Report were like the Grateful Dead, I would just follow them around everywhere, like a groupie. It’s very easy to understand, has helpful visuals, and is easy to digest. Mike is not only behind The Cromford Report, he’s also the director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business.

Orr made this great statement, which he calls the Coiled Spring Theory:

The longer it takes for prices to respond, the larger prices are going to be.

I think that’s very true in the market right now. For greater Phoenix, the local average sales price per square foot, in just the last year, has seen a 30% increase in prices. Is that going to happen again this coming year? Quite possibly. And that has a lot to do with the number of homes left on the market, and where the next ones are coming from.

Before we get to that, let’s talk about delinquency. This is when people are simply late on their loans. They may foreclose. They may short sale.

I have heard the following phrase a lot over the past year:

We don’t know what the banks are hiding.

I like Mike Orr’s response to that. He says what they’re really saying is:

We’re too lazy to check.

It’s really easy to see what’s coming downstream from the banks. You can see it in several ways. First, by looking at the number of delinquency filings at the county courts. You can see who’s getting notices that they’re late on their loan and are in danger of being foreclosed. Second, you can see it in the number of trustee sales.

When you look at these numbers (see pictured graph, below), you see that Phoenix has no shadow inventory.

Phoenix was well above the USA average in 2009 and 2010 for the number of delinquent loans or foreclosures. Today, we’re below USA average. We’re number 38.

Below is another great snapshot of where we are.

Nevada is in a world of hurt right now. But things in Arizona are not what you have been hearing in the news over the last few years. It’s just not like that anymore for us. In fact, one of the reasons we saw the two big drops in Arizona (note the AZ drop-offs in the above graph) is that title companies got really good at processing short sales and they got us through that. So in Arizona, residential foreclosures are down.

If you want to see the big picture of why there is no shadow inventory, this next chart is a great thing to look at. I was saying it in Aug, 2011 (“If I have to hear another person predict a massive “shadow inventory” I’m going to turn green, and you wouldn’t like me when I turn green…) and I said it again this past July when I wrote about Countervailing Forces (you remember the graphic: two monopoly houses dueling with light sabers. I crack me up, sometimes.)

On this chart, that line on the bottom is the normal level at which people expect to see foreclosures in the market. There’s always going to be some percentage of people who should not have bought the house and now they’re upside down late on payments. The real interesting bit here is that based on this chart we can see that there are still going to be some things coming onto the market or those people are going to be short selling. They’ll find a way through it, but they’ll have a better chance at a better way through it then they would have three years ago.

Some people argue that I’m not looking in the right place. They’ll say,

All those banks are just holding onto their houses. They just haven’t been listed yet. You’re not seeing them in this chart.

Well those people will have to keep arguing, or holding their breath, until part 2 of this series on Get Your PHX Market Briefing. That’s when I’ll share how I answer those people and I’ll share some relevant and interesting insights about the inventory that’s actually out here in Central Phoenix.

If you would like to be part of a future PHX Market Briefing, please contact me at 602-456-9388.

[train photo: andrew_j_w] [modified with permission by Ken Clark]

JUMP TO PART 2 OF THE MARKET BRIEFING HERE.

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