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.

“Whipeeeeeeee!”

              or

“Whoaaaaaaaa!”

Every square in this rainbow slide (not the one on the left, though that does look like fun. I mean every square in the image below) represents a month—January, February, March—all going up.

This covers central phoenix and downtown zip codes, historic and older neighborhoods. One vertical stack of those boxes adds up to one year. See how we’ve dropped quite precipitously:  from 7,500 (in 2010) to 5,800 (March, 2013). In 2008 to 2010 a lot of those were short sales and foreclosures. You can shrink inventory, but the demand is still there and what happens? The price goes up.

Same three-month moving average

In this next slide is the average of all three months going back in time. In this way you keep from getting a bunch of blips that aren’t really accurate. See in those downtown zip codes how we’ve gone from $117 in September 2012 to now at $144 per square foot. Let’s look at year to year. March 2012: $105 to $144. That’s a big jump. Now the three month moving average is going to be more extreme than 12-months, because we’re averaging prices today and 12 months ago. The line is smoother and more conservative.

See from March 2012 it went from $96 to $149 per square foot. This $123 represents the average price for this day and the three months before. So you’re seeing that upward trend. Now, in downtown Scottsdale, we’re starting at higher prices.

Follow me on this:

In March 2004—in the recent comparisons slide, below—the monthly average price per square foot was $115. By the end of 2004 it was $131, a 16% increase. In March 2013, it was at $114, with very similar conditions. We started in January 2013 at $108.

Do we think the price can get to a similar 16% increase point by the end of 2013? This increase from $108 to $114/$116 is a very similar line. So for 2013, yes, I think we’re anywhere in a 16% – 20% price increase, just like 2004. I think we could very easily see average prices by the end of this year, somewhere between $125 and $130.

Now let’s take that same 15% – 20% increase—seen here in this next slide of this more-conservative 12-month moving average price per square foot—and apply it county wide to only Phoenix and Scottsdale, keeping in mind the trend-line I talked about in this post.

Phoenix was on a 12-month moving average in March of this year, sitting at $129 price per square foot (for those same zip codes). If you apply that same 15% – 20% increase, you’re looking at $140 – $146 by the end of this year. Apply that same 15% – 20% increase to the Scottsdale area, starting at $156 for the 12-month moving average, you’re looking at $170 to $175 by year’s end.

I think it’s very reasonable to say that we’re going to be there by the end of 2013.

Let’s compare visually

This here, in this next slide/image is for the whole county and is just by way of an illustration. 2004 (the blue line) and 2012 (the purple line) looked a lot the same in terms of path upward. At the end of March, we were about to surpass the same place we were in 2004.

Attention. Attention. Here ye the Town Criers.

Every few weeks, it seems, we hear a lot in the news about how they’re breaking new ground and there is all these new developments. Each one of those dots in the chart represents a month. In the month of Jan, Feb 2007 we built 4,000 houses. Over the course of over 2006, we built something like 60,000 homes. It was insane. They were crappy, throw-‘em-up houses. And now the news loves to proclaim:

Look! We’re building again!

But the number is tiny. It’s about 250 – 300 homes.

This is important to Central Phoenix for a couple reasons: These new builds are out in the fringes of Phoenix, so you’re not adding to central Phoenix inventory. Also, they’d have to build a lot more of these homes on the fringes for it to have any impact on prices in central Phoenix.

I don’t want to list ‘cause it’s going to be worth so much more a year from now.

But what happens if everyone holds off from selling? People will stop looking and prices go up.

Urban Density: Take away

• Investors –If you want to invest in something, get your mind around the fact that you’re more likely to hold it than flip it and get a better price for it; because the margin’s not there or you’re not going to get cash flow because you paid so much for that thing to begin with and nobody’s going to pay that much rent.

• Sellers –Watch for possible price plateau during the summer. With these price increases, don’t just think I’m gonna hold a year to sell and get this higher price, that’s not necessarily so. Also, with these price increases, people who are thinking this, don’t be so certain, because either people stop buying, or people are prices out of the market, or a lot more people say, “Look the prices are there, go, go, go!” I don’t think you can be that confident for a year or even 9 months from now.

• Urban Cores – are in need of urban infill. Detached residential and condos are coming in the burbs, but we need more rooftops centrally.

• Prices – They’re not necessarily a result of heavy demand, because there’s no inventory coming up the way we thought it would.

Be ye Investor, Seller, Buyer, or Town Crier, give me a call at 602-456-9388 or email me at ken@getyourphx.com. I’ll get it done.

[slide image: Trish_Gee88]

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.