We Are In A Seller's Market!

WE ARE IN A SELLER’S MARKET

SEE WHY BELOW!

From The Cromford Report

Several writers and commentators in the national media appear to be trying to stoke mass hysteria that the housing recovery is over and done. There is precious little statistical evidence to back that theory and almost none at all here in Phoenix. However, many people are hyper-sensitive to any suggestion of weakness because they remember the last crash so vividly. They don't want to be caught again in the same trap. There is no shortage of pessimists and skeptics who take delight in passing on the media's gloom. In fact, that is often a key identifying characteristic of a market in the early stages of a long term recovery. The facts tell us that the market has cooled over the last 2 months. They also tell us that the housing recovery is still intact.

In the normal world, no market improves every month without a rest now and then. There are always changes going on, and we are way overdue for a cooling off. 

A move towards normality should not be regarded as a sign of impending doom, just a sign of impending normality. 

A move towards normality does not mean prices will come down. Unlike the stock market, prices almost never move downwards in a normal real estate market. Sellers only lower their price expectations when very desperate. Desperate times do occur a few times per century, but they are very rare. For a while in 2004 and 2005 we forgot that they could ever happen. Now the public knows all too well they do and consequently expects prices to drop at any moment, even when it is least likely to happen. From a statistical point of view, any significant non-seasonal downward movement in pricing would be very strange because none of the exceptional conditions that existed in 2005 are true today.

This month we can see a significant cooling in demand, but it is nowhere near large enough to balance with the shortage in supply. So pricing pressure remains firmly upward, albeit less intense. Demand will have to drop much further before there is any likelihood of a change in price direction. Demand is just as likely to firm up again once the surprise of the interest rate changes has been assimilated.

Prices have risen a long way in the last 24 months and it would be very surprising if that didn't take some steam out of the demand.

Sales volume over the last 2 months was fairly strong at 15,310 which compares favorably with 14,803 in the same 2 months of 2012. The sudden spike in interest rates seems to have caused sales to be pulled forward from August giving us a stronger than normal July and a weaker than normal August. If we measure sales by dollars instead of units the numbers are impressive. Home buyers spent $3.6 billion in July & August 2013 versus $2.9 billion in the same two months of 2012. Even with the slump in unit sales in August 2013, we saw buyers spend $1.66 billion versus $1.46 billion in August 2013.

It seems odd to talk of a sales slump when revenue grew by 13.6%, but everyone likes to focus on unit counts. Revenue was improved because prices have increased faster than the unit count has fallen.

There is little change in the supply of new listings. They continue to arrive at close to the lowest level in 13 years, just a tad higher than last year. We still have a chronic shortage of supply. This may surprise many observers who can see clearly that active listings are growing in the majority of areas. There are three effects at work here:

1. Between July and November, the sales rate is always considerably less than rate at which listings arrive (the opposite is true between February and June). This is a seasonal pattern that always appears in Greater Phoenix.
2. Fewer active listings have been going under contract since June - the seasonal fall in pending listings is greater than usual this year, similar to 2010 after the tax credit expired.
3. The 65% drop in completed short sales means listings spend dramatically less time in escrow.

The price range where supply is improving most for buyers is from $300,000 to $599,999. On the other hand, between $600,000 and $1,999,999 supply is now tighter than last year. That part of the market is noticeably stronger than 12 months ago.

So what is going to happen to prices going forward? They are almost certainly going to start rising again. The average $/SF for pending listings and for listings under contract are both moving higher each day now that August is over. (Cromford) expects to see the average sales $/SF move up from $119 per sq. ft. to around $122 per sq. ft. in the next 4-8 weeks. After that the future is uncertain but it would not be a surprise if they hit $125 per sq. ft. by the end of the year.

So what does this mean for buyers and sellers? For sellers, if you list your home, it will sell, most likely within 60 days if it is in a price range where there is still demand, in an area that is still in demand, and in a condition that impresses buyers. For buyers, be willing to open your search into a number of zip codes, be as flexible in price as your situation allows, and be open to improving a home rather than waiting for a perfect, remodeled house. Buyers also need to act quickly when they find the home they want and be open to bringing their highest and best offer to “win” a contract. In summary, we are clearly in a seller’s market!