June 30, 2010

Wall Street Greek Real Estate Columnist Michael Douville says now is the time to buy property, that an opportunity of this magnitude presents itself once or twice in a lifetime. Mr. Douville notes that Phoenix area housing continues to benefit from demographic trends, while valuations and "timing, timing, timing" present a special opportunity. Thus, Douville says Phoenix housing is undervalued.

Read the complete article

March 22, 2010

Sales pricing can be measured in several ways: Average Sales Price, Median Sales Price, Average Sales Price per Sq. Ft., to name but a few. But however we measure it, we can now make an unequivocal statement:

Average sales pricing in Greater Phoenix is HIGHER NOW THAN IT WAS AT THIS TIME LAST YEAR.

In other words, we are now seeing POSITIVE ANNUAL APPRECIATION RATES again for the first time since 2006.

February 25, 2010 was the first day to show a positive appreciation rate (0.3%) based on our favorite pricing measure - Average Sales Price per Sq. Ft. The last time we saw positive annual appreciation measured this way was on October 7, 2006.

March 2, 2010 was the first day to show positive appreciation based on Median Sales Prices. The last time we saw this was August 19, 2006.

It is not so much that sales prices are increasing at the moment, in fact they are somewhat directionless, with the overall average sales $/SF lying between $88 and $92 since early September 2009. The reason for positive appreciation is that sales prices fell to extreme lows in March and April 2009 and recovered from these lows during the spring and summer of 2009. So we currently have a very easy comparison to beat. In fact late March and early April 2009 saw us reach lows of just above $82 per square foot, so we are currently measuring a very strong annual appreciation rate of over 8%.

For those who prefer median sales prices, the current figure is $128,000, some 11.3% above the low point of $115,000 reached on April 30, 2009.

Because average pricing rose sharply in the second quarter of 2009, the comparison will get more difficult over the next few months and the annual appreciation rate will fall to more normal levels, probably in the low single digits, similar to the inflation rate.

There are claims in some quarters of a so-called massive "shadow inventory", a scary sounding concept which in fact turns out to be vaguely defined and open to misinterpretation. I find the idea of shadow inventory less than useful, almost universally misunderstood, and frankly I wish people would stop using the phrase. Whatever your interpretation, I have to report that for Greater Phoenix I see no sign of a major change in pricing on the horizon, either up or down. It seems to me that the market has stabilized and pricing has found a natural level (between $89 and $92 per sq. ft.) which is likely to stay in place for some time. Supply and demand are both fairly high and look like reaching a balance, with the Cromford Market Index™ closing in on the neutral figure of 100 from above.

Of course, the majority of people still see prices falling. Why is that? Because they are not watching sales prices, they are watching list prices. List prices are more visible than sales prices and they still have a long way to fall to reach the natural level of the current market. After all, the average list price per sq. ft. for all active listings is currently around $149, 63% higher than the average sales price per sq. ft. for homes actually sold in the last month. But in fact, the list prices that people ask for their homes are relatively unimportant and certainly do not define the market. We all know that many sellers are in denial about the real market value of their property and insist on setting asking prices that are unrealistically high. What really defines the market is the pricing of homes that actually sell.

Those who wait until list prices stop falling to call the bottom of the market will probably be about two to three years late.

The figures in the above Cromfort Report article are all based on "all areas & types" within the ARMLS database. 

March 21, 2010

We have not reported much in the past about rental information on ARMLS. However important changes have occurred in the past 6 months. We know that rental MLS listings represent only a small part of the overall rental market since since many landlords and rental agencies don't use the MLS to advertise their rental properties. This is particularly true of multi-family apartment buildings. However the rental listings that do appear within the ARMLS database represent a statistically significant sample of the rental market. There are usually between 7,000 and 10,000 rental listings active on ARMLS and single family detached rentals are particularly prominent among these listings.

Six months ago, on September 21, 2009 there were a total of 9,381 active rental listings on ARMLS, of which 5,460 were single family detached. Today there are only 6,009 active rental listings of which 3,133 are single family detached.

So in just six months, 36% of the total rental inventory on MLS has disappeared, while 43% of the single family detached rental inventory has gone. This is NOT normal! In the same period one year earlier, active rental listings barely changed from 8,768 to 8,727.

Some may argue that fewer rentals are being listed on MLS because people are turning to other means of advertising their properties to rent. "Craig's List", they say. However if this were true then fewer leases would be reported on ARMLS too. So let's examine this. In the month of February 2010, 2,459 leases were closed on MLS. In February 2009, 2,153 leases were closed. So recent rental activity on MLS has actually INCREASED by 14% over the last year.

So what is really happening?

A large number of families have lost their home through foreclosure or short sale since the middle of 2009. These people are usually not in a position to buy a home due to the effect the foreclosure or short sale has had on their credit score. However they need to live somewhere. It seems to me that these families are choosing to rent single family properties in preference to units in apartment buildings. We know that apartment buildings are still suffering from high vacancy rates. But the demand for single family rentals is clearly outstripping the supply causing an unprecedented fall in the inventory of available single family rentals, and particularly single family detached homes. At the moment, this trend shows no sign of stopping.

These facts are contrary to the "received wisdom" in the market, which tends to include false rumors of a glut of rental properties. While multi-family rental property managers are finding it very tough competing for tenants, the opposite is happening in the single family rental market. I know local rental agencies that specialize in single family homes who have waiting lists of tenants and are trying hard to recruit more landlords by offering special incentives. The opportunity for careful investors to obtain positive cash flow from renting out single family homes is unusually high and appears to be improving.

If the rental inventory continues to fall in this way, it is very likely that average rents for single family detached homes will start to rise in the not too distant future, something that hasn't happened for a very long time.

February 3, 2010

As normal, January was a relatively slow month for sales with a total of 5,788 reported through ARMLS for all areas and types. This compares with 7,611 for December and 4,704 for January 2009. Nevertheless this is the second highest sales count ever for a January with only January 2005 coming in higher at 6,589. The annual sales rate has now risen to 93,420, a level we last saw in May 2006.

Within Greater Phoenix, 46% of sales were REOs with 23.6% short sales and 30.4% normal transactions. So REOs took the same percentage as in December but short sales grew at the expense of normal transactions.

December's sales within Greater Phoenix included an unusually large number of high-end REOs which were largely absent in January, so REO pricing plunged 7.3% from $74.32 to $68.59 per sq. ft. However, short sale pricing improved by 3.6% from $82.04 to $85.02 and normal pricing improved 3.3% from $119.93 to $123.92. This reversal of the trends that prevailed in 2009 was foretold accurately by the pending listings as mentioned in our January 3 summary. The combined effect was that overall price per sq. ft. advanced slightly from $90.20 to $90.64. Median pricing was much weaker due to the large number of low priced properties but average pricing was stable, buoyed by a stronger market in the mid-range.

Pending listings have risen to 10,741, which at first sight looks good compared with the 7,382 recorded on February 2, 2009. However I am not very impressed with the rate of growth since the start of January (12.9%), since in the same period last year the growth was 34.1%. With the growing number of short sales we must also look at AWC listings and these are currently running at 6,322, up 11.2% since January 1 whereas they were up 30.6% in the same period in 2009. Again, not particularly sparkling growth for the season compared with the buying frenzy that developed during the first quarter of 2009. So I would conclude that demand is still strong but is losing some momentum.

Meanwhile supply of active listings has grown 5.5% since January 1 compared with no change for the same period in 2009. This increase in supply coupled with a loss of momentum in demand has dropped the Cromford Market Index™ from its peak of 126.9 at the end of October 2009 to a level of 117.9 now. This confirms a modest but definite weakening trend in the market balance, the first we have reported since November 2008. However we must remember that an index of 100 is balanced, so we are still well above that level.

The weakening is most significant for single family detached homes in the price range $75,000 to $125,000 with the prices ranges from $150,000 to $600,000 looking relatively strong. The price range $75,000 to $125,000 currently represents as much as 26.3% of the annual market by unit count, so any weakness here is significant. The situation for apartments and townhouses has brightened in recent months with prices having now reached levels that are attracting more buying activity. The contract ratio for Greater Phoenix apartments is now 36 compared with 8 at the same time in 2009. That for Greater Phoenix town homes is 40 compared with 8 at the same time in 2009.

There was a distinct lull in the foreclosure storm in January with "only" 6,762 new notices being filed in Maricopa County. This is the lowest monthly total since November 2008. However the last week of January was busy and I expect February's total will exceed this, so let's not get too excited. Maricopa trustee deeds numbered 4,452 which was 15% lower than December but at a similar level to much of last year.

Looking ahead we see fairly stable $/SF pricing for sales in February with a slight dip noticeable by the third week, driven by lower pricing in the REO market which is less active now than for most of 2009. However we should be able to celebrate our first positive annual appreciation number sometime during the last week of February. With today's overall $/SF at $91.51 and that on February 28 2009 being $89.77, this is not a difficult target. The typical home owner will probably respond "positive appreciation, are you kidding me?", but I am not kidding. The typical home owner probably does not realize quite how low average $/SF prices were last March.

January 27, 2010

It was going to be in spring when the market warms up with a hot flash in the summer, but the activity has started early.