April was a decent month. Here's what the folks at the Cromford Report had to say about real estate in Phoenix & Scottsdale:

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  • Listings Under Contract Up 6.5%
  • Monthly Median Sales Price Up 9.9%

For Buyers
May is often the last month of “buyer season” before the summer slowdown.  In anticipation of hotter temperatures, graduations and upcoming summer vacations, many home buyers would prefer to get their contracts into escrow and closed before the end of June.  As a result, there are many areas of the valley where there are currently more properties in escrow than active for sale.   Not surprisingly, those areas are concentrated where the average sale price is under $250,000 in parts of the Southeast Valley (such as North Tempe, West Mesa, North Chandler and North Gilbert), South Phoenix, and most of the West Valley.  This is temporary, buyers can expect relief from competing offers in the summer months if they choose to brave the higher temperatures.

For Sellers
Overall sales have been following 2015 pretty closely thus far.  April was down less than 1% from April last year, but year-to-date sales are up 2.5% as of week 19.  The main difference is in the activity by price range.  Sales under $175,000 have been declining year-over-year for the past 9 months with April 2016 down 18.4% from April 2015.  This is not due to low demand, but low supply of homes available for sale.  April sales between $175,000 and $600,000 are up 15% year-over-year and down 9.3% over $600,000.  The big difference between these price points is the level of supply.  It’s chronically low in the bottom price ranges and too high at the top, causing vastly different experiences for sellers.  Properties selling under $175,000 are experiencing annual appreciation around 10% since the beginning of 2016.  Middle range properties are seeing around 3-5% annual appreciation, and the high end properties over $500,000 are experiencing flat appreciation rates at best with some price ranges at the very top seeing negative annual appreciation.

In a nutshell, though we thought we hit the peak where demand starts to "absorb" all the new listings coming to market, it may not have been enough to fully keep the market in check. Just as it's been over the last few months, the least expensive properties listed have the highest amount of buyer demand while the most expensive ones, have the least demand.

Here are a few noteworthy Daily Observations from the Cromford Report over the last month:

  • April 29 - After 4 full weeks in the second quarter we see that new listings are still arriving faster than normal. The count so far this quarter is 9.4% higher than last year and 8.7% above the 2014 level. The price ranges with the highest increase in new listings compared with last year are:
    1. $400,000 to $499,000 - up 19% from 650 to 772
    2. $225,000 to $249,999 - up 16% from 773 to 898
    3. $500,000 to $599,999 - up 14% from 348 to 395
    4. $175,000 to $199,999 - up 12% from 881 to 989
    5. $350,000 to $399,999 - up 11% from 611 to 681

    The extra supply below $200,000 will be welcomed by buyers, but it is not such a happy picture below $175,000

    1. Up to $99,999 - down 36% from 632 to 405
    2. $100,000 to $124,999 - down 34% from 465 to 306
    3. $125,000 to $149,999 - down 28% from 864 to 619
    4. $2,000,000 to $2,999,999 - down 17% from 52 to 43
    5. $1,500,000 to $1,999,999 - down 12% from 60 to 53

    The luxury market between $1.5M and $3M needs less supply, so the fall in new listings compared to last year is good news for sellers. The huge fall in supply under $175,000 is even worse than it looks for buyers in this range because we were already in a very weak supply situation last year.

  • April 20 - For the Northeast Valley we see three very strong ZIP codes for single family appreciation between 1Q 2015 and 1Q 2016:
    1. Scottsdale 85251 - 19% (Old Town Scottsdale)
    2. Scottsdale 85257 - 17% (South Scottsdale)
    3. Carefree 85377 - 17%

    The following were the weakest areas by the same measurement:

    1. Scottsdale 85266 - down 9%
    2. Scottsdale 85262 - down 3%
    3. Rio Verde 85263 - down 2%
    4. Cave Creek 85331 - down 1%
    5. Paradise valley 85253 - flat
  • April 16 - While the low end of the market labors under weak supply conditions and the mid range continues to look strong, the upper end of the market has got a fair assortment of trouble spots. If we segment by price among the primary luxury areas of the valley, we see the following:

    A. $500K to $1M

    Supply is up 19% compared to April 2015 while sales during the first quarter were up a strong 16%. Despite the increase in sales the additional inventory is forcing sellers to agree to weaker pricing. The average price per square foot for first quarter sales was down 2.4% from $198 to $194 per sq. ft. compared with 1Q 2015.

    B. $1M to $2M

    Supply is up 18% while sales during the first quarter were up 9%. Despite this imbalance sellers seem to have more backbone in this price range and have eked out a 2.1% gain from $283 to $288 per sq. ft. between 1Q 2015 and 1Q 2016.

    C. Over $2M

    Supply is 7% higher than last year while first quarter sales were up 15%. This is the best of the three segments for sellers and they achieved a 2.5% gain from $426 to $437 per sq. ft. between 1Q 2015 and 1Q 2016.

    Since segment A is by far the largest in terms of unit sales, the overall appreciation for homes over $500,000 was an insipid -0.5% between 1Q 2015 and 1Q 2016.

    Note that all of the above numbers are for single family homes only.

    Based on 1Q 2015 to 1Q 2016 comparisons, the weakest ZIP codes for luxury price trends are currently 85016 (Biltmore), 85048 (Ahwatukee), 85142 (Queen Creek), 85207 (far East Mesa), 85213 (Mesa), 85262 (N. Scottsdale), 85266 (far N. Scottsdale), 85286 and 85383.

    The strongest ZIP codes for luxury price trends are currently 85018 (Arcadia), 85020 (Heart of Scottsdale), 85248 (SW Chandler), 85251 (Old Town Scottsdale), 85254 (Phx Taxes, Scottsdale address), 86255  (likely this is an error and the zip is 85255- DC Ranch, Grayhawk, McDowell Mtn Ranch), 85258 (McCormick & Scottsdale Ranch), 85259 (East Shea Corridor), 85268, 85284 and 85377 (Carefree).

  • April 14 - The worst areas for price appreciation at the moment are almost all at the most expensive end of the market. When we refer to the city ranking table, we see the following at the top:
    1. Paradise Valley +1.9%
    2. Carefree -0.9%
    3. Scottsdale +1.9%
    4. Fountain Hills -0.7%
    5. Cave Creek -0.3%
    6. Rio Verde +1.9%

    These locations, the six most expensive places in the Greater Phoenix area, all show lower appreciation than any of the other cities with 2 exceptions in Pinal County:

    1. Gold Canyon -3.7%
    2. Casa Grande +0.8%

    Of course, Gold Canyon is the most expensive location in Pinal County, but ranks only 9th in the overall table. It is bottom of the table for appreciation.

    This is convincing evidence of weakness in the luxury sector of the market in contrast to the entry-level and mid-range of the market which are seeing relatively strong appreciation.

    The top appreciating locations are all relatively small and inexpensive:

    1. Tonopah +27.9%
    2. Wittmann +18.0%
    3. Eloy +16.6%
    4. Youngtown +14.1%
    5. Sun City +10.4%
    6. El Mirage +10.4%
  • April 8 - It looks as though the slowdown in new listings that we reported at the end of March was just a temporary lull. We are now seeing them rise again. We have seen over 10,000 new listings for every 28 day period in 2016 from January 30 onwards apart from 3 days - March 31 to April 2 - so the temporary lull coincided with the week after Easter.

    In 2015 we NEVER saw more than 10,000 new listings in any 28 day period, and the last time before that was April 17, 2014.

    Of course the supply of new listings continues to be poorly matched to the price ranges where they are most needed.

    Across Greater Phoenix, during the first quarter of 2016, we saw 7% more new listings than in the first quarter of 2015. However we also saw 7% more closed sales, so these numbers are nicely matched. They are not so nicely matched when we analyze by price segment:

    Price Range Change in New Listings Change in Closed Listings Comment on Change 2015 to 2016 Ratio of New Supply to Quarterly Sales Q1 2016
    Up to $100K -28% -28% balanced 1.4
    $100K-$125K -24% -24% balanced 1.3
    $125K-$150K -20% -16% new supply dropped relative to sales 1.2
    $150K-$175K -1% +14% sales rose much faster than new supply 1.3
    $175K-$200K +12% +15% sales rose slightly faster than new supply 1.5
    $200K-$225K +19% +22% sales rose slightly faster than new supply 1.5
    $225K-$250K +23% +19% new supply rose slightly faster than sales 1.6
    $250K-$275K +26% +32% sales rose faster than new supply 1.5
    $275K-$300K +15% +17% sales rose slightly faster than new supply 1.7
    $300K-$350K +15% +21% sales rose faster than new supply 1.8
    $350K-$400K +17% +3% new supply rose much faster than sales 2.1
    $400K-$500K +21% +22% balanced 2.1
    $500K-$600K +23% +18% new supply rose faster than sales 2.5
    $600K-$800K +33% +18% new supply rose much faster than sales 2.8
    $800K-$1M +10% +12% balanced 3.0
    $1M-$1.5M +16% -15% new supply rose while sales fell 3.7
    $1.5M-$2M +12% +22% sales rose faster than new supply 3.7
    $2M-$3M +6% +4% balanced 3.4
    Over $3M +27% +37% sales rose faster than new supply 5.5

    Supply shortages are most acute in the ranges where the ratio of new supply to closed sales is 1.6 or less. This includes all the ranges up to $275K but from $225K to $250K we did see some improvement for buyers over last year.

    Below $275K we therefore see continued strong appreciation, short times on market and low cancellation and expiry rates.

    From $275K to $350K we see very healthy market conditions with new supply and closed sales both up significantly from last year.

    From $350K-$400K the growth in supply was strong, but sales growth was much weaker than average, suggesting there may be a few problems developing for sellers. However from $400K to $500K the percentage growth in new listings was matched by the growth in closed sales. I would describe this sector of the market as normal, healthy and growing, with no major shortages of buyers or sellers.

    From $500K to $800K new supply outstripped the growth in sales, so even though there was a healthy increase in volume we see more competition building between sellers.

    From $800K to $1M the increases were balanced but we do see 3 times as many new listings as we see closed sales. This is likely to mean higher cancellation and expiry rates and long times to sell ahead. It also means minimal upward pressure on pricing.

    The issue for sellers with homes priced over a million is that the number of new listings outpaced sales by at least 3.4 to 1. This is not unusual for this segment, where new listings comfortably exceed closed sales at all times. The bad news is that sales were slightly down (-1.4%) from last year, primarily due to surprisingly poor performance by the segment from $1M to $1.5M. Yet new listings were up almost 15% for homes over $1M. This is a good situation for luxury home buyers, but it is not very good news for sellers who would like to see some appreciation. The current market environment over $1 million is consistent with a flat to slight downward trend in prices, long times on market and high rates of cancelled and expired listings. There some very fashionable locations (close to urban centers) where this does not apply, but the bulk of the luxury market has reasonably good demand but excessive supply. Because of the good demand, agents will be happy with the transaction volume, but sellers are likely to be disappointed with the sales prices that can be achieved, and how long it takes to achieve them. These sellers hear about prices rising both locally and nationally, but unfortunately it does not apply to them.

    There are currently 2,087 homes for sale priced over $1 million across Greater Phoenix. Last year's peak was 1,880 and back in 2012 we had only 1,204. The current annual sales rate for homes listed over $1 million is 1,225, slightly down from a peak of 1,253 in August 2015. So that means we have more than 20 months of supply, more than enough to give buyers an excellent selection to choose from and a solid advantage in most negotiations.

What's an entry-level buyer to do?

  1. Be flexible.
  2. Be prepared financially.
  3. Be educated about the market.
  4. In the right place at the right time & very nice to the seller.
  5. Be ready to become a weekend warrior and make some home improvements.

What's a luxury home seller to do? (It's not too far off from what the entry-level buyers have to do).

  1. Be flexible (with your pricing and buyer requests).
  2. Be prepared financially (to get less than you want for your home or be a landlord).
  3. Be educated about the market (are your area values up or down).
  4. Be nice (to your buyer).
  5. Be ready to become a weekend warrior to make some home improvements or willing to accept that your buyer may want you to hire someone to do work to your home.

Don't forget, you can call/text me or email me with your questions! I’ll have what you’ll need to know to be dangerous…


Related Info:

April 2016 Phoenix Metro Real Estate Snapshot

Summary of Metro Phoenix Real Estate: Jan-April 2016

March 2016 Phoenix Metro Real Estate Snapshot