Over the past few days it’s become abundantly clear that simply saying “the Phoenix real estate market isn’t a buyer’s market” isn’t sufficient. In fact, giving the raw data about the high sales and very low inventory also doesn’t seem to be conveying the picture.
In truth, some of this is on me. I’ve been hesitate to call the Phoenix market what it really is – a seller’s market – because most of the public likely will confuse the characteristics of a “normal” sellers market with the over-fueled, hyperactive market of 2005. And that’s not at all where we are.
Prices generally move upward in a true seller’s market and that isn’t happening, at least not across the board and not nearly as quickly as some would hope; when we start to see appreciation in the 3 percent range, then I’d feel more comfortable with saying that we are in a true seller’s market.
Not to mention, while sellers can be more aggressive in pushing the market, the leverage still isn’t what it once was in large part due to the foreclosed homes that aren’t yet on the market.
Having said that … take a look at the charts and draw your own conclusions.
Above is what the Phoenix real estate market looked like back in 2002 and 2003. The above chart is from the Cromford Report and tracks the Cromford Index, a proprietary formula that tracks market activity and assigns a number to it. A score of 100 indicates a balanced market. Anything under 100 is a buyer’s market, anything above is a seller’s market.
(This is, in many ways, a different and slightly more comprehensive way of measuring the state of the market than absorption rate – the number of months of inventory available on the market based on current sales – where anything under 4 months of inventory is a seller’s market and anything over 5 months is a buyer’s market. Give or take.)
In 2002, we saw what essentially was a balanced market. That started to change a little bit in 2003, highlighted by a summer hump in August of that year where activity picked up a little bit. (I was shopping for my current home in May and June of that year while selling another; the old house was under contract in about 10 days.)
By 2004, it’s clear that the market is picking up steam and quickly. This continues well into 2005; here the chart doesn’t quite match the reality of what was happening as the market didn’t start go into decline until around Labor Day 2005. (Anyone who tells you that the real estate market hit its peak in 2006 isn’t looking at Phoenix.) By the end of 2005, it was a buyer’s market according to the chart and, to some degree, according to memory as well.
Enter 2006 and the market continues to slow. As the numbers get lower, you’re seeing not just more bias toward buyers in the market but a steady decline in the number of people who are buying homes. The slight rise at year’s end gives some hope, but it’s false hope at best. This becomes even more evident …
… once we get into 2007 and market activity hits bottom with a resounding thud. The end of 2007 marked the months where less than 2,000 single-family detached homes a month were selling in the Phoenix market. (Not so coincidentally, many real estate agents’ credit scores bottomed out at this time as well.)
As 2007 passed, the year 2008 brought some better days. Around March of that year, the inventory started dropping considerably as banks slowed the flow of foreclosed homes to the market. That also was the time when the absorption rates started to slide under double digits from the highs of 12 to 18 months of inventory the year before.
You can see the continued increase in activity in early 2009 due largely to the $8,000 homebuyers’ tax credit; interestingly enough, and contrary to many were saying at the time, the end of the tax credit didn’t signal an end to the market’s rebound in activity and interest, if not price.
Here’s what 2010 looked like compared to 2009. After trending upwards for about two years’ time, market activity pulled back a bit. Loans continued to become harder to come by and, with prices not moving, buyers started questioning how much further the Phoenix real estate market was going to fall.
Those questions, though, soon gave way to the notion that even if there’s a decline to come, the downside risk was outweighed by the upside that could be lost by waiting …
Which takes us to where we are today, with less than two months of inventory for single family detached homes, multiple offers being written on most properties under $100K and many properties under $200K and prices starting to rise in some parts of the Valley.
And to give some perspective of where we are right now on the Cromford Index …
This year started a little bit below 2004 and has progressed at a similar, though not quite as insane, pace. Again – this isn’t about the pricing, it’s about the activity in the market.
What that means for buyers is offers need to be closer to market value because sellers no longer are simply happy to have someone look at their home. If you don’t buy the house, someone else will.
What it means for sellers is, if you have some equity in your home, this isn’t necessarily the worst time in the world to possibly sell your current home and move up to the home you’ve really wanted; yes, yours is worth substantially less than it was in 2005 but so is the house that you’re looking at purchasing.
And for agents, well, the time has come to pull out some of those old Tom Hopkins scripts we haven’t needed in years discussing the home that got away. Because, more and more often, the homes are getting away from buyers living in 2007 and not 2011.