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Mid March Phoenix Market Update
March 7 - Looking at the recordings in Maricopa during February we can see some significant changes in 2018 versus 2017.
16.6% of buyers were investors. This is the highest percentage for 2 years and much higher than the 14.5% we observed in February 2017.
Second homes are back in fashion. 17.9% of owner-occupied homes were second homes rather than primary residences. This is the highest percentage since March 2014, almost 4 years ago. In February 2017 the percentage was only 13.9%
It seems that traditional primary residence buyers are fading a little, dropping from 75% in February 2017 to 70% of purchases in February 2018.
March 9 - The Contract Ratio is our favorite way of measuring the heat of a market, although it does not correct for seasonality. To overcome this defect we like to compare contract ratios for the same date each year. Below we look at how the cities compare with each other and with how they were 12 months ago:
|City||Contract Ratio March 8, 2018||Contract Ratio March 8, 2017||Change|
|Sun City West||115.5||48.4||+138.6%|
Using the contract ratio, we are comparing how many homes are already in escrow with the number of homes still freely available. It, therefore, measures current demand versus current supply and the higher the number, the more it favors sellers over buyers.
The vast majority of locations are hotter than last year, but there are notable exceptions - El Mirage, Glendale, Surprise, Tempe, Maricopa, Casa Grande and Cave Creek.
The rise of Sun City West and Sun Lakes suggests that a lot of demand is coming from older people, many moving here from out of state.
Buckeye and Queen Creek are also much hotter markets than this time last year.
March 12 - A gap is starting to open up in 2018 new listings compared with 2017 and 2016.
Today represents a whole number of weeks since the start of the year so we can do a fair comparison. We have seen 24,701 new residential listings across all areas & types. This is down 1.1% from the March 12 reading in 2017 and down 3.0% from 2016. So total supply is down, but the picture is even worse if we are looking purely at affordable homes, say those under $250,000 (which is almost 50% of the market, by units).
Year to date we have seen only 10,103 new listings of all types across Greater Phoenix with an asking price below $250,000. Last year there were 12,018 and in 2016 there were 13,383. The best year for homes under $250,000 was 2010 when we had seen over 25,000 new listings by March 12.
Is supply of affordable homes going to get better? We don't think so.
There are several factors working against generating more supply at the moment:
Many homes are being taken out of the purchase and long-term-rental markets to feed the short-term-rental market, thanks to the success of Airbnb and similar offerings.
Mobile home parks are being purchased for development into more expensive housing (e.g. Tempe Mobile Home Park (42 sites) recently sold to the Treehouse Group).
Rising interest rates mean that existing loans start to look much more attractive than new loans, encouraging owners to stay where they are instead of moving.
Prices are still rising at 7% or more, so today's $240,000 house is likely to be next year's $257,500 house, so no longer affordable by our definition.
Despite an upward trend in permits, we are unlikely to see affordable supply growing in the short or medium term, unless we start to redefine our thoughts about what is affordable: $300,000, or maybe even $350,000.
March 13 - We still see occasional claims that pricing is back to the levels during the bubble years but we refute these claims. We still have quite a long way to go in most segments of the market, with just a handful of special exceptions.
First of all, people make the mistake of using median sales prices. This is NOT a fair way to compare 2018 with 2006. In 2006 the median single-family house size across Greater Phoenix was far smaller (1,741 sq. ft.) than the median house size in 2018 (1,886 sq. ft.). That is a difference of 8%, so the median sales price in 2018 would need to exceed that in 2006 by at least 8% before we could realistically claim pricing had recovered to 2006 levels.
It is also not fair to use monthly average price per sq. ft. because this is a volatile measure and if one month pops up the next may drop back down again. We can call a recovery only when prices are consistently higher than they used to be.
We need to use a long term measure and one that incorporates the change in home sizes. For this reason we like the annual average price per square foot. With this measure in mind we can examine the pricing by ZIP code for single-family-homes. Such a chart can be found here.
The following ZIP codes have an annual average price per square foot for single-family homes that exceeds the maximum achieved in 2005-2009.
Phoenix 85006 - $195.45 versus the peak of $192.44 in July 2007
Eloy 85131 - $114.80 versus the peak of $111.08 in December 2007
Scottsdale 85251 - $271.92 versus the peak of $252.02 in September 2007
Scottsdale 85257 - $202.07 versus the peak of $193.68 in November 2006.
The following are within 5% of recovery:
Phoenix 85008 - $168.93 versus the peak of $177.47 in April 2007
Phoenix 85013 - $197.84 versus the peak of $207.02 in April 2007
Phoenix 85014 - $203.29 versus the peak of $212.21 in December 2007
Scottsdale 85250 - $240.93 versus the peak of $251.14 in February 2007
Tempe 85281 - $184.28 versus the peak of $193.90 in January 2007
The following are within 10% of recovery:
Phoenix 85003 - $253.68 versus the peak of $273.60 in February 2008
Phoenix 85015 - $147.76 versus the peak of $160.91 in April 2007
Phoenix 85018 - $294.17 versus the peak of $315.83 in April 2007
Mesa 85202 - $146.49 versus the peak of $159.38 in October 2006
Mesa 85204 - $141.33 versus the peak of $155.00 in November 2006
Chandler 85224 - $158.38 versus the peak of $175.41 in September 2006
Tempe 85282 - $157.25 versus the peak of $166.70 in August 2006
Chandler 85286 - $154.05 versus the peak of $168.13 in September 2007 (note that this ZIP code did not exist in 2006)
All the other ZIP codes are adrift of their peak levels by more than 10%. Looking at a few of the largest in terms of the number of existing homes, we see
Phoenix 85032 - $165.37 versus the peak of $189.08 (12% below)
Phoenix 85041 - $111.21 versus the peak of $146.24 (24% below)
Mesa 85207 - $161.92 versus the peak of $201.16 (19% below)
Chandler 85225 - $151.67 versus the peak of $171.16 (11% below)
Gilbert 85234 - $147.71 versus the peak of $178.08 (17% below)
Chandler 85249 - $148.14 versus the peak of $182.04 (19% below)
Scottsdale 85255 - $281.60 versus the peak of $325.31 (13% below)
Scottsdale 85262 - $269.89 versus the peak of $374.69 (28% below)
Paradise Valley 85253 - $357.25 versus the peak of $479.21 (25% below)
Scottsdale 85254 - $204.45 versus the peak of $237.63 (14% below)
Glendale 85308 - $147.51 versus the peak of $178.63 (17% below)
Buckeye 85326 - $105.00 versus the peak of $153.92 (32% below)
Goodyear 85338 - $122.49 versus the peak of $167.59 (27% below)
Peoria 85345 - $126.58 versus the peak of $156.04 (19% below)
Surprise 85374 - $137.52 versus the peak of $168.66 (18% below)
Sun City West 85375 - $134.07 versus the peak of $154.94 (13% below)
Peoria 85383 - $147.54 versus the peak of $187.56 (21% below)
The strongest recovery has been in Scottsdale 85251 where the average $/SF is now 8% higher than during the bubble.
More generally, locations close to the intersection of the 101 and 202 in Tempe have recovered better than average, as well as several areas north and east of Central Phoenix.
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