Cromford Report: November Mid Month Pricing Update and Forecast

Source:  The Cromford Report™ 
Michael J. Orr, Owner/Founder of The Cromford Report™/
Director of the Center for Real Estate Theory and Practice at the WP Carey School of Business
Arizona State University

Each month about this time we look back at the previous month, analyze how pricing has behaved and report on how well our forecasting techniques performed. We also give a forecast for how pricing will move over the next 30 days.

For the monthly period ending November 15, we are currently recording a sales $/SF of $129.52 averaged for all areas and types across the ARMLS database. This is 3.1% above the $125.69 we now measure for October 15 and represents quite a significant surge in average pricing. Our forecast range was $127.00 to $132.18 with a mid-point of $129.59. Last month's mid-point therefore proved to be some 0.09% (7c) above the actual average recorded so far. This is well within our margin of error, in fact one of our most accurate forecasts ever. Given that the market is fairly weak, forecasting a 3.1% increase felt very much like sticking our necks out, but the model proved to be absolutely correct.
On November 15, REO sales across Greater Phoenix (all types) averaged $89.67 per sq. ft. (up 1.4%). Pre-foreclosures and short sales averaged $95.04 (down 0.9%) while normal sales averaged $133.20 (up 3.6%). The market share of normal sales edged up from 89.3% to 89.9% over the last 31 days. REOs lost market share from 6.7% to 6.0%. Short sales and pre-foreclosures gained very slightly from 4.0% to 4.1%. 

On November 15 the pending listings for all areas & types showed an average list $/SF of $130.92, 0.1% below the reading for October 15. Among those pending listings we have 81.7% normal, 7.3% in REOs and 11.0% in short sales and pre-foreclosures. The average pricing for pending listings within Greater Phoenix on October 15 in each category was: $138.63 for normal, $94.53 for short sales & pre-foreclosures and $85.30 for REOs. The figure for REO sales is much lower than last month, while that for short sales & pre-foreclosures is much higher while that for normal sales is slightly lower. 

Our mid-point forecast for the average monthly sales $/SF on December 15 is $130.17, which is 0.5% higher than the November 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $127.57 to $132.77. Our forecast this month is for a fairly small increase in sales pricing over the next month. Once again this goes against the prevailing trend but is based on the continuing strength in the pending $/SF over the last two months. 

There are several factors helping the average $/SF for closed sales to stay high

1. A continuing fall in the share of homes sold among the lower price ranges.
2. Continuing sales strength for very high end luxury homes.
3. More sellers agreeing to pay buyers' closing costs and other concessions, a significant invisible discount that does not show up in the recorded sales price.

With demand remaining weak, we still expect the natural price range to remain stuck between $123 and $133 per sq. ft. over the next few months.

We would need to see a strong recovery in demand to change this expectation.