Mid Month Pricing Update and Forecast for August

Article Courtesy of Michael Orr
The Cromford Report

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 August 16, we are currently recording a sales $/SF of $79.63 averaged for all areas and types. This is 1.1% lower than the $80.53 we now measure for July 16. Our forecast range was $77.83 to $81.01 with a mid-point of $79.42. The actual figure is almost at the center of the predicted range, so we congratulate ourselves that last month's projection was much more accurate than usual. For this we can thank the fact that the blend of sales between June 16 and July 16 was fairly similar to that between July 16 and August 16.

Sales activity is still very concentrated at the bottom end of the market with the top end much weaker than during the spring. Buyers of luxury and vacation homes tend to stay away from Phoenix during July and August, having better places to be when temperatures soar above uncomfortable. This is one reasons why Phoenix's average pricing almost always shows signs of weakness between June and September each year.


On August 16 REO sales across Greater Phoenix (all types) averaged $59.26 per sq. ft. (down 0.9% from July 16). Pre-foreclosures and short sales averaged $73.78 (up 3.1%) while normal sales averaged $105.32 (down 3.6%). Normal sales gained a little market share, moving from 32.0% to 32.6% of sales, while REOs also gained market share, moving from 43.9% to 44.2%. Short sales and pre-foreclosures were the losers this month, moving from 24.1% to 23.2% after a strong spike at the end of June.

On August 16 the pending listings for all areas & types showed an average list $/SF of $78.09, 1.1% below the reading for July 16. Among pending listings we have only 26.2% normal, 39.0% REO and a growing 34.8% in short sales and pre-foreclosures. The average pricing for pending listings on July 16 in each category were: $109.13 normal, $70.26 short sales & pre-foreclosures and $60.47 for REOs.


Our new mid-point forecast for the average monthly sales $/SF on September 15 is currently $78.74, which is 1.12% below the August 16 reading, and we have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $77.17 to $80.21. A substantial change in the mix can have a significant effect on the average price per sq. ft. and we are still seeing considerable variation from day to day.


In the last two months the overall monthly average sales price per sq. ft. has moved below its former range of $81 to $85 establishing a new extreme low of $79.31 on July 29. In conjunction, and on the same date. the monthly average sales price broke through its previous record low of $153,210 which had been set on February 24, and established a slightly lower low point of $153,073. However the record low monthly median sales price is still standing at $107,000 and this was set six months ago on February 24. Our current monthly median sales price is back down to $108,000, having flirted for a moment with $113,000 as recently as July 8.


Although we at the Cromford Report tend to enjoy looking at these details, all this price movement is of no great significance in the big picture. Median prices have been in the range $107,000 to $113,000 since December 23, 2010. When we look back a year or two from now we will conclude that they were essentially flat and it will be hard to make out where the bottom was. Given the strong demand and weak supply, prices are likely to stay flat for a while longer apart from movements caused by the blend. Counterbalancing the supply/demand forces are continuing pessimistic (let's call them very conservative) valuations from the majority of appraisers and gloomy sentiment from the non-investing public, who continue to be misinformed daily by much of the media about a supposed "glut of foreclosed homes" about to hit the market.


The main trends we currently see are:

• banks have increased their asking prices for REOs as they become scarcer
• short sales are getting cheaper and easier to close, though far fewer remain active without an offer
• normal sales include a higher proportion of "flips" rather than owner occupier sales and therefore average prices are falling
• luxury homes are selling in lower numbers
• HUD homes are selling like hot cakes (which also brings pricing averages down)

So we shouldn't expect to see good news from pricing numbers for a while yet. For those who would like some good news here is a selection:

• pending listing counts dipped after the Spring peak but remain strong for the time of year
• expiry and cancellation rates are very low
• active listing counts are moving sideways whereas they would normally be increasing at this time of year
• the supply versus the annual sales rate is lower than at any time in the recent past with the exception of the bubble years 2004 and 2005 - take a look at the long term inventory chart

The improvement we have been seeing in Maricopa County foreclosure numbers is taking a breather in August. Following a pattern we also saw in the last two years, we are experiencing higher notices of trustee sales than in the previous three months, but still far below the levels of 2009 and 2010. Trustee sales are seeing fewer properties go to beneficiaries and more to third parties so the REO inventory is still declining. However the steep fall in pending foreclosures has stopped due to the renewed flow of notices. The end of month August foreclosure totals are likely to be higher than of late, but these do not signify a change of trend. There is no "new flood of foreclosures" and the higher numbers will be partially caused by the calendar - there are an unusually high 23 working days for trustees in August. So for once let's spare a thought for those hard working and under-appreciated professionals - the trustees.