Market Summary September 2021
Here are the basics - the ARMLS numbers for September 1, 2021 compared with September 1, 2020 for all areas & types:
- Active Listings (excluding UCB & CCBS): 6,873 versus 8,028 last year - down 14.4% - and down 3.3% from 7,105 last month
- Active Listings (including UCB & CCBS): 10,988 versus 13,178 last year - down 16.6% - but up 0.7% compared with 10,913 last month
- Pending Listings: 7,917 versus 7,892 last year - up 0.3% - and up 9.4% from 7,236 last month
- Under Contract Listings (including Pending, CCBS & UCB): 12,032 versus 13,042 last year - down 7.7% - but up 8.9% from 11,044 last month
- Monthly Sales: 9,051 versus 9,213 last year - down 1.8% - and down 1.0% from 9,146 last month
- Monthly Average Sales Price per Sq. Ft.: $249.31 versus $194.97 last year - up 27.9% - but down 0.5% from $250.66 last month
- Monthly Median Sales Price: $401,000 versus $325,000 last year - up 23.4% - and up 0.3% from $400,000 last month
Many surprising changes have occurred in the market over the past month.
First we see fewer active listings (excluding UCB and CCBS) at the start of September than we had at the start of August. After a rise of almost 25% during July, this is quite a turn up for the books. The effect is exaggerated by the fact that Sep 1 falls on a Wednesday and Aug on a Sunday. Wednesdays are usually the lowest day of the week for active listings while Sundays are just shy of the peak on Saturdays.
This unexpected fall is mainly caused by two factors:
- the rate of arrival of new listings has started to fall, especially over the last 2 weeks
- the demand from iBuyers and investors has intensified, taking listings under contract more quickly than usual
Another surprise is the strength of the pending and under contract counts, also confirmation of the second bullet above.
Ordinary home buyers are losing some of their motivation, thanks to prices that are vastly higher than last year. Despite low interest rates, affordability has slipped below the normal range for Greater Phoenix.
Sales counts (closed listings) are still lower than last month and last year, but by much smaller margins than in July.
The monthly average $/SF dropped for the second straight month, but the fall was just 0.5% each month and we do not think this will be repeated in September based on the contracts that have been signed during August. However, it clear that the runaway appreciation we saw in Jan through May has been halted.
Other interesting indicators show mixed signals:
- The contract ratio jumped from to 155.4 to 175.1, indicating that the market has heated up over the last month
- The average closed $/SF was 0.68% higher than the list price, down from 1.47% last month - indicating that the market has cooled over the last month.
If it were not for the activity of investors and iBuyers, and particularly the latter, the market would have cooled during August. This would have been following the trend established since April. However iBuyers have purchased so many homes over the last month that they are significantly distorting the market dynamics. These homes are mostly going to be re-marketed shortly. So they will almost certainly increase supply over the coming weeks. To achieve these huge increases in purchase volumes, iBuyers have made offers well in excess of the pricing that we saw from them prior to 3Q 2021. Since appreciation has been much weaker during this same period, it remains to be seen how they will be priced for re-sale. It is possible that either gross margins will have to fall or time on market will have to rise. Normal buyers no longer have the appetite that we experienced during 1Q and early 2Q, so they are going to be more sensitive to pricing. Achieving sale prices well over cost could prove quite tricky.
Investors intending to rent out their properties are a different matter, and the rapid rise in rents over the past year has justified them splashing out. Indeed far more homes are going from iBuyers straight to the rental operators than we saw prior to July 2021. This takes homes off the re-sale market for a long time and reduces supply. Large scale investors with deep pockets are crowding out smaller investors.
We have seen larger buying sprees from investors before, notably between 2011 and 2013. However we have never seen iBuyers so determined to increase their top line. To put the situation into context, the iBuyers have purchased about 2,850 homes over the last 3 months. That represents almost 9% of re-sale purchases. Recorded iBuyer sales during the same time total less than 1,000, about 3% of re-sales. We can see that the iBuyers (particularly Opendoor and Zillow) have increased their inventory massively. If iBuyers had not done this, we estimate that supply would already be higher by some 1,800 listings, which would have caused the Cromford® Market Index to drop to a much lower value than today. We conclude that pricing would also be weaker without their intervention. This begs the question: what happens if they stop buying on this massive scale?
Investors, too, can decide to stop their buying spree at a moment's notice. The market is therefore more precarious than if demand were primarily growing through owner-occupiers.
Whoever wished that we live in interesting times is getting their wish granted.
Supply Up 42% Since May, Price Reductions Up 131%
Affordability Dips Below Normal to 56%
For Buyers:
There is a little relief ahead for buyers in Greater Phoenix. Supply continues to rise in price points between $300K-$1.5M and buyer demand has settled into a normal seasonal cool down that is expected to last through the end of the year. What this means for buyers is the 2nd half of 2021 so far has more choice and less competition. There are two things going on right now in the market. The first is a non-seasonal increase in supply, fueled by a high number of new listings hitting the market every week. Typically, August is the low point of the summer season for supply. However, this year it is the high point and continuing to rise, up 42% since May. That’s good news for buyers as it provides more choice. The second is a seasonal decline in buyer activity. Typically, buyer demand shoots up in the first half of the year, peaking around May, then it gradually declines in the 2nd half of the year. Last year the market saw the opposite due to the pandemic, demand dropped when it was supposed to rise and rose when it was supposed to drop. The return to a normal seasonal rhythm in 2021 means that there may be slightly less competition from other buyers in the 3rd and 4th quarters. This doesn’t mean the housing market has gone cold; it has simply made it a little more tolerable to navigate. To put it in numbers, on April 8th, there were 12,862 listings under contract and only 4,177 active. Today on August 9th, there are 11,743 under contract and 7,166 active. Add a recent decline in interest rates keeping payments down and exhausted buyers have a little more room to breathe.
For Sellers:
The Home Opportunity Index (HOI), published by the National Association of Home Builders every quarter, measures housing affordability based on the median family income per metro area. Last quarter, the HOI for Greater Phoenix fell to 56 (we predicted it would be 57 based on preliminary MLS data). This is below the normal range for the Phoenix metro area of 60-75. What does this mean? This means that a household making the median family income of $79,000 per year could technically afford 56% of what sold in the 2nd Quarter of 2021. The last time the HOI dipped below 60 was in the 4th Quarter of 2018 when it hit 57. The market responded with a drop in annual appreciation from 10% to just 4% within 3 months. Since June of this year, annual appreciation of the monthly median sales price has declined from 32% to 28%. As affordability declines, it’s reasonable to expect the market will begin to resist the prices sellers initially ask for their homes. In other words, there will be fewer buyers able to bear dramatic monthly increases in home costs like those seen over the past year. Meanwhile, exuberant sellers continue to list their homes at prices that defy comparable sales. As these homes sit for an extra day or two on the market without an accepted contract, weekly price reductions have risen 131% since May with a median price drop of $14,000. Typically, the median price reduction is $5,000. Of course, there are still properties closing over asking price. However, those contracts were accepted approximately 1-1.5 months ago when the market was hotter than it is now. The percentage of sales over asking price has declined from 60% to 55% over the past two months, with the median amount over list price declining as well from $20,000 to $15,000. We expect this trend to continue.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2021 Cromford Associates LLC and Tamboer Consulting LLC
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Troy Holland
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