The Cromford Report™ Monthly Market Review

October 2011

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The Kennedy Group is pleased to provide this Mid-Month Market Report. The latest real estate trends and statistics are delivered each month in our Market Report as a complimentary service.

Our business is built around the concept of educating and providing the personal service that our clients have come to depend upon. It is with this philosophy that we offer select data from the Cromford Report to our clients, associates and friends. It is intended to keep you informed on critical market trends that affect the Real Estate profession.

Market Overview

Sales volumes dropped in September, while supply failed to decline for the first time since December 2010. To compensate we saw positive pricing movement for the first time since the second quarter.

We can see that all these numbers are far better than 12 months ago, but most are not as good as last month. However, the Cromford Report Index™ continued to improve. This is because this index is a seasonally adjusted measure and it is normal for inventory to increase between September and October. In fact the inventory increased only 0.2% – far less than in an average year and causing most of the improvement in the index.

It is also normal for sales volume and pending listings to decline between September and October. This year sales volumes fell faster than pending sales, which is partly due to the decline in REO listings. With fewer lender-owned and HUD properties available, last year's sales volume for REOs is no longer sustainable. We now see demand in slight decline and expect to see the Cromford Market Index™ fall back from its recent highs as a result.

REOs are losing market share very quickly now. Fewer trustee sales are taking place. There were 2,689 residential trustee sales in Maricopa County during September 2011, 44% fewer than the 4,808 of September 2010. In addition a larger percentage of these auctions are now won by third parties (42% in September 2011 versus 20% a year ago). So the quantity of homes reverting to the beneficiary is dropping extremely fast. Only 1,280 single family homes went back to the lenders in Maricopa County in September 2011. This is the lowest total since November 2007. It is also 61% lower than the 3,289 that they received in September 2010. They are selling far more than this number through ARMLS each month and so the lenders' inventory is being rapidly depleted.

It is a clear sign of the strength and dominance of negative sentiment that this remarkable turn round is mostly overlooked. At the same time, a completely irrelevant increase in foreclosures between July and August (due entirely to August having 23 trustee sale days instead of July's 20) managed to make headlines in the local papers. When bad news is amplified like this and good news is ignored we know sentiment has swung too far.

For the housing doom fans who like foreclosures, September 2011 was a pretty dismal month. There were a total of 4,544 new notices issued in Maricopa County of which 4,335 were residential. This is 39% lower than September 2010. This new number is actually slightly higher than April through July 2011, but 15% lower than last month and lower than every month prior to April until we get all the way back to December 2007. The downward trend has slowed but remains in place. The bigger news is that there were only 2,840 trustee sales of all property types. This is 44% down from September 2010. This is also the lowest number since March 2008 (except for November 2010 when Bank of America completely halted its trustee sales). Foreclosures are clearly well past their peak and the short sale is looking likely to overtake the foreclosure in the coming months as the primary mechanism to resolve homeowners' financial distress.

Pricing

After hitting a low point in late August and again in mid September, pricing is on a slight upward trend again. The monthly median sales price has climbed from $107,000 on August 18 to $114,950 on October 3 (all areas & types). That's a 7.4% increase in less than 7 weeks and illustrates how violently the monthly median sales price reacts when REOs start disappearing from the mix and increasing in price at the same time.

For Greater Phoenix REOs, the monthly median sales price has jumped from $80,000 to $86,400 in the same period – an 8% increase.

Pricing for short sales and foreclosures has not followed suit and neither have sales prices for “normal” sales. In fact, pricing has been a little weaker at the higher price points, cancelling out some of the gains at the bottom of the market. The overall average price per sq. ft. is up only modestly. Having hit a decade low of $78.51 per sq. ft on September 15, we are now looking at $79.81 per sq. ft. for October 3, a bounce, but not a very convincing one. The most encouraging sign is that the pending $/SF has finally started to change direction and is moving up again after trending downward for a prolonged 15 month period since May 2010. We’ll wait to see if it can keep this up throughout October…

SALES Month over Month

Sales in September took a 9.4% dip to land at 7,892. This figure is almost 10% off the 2011 average of 8,765. With the exception of 2008, a decline in sales from August to September has occurred in nine out of the last ten years, with an average decline of 9.18%.

SALES Year over Year

The September sales figure (7,892) was 16.7% higher than the September 2010 figure (6,764). The 2010-2011 sales figures follow a similar wave pattern of 2009-2010, although with higher values. All in all sales are up and in line with predictable seasonal fluctuations.

NEW INVENTORY

New inventory added to the market in September (9,498 units) continued on the down-ward trend line started in January of 2011. Slowing of new inventory added each month is critical for reducing supply and ultimately correcting pricing.

TOTAL INVENTORY

Total inventory for September was 26,950 listings, almost half (46.32%) of the decade high total inventory of 58,178 in October 2007. While the total inventory trend line for the last twelve months has been downward, the last three months have been relatively flat: 27,655, 26,983 and 26,960 for July, August and September, respectively. The 26,960 total listing figure has not been that low since December of 2005. September’s total in-ventory is in line with the totals earlier in the decade from 2002 through the first quarter of 2004.

MONTHS SUPPLY OF INVENTORY (MSI)

Although months supply of inventory ticked up slightly to 3.41 months in September, a seller’s market still remains. MSI for the entire market is only a barometer of market health and does not accurately depict supply and demand in all niches. The brisk and plentiful sales at the lower end of the pricing matrix belie the oversupply in the higher ranges. As the plethora of lower end properties is absorbed, buyers searching for good deals will of necessity move up to the next highest range. From a historic perspective, overall market MSI in the 3 month range which we have enjoyed since March, has not been seen consistently since 2003. From mid 2004 through Q3 of 2005, when the market was in the midst of its frenzy, MSIs were less than three, and often less that 1 month. In 2006 when the market began turning, MSI started climbing above 6 culminating in January of 2008 at a decade high of 19.56 months. MSI is another Valley metric that has returned to more normal levels.

NEW LIST PRICES

September’s median new list price increased 4.9% to $131,000, the highest median list price since June 2010. The average new list price was $210,800, the highest since October 2010. While these increases are minimal, they are tilting in the right direction. For a market whose pricing has flat lined, an up-ward tilt is perhaps a harbinger of better pricing to come. A tilt is not a trend, but just a glimmer of hope.

SALES PRICES

Sales prices followed a pattern similar to that of new list pricing. The median sales price rose $5,000 (4.5%) to $114,900, a level not seen since November of 2010, while the average sale price increased by $3,700 (2.5%) to $155,100. Using the glass half empty/full analogy, the level to which these metrics have fallen is dire, but the upward tilt of both the median and the average sales prices have the feel of a fresh breeze on a hot, still Valley day. The optimist in all of us hopes for October median and average pricing to follow the lead of Sep-tember, even if it is only a slight increase.

THE ARMLS PENDING PRICE INDEX™

The ARMLS Pending Price Index (PPI) is a forecasting tool unique to ARMLS which uses the prices of pending properties in the MLS system to predict median and average sales prices up to 90 days into the future. Last month PPI predicted that the September median sale price of $110,300. In fact the actual median was $114,900, missing the mark by 4.17% in a positive direction. The predicted September average sales price from last month PPI was $152,400. The actual September average price was $155,100, missing the prediction by only 1.77% but again in a positive direction.

The median sales price predictions for the next 90 days steadily decline with $112,000 in October, $105,000 in November and $100,000 in December. The average sales price pre-dictions follow a similar downward trend of $152,000 in October, $147,000 in November and $133,000 in December.

The accuracy of the PPI diminishes the further into the future it goes, as the size of the pool of pending properties gets smaller.