Probably the most under-used statistic that we really like is the annual sales rate. Most people look at it once per year, given that it is an annual measurement. However, we recalculate it every day and study it on a weekly basis to detect changes in the market.
The overall annual sales rate for all areas & types in the ARMLS database is 90,739 as of Feb 14, up 7.4% from 84,464 last year on the same date. This is a healthy increase over 12 months and shows that the market is expanding. The primary reason is that people have been improving their credit scores and are qualifying for home loans more readily as a result. This is a result of all the foreclosures and short sales that are now getting old enough to drop out of the credit score formula.
For Greater Phoenix only, the ARMLS annual sales rate has increased from 82,695 to 88,748, a rise of 7.3%, almost the same percentage as for all areas & types.
Lender owned sales (REOs) have however dropped from 3,071 to 1,981 per year, down 35%, while short sales and pre-foreclosures have fallen from 2,568 to 1,950 per year, a somewhat less dramatic decrease of 24%. To compensate for these falls, the normal transactions have increased from 77,056 to 84,817, a rise of 10%.
For the monthly period ending January 15, we are currently recording a sales $/SF of $144.94 averaged for all areas and types across the ARMLS database. This is up a mere 0.1% from the $144.85 we now measure for December 15. Our forecast range midpoint was $145.26, with a 90% confidence range of $142.35 to $148.17, so this month the actual pricing came in just 32 cents below the mid-point.
On January 15 the pending listings for all areas & types shows an average list $/SF of $150.71, up 1.6% from the reading for December 15. Among those pending listings we have 91.2% normal, 3.4% in REOs and 3.2% in short sales and pre-foreclosures. This mix contains more distressed homes than last month.
Our mid-point forecast for the average monthly sales $/SF on February 15 is $146.00, which is 0.7% above the January 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $143.08 to $148.92.
Last month we suggested that pricing looked likely to barely change until the end of the year. In fact we have seen little change all the way from the start of November to mid-January.
This situation seems more likely to change over the next 3 months with an upward trend re-emerging.
With little prospect for a cut in interest rates and the likelihood of further rises, many home buyers could be kicking themselves for not buying in 2016 while they had the chance. As recently as October it was possible to get a 30 year fixed loan at 3.42% according to Freddie Mac’s interest rate survey. Today we are looking at 4.18%.
For a $200,000 loan that translates to a payment of principal & interest of $976 per month. In October that same loan would have cost just $889 a month. This is a rise of almost 10% in a matter of weeks. The purchases prices at price points below $300,000 are still moving north at a brisk pace, so a home purchase in 2017 is likely to be a lot more expensive than it would have been n 2016.
If interest rates continue to climb, as many are forecasting, it is not impossible we could see 5% reached before the end of 2017. That would make the principal & interest payment for a $200,000 loan rise to $1,270. This is a 43% increase from the payment corresponding to a 3.42% rate, and this could potentially be happening in a little over a year.
Millennials are likely to be squealing if this were to happen, and they probably will not take kindly to being reminded by baby boomers that 8% is the long term average rate for a 30-year fixed loan. The monthly payment at 8% is $1,664. Mind you, it was last at 8% in August 2000, so it is easy to forget what it was like.
Economists have been predicting interest rate rises for the last 4 years and each year they have been wrong. It appears that 2017 may possibly be the year in which the forecasts finally come true, but no-one knows that for sure, even Janet Yellen.
Anyone who thinks rising interest rates cause home prices to fall will discover that is a false premise and has never been borne out by historical example. Home prices depend on supply versus demand. Higher interest rates are likely to cause lenders to be more interested in approving loans and a higher approval rate leads to increased demand. The shortage of construction labor is going to put a lid on additional supply, so unless there is an external change (e.g. a massive population shift) non-luxury home prices in Greater Phoenix are likely to continue rising in 2017, especially for the low end and lower mid-ranges up to $300,000.
The Canadian dollar is currently worth about 75 cents US, down roughly 25% from 2012 and 2013 when it ranged between 95 cents and $1.03. This makes homes in Arizona much more expensive than they were a few years ago, if you are converting funds to or from Canadian currency. In the first 9 months of 2016 we have seen an exodus of Canadian-based homeowners with 1,736 selling up and only 333 purchasing within Maricopa County, a net loss of 1,403 homeowners.
In the same 9 months of 2015 we saw a net loss of 679 (1,323 sales and 644 purchases) and in 2014 we saw a gain of 250 (820 sales and 1,070 purchases).
The boom years of 2012, 2013 and 2014 gave us net gains of 3,327, 2,572 and 986 respectively, so the current exit rate is less than half the arrival rate of 2012.
I do not know if we have reached the peak Canadian exit rate, but we are currently losing about 7% of home-owning Canadians per year, something we have never seen before.
August was a very robust month for sales, up almost 14% from August last year in stark contrast to the uninspiring numbers in July (down over 3% from July 2015). We have already seen countless headlines about weak sales in July and no doubt we will see as many stories about the very strong recovery in August once the numbers are widely distributed.
However all these headline serve to do is illustrate that reporters (and even some real estate analysts) have a hard time properly understanding the effect of the Gregorian calendar on monthly real estate numbers.
- July 2015 had 22 working days
- July 2016 had 20 working days (10% fewer)
- August 2015 had 21 working days
- August 2016 had 23 working days (10% more)
All the variation in monthly sales counts in July & August are due to the above facts and had nothing to do with conditions in the real estate market which remained very similar throughout the period. It is amusing to see all the analysts trying to explain the July numbers with “low inventory” and “poor affordability” the favorite excuses. Nope. The correct reason was “there was a weekend at both ends of July”. It will be interesting to see what explanations are used for the August bounce, because inventory has moved lower still and affordability did not improve at all.
If we combined July and August in both 2015 and 2016 we get 43 working days in both years and the numbers match properly again. Then we see that the two month sales count rose 4.6% over last year. We have been seeing a similar volume improvement in the ARMLS numbers all year. Nothing unusual has gone on in July or August. However sales have increased much more than this among new homes, just as they have all year. New homes are poorly represented among ARMLS listings since about 90% of them sell outside of ARMLS. In public recordings however, we are seeing new home growth rates far in excess of the growth rates for re-sale homes.