June Mid Month Pricing Update and Forecast

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 June 15, we are currently recording a sales $/SF of $127.66 averaged for all areas and types across the ARMLS database. This is 1.3% lower than the $129.24 we now measure for May 15. Our forecast range was $127.99 to $133.21 with a mid-point of $130.60. This month the actual result was below the lower limit of the forecast range, so something strange and unusual happened. The mix of homes that sold diverged significantly from the mix of homes under contract.

On June 15, REO sales across Greater Phoenix (all types) averaged $84.96 per sq. ft. (down 0.7%). Pre-foreclosures and short sales averaged $94.75 (little changed) while normal sales averaged $131.49 (down 1.6%). The market share of normal sales increased again over the last 30 days, but only slightly, moving from 89.5% to 89.7% of sales. REOs lost market share from 6.5% to 6.4%. Short sales and pre-foreclosures also lost market share from 4.0% to 3.9%.

On June 15 the pending listings for all areas & types showed an average list $/SF of $133.25, 2.9% above the reading for May 15. Among those pending listings we have 81.2% normal, 7.9% in REOs and 10.9% in short sales and pre-foreclosures. The average pricing for pending listings within Greater Phoenix on May 15 in each category was: $141.50 for normal, $92.88 for short sales & pre-foreclosures and $88.98 for REOs. The latter is slightly higher than last month while the other two are much higher.

Our mid-point forecast for the average monthly sales $/SF on July 15 is $131.70, which is 3.2% higher than the June 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $129.07 to $134.33. This is a large bounce back after the fall over the last 60 days. However it does not represent a significant move higher, just the normal variability of the monthly numbers. The variability is due to the changing mix. During the last 31 days the mix of homes that closed was of significantly lower average value than the homes that went under contract. In particular luxury homes sales were weak compared with the previous 30 days, but contract signing activity was relatively strong. If the majority of these contracts are closed over the next 30 days then the average price per sq. ft. is likely to rise by July 15. Nothing is guaranteed in this forecasting business, however, especially with buyer motivation fairly weak.

We continue to expect the price range between $125 and $135 per sq. ft. to be a natural resting point after the rapid rise from $78 that has occurred since September 2011. It will take a big change in market conditions for prices to move significantly out of this range. In the current conditions we expect the strongest pricing of the year to occur between March and June and any possible breakout over $130 is likely to be short-lived. Pricing is likely to show some weakness during the second half of the year due to the usual seasonal increase in supply and weakening demand once the spring is over. It will take a strong recovery in demand to change this expectation, or an unusual fall in supply compared with the usual seasonal pattern. Over the last month the latter has looked more likely than the former.

Upward pricing pressure is weakest in those places where inventory has grown the fastest. One example is Chandler where single family active listings have increased by 5% over the last month, far more than any other major city. In fact most other cities have seen a decline in active listings over the last month. At $134.03 per sq. ft. Chandler's pricing is lower now than it was at the start of October last year. Pricing has been very stable in Chandler since July 2013, bouncing between $128 and $136 per sq. ft..

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