Low Demand and Rising Inventory – We are in a Buyers’ Market
“The volume of home sales in February has always been higher than in January for as long as we can go back. Sales in March have always been higher than in February and this year will be no exception. In MLS, 5,474 total homes were sold in February, 14.1% higher than 4,797 in January 2014. As the monthly sales volume comparison is clearly seasonal, one must look at the year-over-year comparisons to get a clear view of sales activity. The February 2014 sales total was 17.4% lower than the total in February 2013 of 6,630. The last time we saw a lower sales volume in February was 2008 where only 3,448 sales were reported. Last year at this time total inventory numbers were dropping, this year they continue to climb, up 4.2% to 29,661
With low demand and rising inventory, there are few doubters left – we are in a buyer’s market. Our transition from a balanced market to a buyer’s market is further evidenced by a record number of price reductions among active listings. Pending sales contracts are increasing as expected, but this is a seasonal normality.
Pending sales contracts are 36% lower than last year at this time at 6,654. Looking ahead to the March sales volume, it would not be unreasonable to expect that 1,400 fewer homes will be sold this year than last.
The ARMLS Pending Price Index successfully predicted a median sales price of $180,000 for February, down 1.4% from the median in January of $182,500. For March, the PPI is projecting a slight uptick to $184,000.
The median priced home value has been wobbling between $180,000 and $185,000 since June of 2013. The projected increase in value for March should not be viewed as an indication of price appreciation, but is most likely attributed to seasonal factors. The imbalance we are seeing between supply and demand will exert downward pressure on pricing which will likely appear later this year.
A low percentage of new builds are listed on the MLS. As mentioned above, this sales volume this year was nearly identical in 2014 and 2003. Looking at public records data, new construction paints an entirely different picture. In February of this year 582 new homes were sold in Maricopa County, compared to 2,322 in 2003.
New construction is off to a very slow start this year. The reason given nationally for these declines has been bad weather, an explanation unacceptable in our market. Most forecasters called for an increase in new builds this year, I would not be surprised to see these expectations revised downward in the coming months. In the first two months of 2014 our records indicate 1,142 new builds sold in Maricopa County,last year 1,522 were sold which is 25% lower.
In February of 2003 there were 1,243 residential notices of trustee sales recorded in Maricopa County, this year 846 new residential notices were recorded. In terms of existing homes, .123% of homes received a notice in February of 2003, compared to only .067% this February.
As recent as three years ago our market was the poster child for foreclosures, today the number of properties entering foreclosure is well below normal. This month shows the total foreclosure inventory down 48.8% year-over-year and 5.3% lower than last month. I fully expect the number of foreclosures to continue to decline throughout 2014.
The current 29,661 home listings are very close to what we would define as typical. Our current imbalance rests solely on the demand side of the equation. The pricing chart on the previous page would suggest our home prices are close to normal, but the right side of the chart would suggest our buying behavior is anything but normal. Three years of strong appreciation and a combined 250,000 foreclosures and short sales have restored our current level of distressed housing to a healthy level. The lack of new construction is disheartening from a jobs perspective, but in turn, we are not adding to our existing supply. As I’ve stated in earlier commentary, I see 2014 as a transitional year, with my short term pessimism offset by longer term optimism. At present the question we should be asking ourselves is – where are the buyers?”
ommentary by Tom Ruff of The Information Report.
Armls Stat March 2014