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The Cromford Report Analysis of the Phoenix Real Estate Market

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Blog by Doug Ingersoll | September 19th, 2016

Mid Month Pricing Update and Forecast from Mike Orr at The Cromford Report:

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 September 15, we are currently recording a sales $/SF of $139.28 averaged for all areas and types across the ARMLS database. This is up 1.1% from the $137.83 we now measure for August 15. Our forecast range midpoint was $139.10, with a 90% confidence range of $136.32 to $141.88, so this month the actual pricing came in very close to the mid-point at just 18c higher.

On September 15 the pending listings for all areas & types shows an average list $/SF of $146.50, up 0.6% from the reading for August 15. Among those pending listings we have 92.4% normal, 2.8% in REOs and 4.8% in short sales and pre-foreclosures. This mix is barely changed from last month.

Our mid-point forecast for the average monthly sales $/SF on October 15 is $140.36, which is 0.8% above the September 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $138.27 to $143.91.

Nothing unusual to report this month. The usual summer price decline is complete and we now start the long climb back up towards and beyond the spring peak level. We anticipate hitting the high for the year during December as we do most years.

September 17 - I have mentioned many times that the fundamental driver of housing demand is population growth. If the population declines then we do not need so many homes. If we get a situation where population starts to fall then it is natural for home prices to go into a long term slow decline in real terms. We have seen this within the USA is areas like the western part of upstate New York (e.g. cities such as Elmira). Between 2010 and 2015, 41 of the 50 counties of upstate New York lost population. You might think of New York itself as expensive, and it certainly is in Manhattan. But upstate New York has very cheap housing and these homes are unlikely to show long term appreciation while population continues to exit for other states. The median sales price in Elmira NY is $86,920 and the average price per sq. ft is $62. It has very affordable housing, but the climate does leave a lot to be desired once you have gotten used to Arizona.

People often tell me that jobs are the real driver of housing. This is not really correct. Job growth will often spur population growth since people will move to a city for a job. However people will also move to a city to retire. In fact much of the population growth in Greater Phoenix since 2010 is due to the increase in people over 65. Most of these people do not have a job and are not seeking one. They are moving for the climate and for leisure activities. Certainly there has been migration into Arizona for jobs, but some people of working age have left Arizona for work elsewhere, particularly those who do not have a legal right of residency. Many of those in the construction industry in 2008 are never coming back. Despite widespread belief to the contrary, detailed research suggests there has been net migration from Arizona to Mexico since 2010, not the other way round. This is probably because the economy in Mexico is growing faster and creating jobs faster than in Arizona. This does not mean our housing market has suffered, because the influx of retired people and second home buyers (e.g. Canadians, Californians, Washingtonians) has more than compensated for any loss of working age population to other US states, Mexico and Central America.

Job growth has helped the housing market in Central Arizona, but it is not the number one driver of demand. That would be population growth. This is why I am so concerned about birth rates dropping fast. This can lead to population declines over the long term, especially if deaths start to exceed births. This will not affect the housing market in the short or even medium term, but is likely to have a long term impact.

September 16 - The Census Bureau recently reported that the median household income surged 5.2% in 2015 from 2014. This is the largest jump ever reported, from $53,718 to $56,516. Despite this the median income has still not regained its high point of $57,909 attained in 1999.

With women now obtaining college degrees in much higher numbers than men, it is not surprising to see earnings for women rising 2.7% while men's only rose 1.5%. A significant gender wage gap still exists, but it is closing.

The biggest message for me is that median household incomes did not rise at all in rural areas. Rural areas are seeing job losses and depopulation, which is obviously bad for rural housing markets.

The median household income in major cities surged by a remarkable 7.3% in a single year. This is likely to drive home prices higher in urban and close-in suburban areas.