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The Cromford Report on Home Sales, Rentals and Home Pricing

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Blog by Doug Ingersoll | July 26th, 2016

From Mike Orr at The Cromford Report:

July 25
 - We have been forecasting a fall in the average price per sq. ft. for the third quarter and there is now strong evidence to back this up. Take a look at the short term chart for list and sales $/SF. There is no doubt that the peak occurred in the third week of June and we have dropped from almost $143 to around $138 over the past 4 or 5 weeks. With the pending listing $/SF also trending slightly lower we would not expect any significant signs of buoyancy in the pricing numbers until the daily maximum temperatures drop below 100 degrees again.

July 24 - It has been a while since we looked at the rental statistics. The average closed lease rate across all areas & types within ARMLS is 85.1 cents per sq. ft. per month. Last year it was 81.0 cents so that is an annual increase of 5.1%. Two years ago the number was 75.0 cents and in July 2013 it was 69.6 cents. So we have seen rents rise 22.3% in the last 3 years, dramatically faster than the increase in average wages. Consequently the typical tenant has a lot less to spend on things other than housing.

Obviously this situation is very good for landlords and creates some motivation for tenants to become home owners. However high rents reduce disposable income and so impairs the ability to exercise that motivation to buy. It also reduces the demand for other goods and services. Tenants tend to feel less wealthy than they did 3 years ago unless they have improved their earnings through promotion or job switching. This goes some way to explain why a significant number of people think the economy is doing poorly when almost all the actual numbers are quite positive. Wealth is draining away from tenants but expanding for real estate property owners. With that background it is counter-intuitive that renting has become more popular even for people who can afford to own.

There were 2,998 active rental listings yesterday, down from 3,291 on July 23, 2016 and 4,474 on July 23, 2014. In 2008 at this point there were 8,525. Supply appears to be very tight and failing to improve.

The average asking price for active rentals is $2,046, up from $1,822 last year and $1,643 the year before that. Supply of affordable rentals (at least through the MLS) is unusually low.

July 23 - Occasionally it is useful to compare the market in Arizona with the other states and we turn to CoreLogic's MarketPulse Report to see how prices are behaving. Ranking the states by the year over year change in their Home Price Index we see for May 2016:

  1. Oregon 11.0%
  2. Washington 10.1%
  3. Colorado 9.4%
  4. Nevada 7.8%
  5. Utah 7.5%
  6. Florida 7.3%
  7. Idaho 7.0%
  8. Texas 7.0%
  9. California 6.3%
  10. Arizona 5.8%
  11. Tennessee 5.8%
  12. Michigan 5.7%
  13. Georgia 5.6%
  14. Rhode Island 5.4%
  15. Montana 5.3%
  16. South Carolina 5.2%
  17. Minnesota 5.1%
  18. Hawaii 5.0%
  19. Nebraska 4.6%
  20. Massachusetts 4.5%
  21. West Virginia 4.5%
  22. Wisconsin 4.3%
  23. Missouri 4.1%
  24. North Carolina 4.0%
  25. Wyoming 4.0%
  26. Indiana 3.9%
  27. Kansas 3.9%
  28. Kentucky 3.8%
  29. Maine 3.8%
  30. Louisiana 3.6%
  31. Mississippi 3.6%
  32. Iowa 3.5%
  33. New Hampshire 3.4%
  34. New York 3.4%
  35. New Mexico 3.3%
  36. South Dakota 3.3%
  37. Illinois 3.0%
  38. Ohio 2.8%
  39. Arkansas 2.5%
  40. Washington DC 2.3%
  41. Alaska 2.2%
  42. Alabama 2.1%
  43. Oklahoma 2.0%
  44. Virginia 2.0%
  45. Vermont 1.9%
  46. North Dakota 1.1%
  47. Maryland 1.0%
  48. Delaware 0.2%
  49. Pennsylvania -0.1%
  50. New Jersey -0.2%
  51. Connecticut -0.9%

Arizona is placed in the top 20%. However we are a long way behind Oregon, Washington & Colorado. These states are on top because they are very popular with the Millennial generation. Population growth is the most fundamental driver of housing demand. The age group that is producing children is the most important one for the housing market. Although Millennials have alarmingly low fertility they make up for that in the top 3 states through in-migration.

Arizona's headline population growth number is strong, but it is disturbing that the growth is so concentrated in the older age groups. Our population growth for the under 18 is negative and for the Millennial generation it is very disappointing. If we want a very healthy long term housing market we need to be successful at attracting more younger people, not retirees like me.