Phoenix is very fortunate. We are one of the few real estate markets that has seen two years of price corrections and is now considered a balanced market. According to the Cromford Report and ASU’s brilliant real estate guru Mike Orr, the Cromford Market Index is showing a real estate market in balance.
So what does balanced real estate market mean and what is the Cromford Market Index?
When we talk about balance in this article, we are refuting to a state where supply and demand are in harmony. The Cromford Market Index is a value that provides a short term forecast for the balance of the market. It is derived from the trends in pending, active and sold listings compared with historical data over the previous four years. Values below 100 indicate a buyer’s market, while values above 100 indicate a seller’s market. A value of 100 indicates a balanced market.
A graphical view of the Cromford Market Index and explanation.
The graph provides a view of recent changes in the Phoenix real estate market. Known as the Cromford Market Index, this seasonally adjusted index tells when the market is in balance or favors buyers/sellers.
For two years we’ve experience robust sales and 2 full market corrections in Q2 of 2012 & 2013. Any time the Cromford Market Index in above 150, the real estate market is seeing a buying frenzy with a significant advantage for the home seller. Ask anyone who tried to buy a home in 2011- mid 2013 and they’ll likely tell you about multiple offers, over asking prices and the need to accept homes in AS-IS conditions.
The line at 100 indicates the point in time when the market is balanced from a supply & demand standpoint and no longer favors the home buyer or seller. This occurred in October 2013 as we predicted in earlier articles.
As you can see the market has been moving towards a balanced state during Q3 & Q4 2013. As Realtors, we like balance and are delighted for the market corrections and now more stable times. The early December numbers, not pictured, show a flattening of the index at about 98.
What Can Home Sellers and Buyers Expect in Early 2014.
For 2014 we do not expect any significant swing up or down. The normally robust market we experience between February and July will likely be moderate for under $500,000 homes and buyer’s affected by new mortgage rules. The cash investor market has fizzed out as cheap homes are no longer available and this buyer class was largely responsible for the 2012-2013 home value upswings. Luxury properties are expected to see more overall ascending values with jumbo loans being more accessible and current values still low.
For home sellers, this information suggests the buying frenzy is over. Prices will be pretty stable with only slight value increases in the 4-5%/year range. We will likely see more requests for seller contributions to buyer closing costs, fewer AS IS sales, and a need for realistic home prices. For home buyers a balanced market means they are at least in the front seat of the car and maybe even driving.
The buying class that will be most affected are investors and flippers. Modest price gains means these folks will need to be very careful to buy right as margins will be pretty skinny and the days of expecting multiple or full price offers are fading fast… very fast.
If you have questions, we are here for you. Just give us a call or toss us an email.
Best wishes for an amazing holiday season and New Year.
Gene Urban & Ron Urban
The Urban Team at Realty Executives
connecting people to the perfect place for over 20 years.