Jun. 7—A leading analyst of the Valley's housing market says the latest home sale data shows the market is cooling at an "astonishing and widespread" rate.
The Cromford Report two weeks ago observed that "buyers' disadvantage in negotiations has dropped dramatically."
"This is because there is much less competition from other buyers," it noted. "Many of these have dropped out due to the eye-popping increase in mortgage rates. There are also many more homes to choose from compared with a couple of months ago."
But last week, the Cromford Report struck an even louder alarm, expressing surprise "at how quickly the market is cooling" and declaring:
"We are not having a good year, despite the incredible strength of the first quarter."
It cited a variety of factors behind that and said, "The last time we saw a similar frenzied market cool down very quickly was in April to November 2005. This is a more striking reversal than we experienced that year."
Those factors include: "Supply is growing fast; demand is weakening; sales volumes are in swift decline; more asking prices are being lowered: listing cancellations and expirations are starting to rise."
A big reason for the Cromford Report's observations is its market index, which bases short-term forecasts of how balanced the market is in 17 Valley municipalities by analyzing 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.
It noted that outside of active-adult communities like Sun Lakes and Sun City West, "the decline in CMI values is still accelerating" with double-digit declines in the high 20-percent range.
The overall Cromford Market Index stood at 272 on June 1 — far below the 406 it registered on April 25 and the 385 on May 1.
The largest declines have been seen in Avondale, Gilbert, Queen Creek, Cave Creek and Chandler. Mesa declined 26%, from 415 to 309.
Still, the lowest index marker was 166, in Buckeye, so the market still remains titled toward sellers, it noted.
"We admit to being surprised at how quickly the market is cooling, the Cromford Report said. "We expected a downward trend but did not anticipate it would be so dramatic. The softening trend is now very well established and momentum is strong."
The Cromford Report said "cash buyers remain active, but these are a much smaller part of the total demand and cannot compensate for the loss of financed buyers."
It also said, "Every leading indicator is pointing to a sharp slowdown in the Greater Phoenix housing market. Supply has increased very quickly over the last two months while demand is much weaker than it was in March."
It also suggested it may not be long before prices begin to weaken, though it warned, "Prices are much slower to react to a change in the market, especially closed sale prices.
"However, prices for homes under contract react one to two months earlier than closed prices," it said and if that occurs sooner "would expect to see weakness in asking prices. This is now starting to appear as sellers gradually lose confidence.
"Some sellers will be in denial for many months yet, and will risk over-pricing their home in current market conditions," it said. "Others will be more reactive and make sure their asking pricing is competitive."
It also produced data suggesting the average per-square-foot price "has not managed to break through $365 and is now showing signs of retreating below $360. The maximum was $364.81 achieved on April 27. This is probably going to be the top."
At the same time, the Cromford Report said "closed prices are still blissfully unaware of the change in market conditions. The sale price per square foot remains higher (at around $305) than the list price (around $300)."
"The remarkable speed of the change in the market is reflected in the fact that the Cromford Market Index has dropped over 100 points in the last month," it added.
And it warned, "The Greater Phoenix market continues to provide plenty of reasons to be worried. Another domino is wobbling and looks like it might be getting ready to fall — the listing success rate."
"At the moment we are just under 90%, a very strong number. However, if we look at the last five weeks, a clear weakening trend has started."
It gave a chilling reminder of the pre-crash market in 2005, when "a similar trend developed between June and July."
"By the end of 2005 we were down to just 63% — meaning that 1 in 3 homes listed failed to sell. We cannot say this will happen in 2022," it said.
Cromford Report also said a similar downward trend started last summer "but frenetic buying by investors, particularly large investors, pulled the nose of the airplane back up and we ended 2021 with a strong success rate of just over 90%. This does not look as likely in 2022."
"2006 was a full-scale bubble burst," it said. "People now talk of the 2008 crash, but that was only when Wall Street woke up and entered a full-on panic. The real estate market was in dire straits as early as the middle of 2006 and 2007 was truly dreadful.
"The problem that we faced in 2006 was compounded by all the foreclosures that piled up in 2007. This was largely because so many homeowners had little or no equity in 2006 so by 2007 they had negative equity and no reason to avoid foreclosure. At the moment, we have a more positive situation with a much higher percentage of homeowners having significant equity.
"They should be motivated to protect rather than abandon that equity," it continued. "That gives us a reason to be less worried, but extreme vigilance is the order of the day. Those who refinanced and took a little too much cash out over the last two years are more exposed than most. Our primary leading indicator is telling that us that the cooling trend is getting even more powerful. ...At some point we would expect the nose-dive to decelerate and reach an equilibrium, but we seem to be a long way from that point at the moment."
And for sellers, the Cromford Report had a word of caution: "It remains easy to sell a home at the moment but if this cooling trend stays in place, selling will start to get much more difficult by August."
