Market Summary for the Beginning of February

Because January is always such a slow month for housing sales, it makes most sense to compare January 2012 to January 2011 rather than the relatively hectic December 2011. So for all areas & types we record the following:

• Active Listings (excluding AWC): 17,602 versus 36,494 last year - down 52%
• Active Listings (including AWC): 24,762 versus 42,522 last year - down 42%
• Pending Listings: 10,611 versus 10565, up 0.4%
• Monthly Sales: 6,451 versus 6,522 down 1.1%
• Monthly Average Sales Price per Sq. Ft.: $85.04 versus $81.65 - up 4.2%
• Monthly Median Sales Price: $119,900 versus $110,000 - up 9.0%

So we conclude: supply is down dramatically year over year while demand is roughly the same. Pricing is clearly up over last year at this time.

As we have noted for several months, we have a confirmed market price bottom during the third quarter of 2011 and we are now a comfortable 8% above that low point when measured by average $/SF, and 12% above when measured by monthly median sales price. Where will pricing go from here? The average $/SF for pending listings on Feb 1 is $83.82. We have to go back to December 2010 to find a figure higher than this, so we conclude that the upward trend that started in the second half of September will stay in place at least for the next month. Although we cannot say for certain what will happen to pricing from March onwards, the unusually low supply for homes below $500,000 suggests the upward trend is more likely to accelerate than slow down. They are no factors suggesting a price decline that we can currently see. Above $500,000 the outlook is not so clear, as demand remains relatively weak while supply has increased markedly over the last month, especially over $3,000,000. Much will depend on seller sentiment and patience.

With annual appreciation now in positive territory it is useful to examine which cities are looking strongest from that perspective. Here's a ranking table which shows the change in monthly average sales $/SF between January 2011 and January 2012 for single family detached homes:

1. Apache Junction - up 17.5%
2. Casa Grande - up 13.8%
3. Arizona City - up 12.8%
4. Queen Creek / San Tan Valley - up 12.4%
5. Phoenix - up 11.8%
6. El Mirage - up 12.4%
7. Gold Canyon - up 10.3%
8. Glendale - up 10.0%
9. Maricopa - up 8.3%
10. Litchfield Park - up 6.5%
11. Goodyear - up 6.2%
12. Fountain Hills - up 6.0%
13. Tolleson - up 4.9%
14. Surprise - up 4.4%
15. Laveen - up 4.3%
16. Gilbert - up 4.0%
17. Buckeye - up 3.4%
18. Paradise Valley - up 3.3%
19. Avondale - up 2.6%
20. Mesa - up 2.2%
21. Peoria - up 2.0%
22. Chandler - up 1.3%
23. Tempe - up 0.9%
24. Cave Creek - up 0.1%
25. Scottsdale - down 0.3%
26. Sun Lakes - down 3.9%
27. Sun City - down 3.9%
28. Anthem - down 6.6%
29. Sun City West - down 7.8%

A clear pattern emerges. Most of those areas hardest hit by prices collapsing between 2005 and 2010 are the ones that have moved upwards significantly over the last 12 months. Pinal County is strongly represented in this group, along with the West Valley. The Active Adult 55+ areas lost much less value between 2005 and 2010 but were still declining over the last 12 months and in fact are the only areas showing significant price declines throughout 2011. The luxury sector, represented by Scottsdale, Paradise Valley and Cave Creek have not moved very much in price over the last 12 months.

Foreclosures continue to decline, but the comparison between December 2011 and January 2012 shows only a modest change:

• New Notices of Trustee Sale: 3,483 versus 3,539 in December- down 1.6%
• Trustee Sales: 2,677 versus 2,848 in December - down 6.0%

To put the current levels of foreclosure in context we need to compare January 2012 to January 2011:

• New Notices of Trustee Sale: 3,483 versus 6,784 - down 48.7%
• Trustee Sales: 2,677 versus 4,523 - down 40.8%

Anyone attempting to buy a residential property in Greater Phoenix for less than $500,000 is currently finding relatively little choice and very strong competition from other buyers. This is particularly true for those buyers who need financing, who are often losing out to the large number of cash purchasers unless they are willing to bid significantly higher. Selling however, is relatively easy, in a market where pricing is moving up and supply is very tight. The primary requirement to ensure a quick sale is that the property is priced correctly to the market.

Market Update from Jean Grant

Market Comment

Mortgage bond prices ended slightly lower last week, which pushed mortgage interest rates higher. Weak stocks and continued Euro debt concerns helped rates improve early in the week. The data generally helped rates as well. Q3 GDP disappointed with 2% increase compared to the expected 2.5% mark. The Treasury auctions had strong demand and also helped the overall bond market. The shortened and thin trading conditions fortunately did not result in any extreme whipsaw trading that is often common. Mortgage bonds ended the week worse by approximately 1/8 of a discount point.

Look for the employment report to gain the most attention this week.

LOOKING AHEAD

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
New Home Sales	Monday, Nov. 28, 10:00 am, et	295k	Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Consumer Confidence	Tuesday, Nov. 29, 10:00 am, et	39	Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
ADP Employment	Wednesday, Nov. 30, 8:30 am, et	105k	Important. An indication of employment. Weakness may bring lower rates.
Revised Q3 Productivity	Wednesday, Nov. 30, 8:30 am, et	Up 2.9%	Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Fed “Beige Book”	Wednesday, Nov. 30, 2:00 pm, et	None	Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Weekly Jobless Claims	Thursday, Dec. 1, 8:30 am, et	385k	Important. An indication of employment. Higher claims may result in lower rates.
ISM Index	Thursday, Dec. 1, 10:00 am, et	50.7	Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Construction Spending	Thursday, Dec. 1, 10:00 am, et	Up 0.2%	Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
Employment	Friday, Dec. 2, 8:30 am, et	9%, Payrolls +101k	Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

Why Data is Important

One of the easiest and most important things to do when making a decision whether to float or lock a loan is knowing what data is going to be released. Economic releases are important because they provide a snapshot of a portion of the economy. Data is even more important in that it is often the cause of market volatility. Upcoming data events are readily available and there is no excuse not knowing what data will be released in the week ahead.

While an in depth understanding of an economic event can help a person make informed decisions, it is more important to have a rudimentary understanding of when an important piece of data will be released and what basic effect that data can have on the market. Understanding the nuances of a release does very little for a person if they are blindsided by not knowing when the release will occur. Accurately predicting how each and every release will come in is impossible.

Floating into important economic data can be very risky and can expose a person to huge market swings. Keep that in mind this week, as there is an abundance of significant data heading our way

Market Comment by Jean Grant at Hunt Mortgage

Market Comment

Mortgage bond prices ended last week near unchanged, which kept mortgage interest rates relatively in check. Trading was choppy with some rate improvements Tuesday, which unfortunately were erased Wednesday and Thursday. Stock strength made it difficult for mortgage bonds to gain any traction. Higher than expected producer price, housing starts, and Philadelphia Fed data also made it difficult for rates to improve.

The employment cost index and PCE core inflation data will be the most important releases this week. The Treasury auctions will be followed closely. If foreign demand falters it could carry over to mortgage backed securities.

LOOKING AHEAD

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
Consumer Confidence	Tuesday, Oct. 25, 10:00 am, et	46	Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Treasury Auctions Begin	Tuesday, Oct. 25, 1:15 pm, et	None	Important. 2Y Notes on Tuesday, 5Y Notes on Wednesday, and 7Y Notes on Thursday.
Durable Goods Orders	Wednesday, Oct. 26, 8:30 am, et	Down 0.2%	Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
New Home Sales	Wednesday, Oct. 26, 10:00 am, et	287k	Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Weekly Jobless Claims	Thursday, Oct. 27, 8:30 am, et	401k	Important. An indication of employment. Higher claims may result in lower rates.
Q3 Advance GDP	Thursday, Oct. 27, 8:30 am, et	Up 1.2%	Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Personal Income and Outlays	Friday, Oct. 28, 8:30 am, et	Unchanged, Up 0.1%	Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
PCE Core Inflation	Friday, Oct. 28, 8:30 am, et	Up 0.1%	Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
Q3 Employment Cost Index	Friday, Oct. 28, 8:30 am, et	Up 0.4%	Very important. A measure of wage inflation. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment	Friday, Oct. 28, 10:00 am, et	57	Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Employment Cost Index

The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees’ total compensation.

If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services. Be cautious heading into this release.

Jean Grant's Market Update

Our Vice President at Hunt Mortgage, Jean Grant, emails us a great market commentary of the previous week.

Market Comment

Mortgage bond prices fell last week, which pushed mortgage interest rates higher. The roller coaster ride of investor funds entering and exiting the stock and bond markets continues as economic uncertainty dominates trading. The losses continued as foreign demand for US debt instruments waned. Stocks were volatile but generally saw improvements on the week. Retail sales rose a stronger than expected 1.1%.

Mortgage bonds ended the week worse by about 1/4 of a discount point.

The inflation data on the producer and consumer sides will be extremely important this week. There is also a 30Y TIPS auctions Thursday. The recent auctions have shown weak foreign demand, which generally does not bode well for lower rates so caution will be key.

LOOKING AHEAD

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
Industrial Production	Monday, Oct. 17, 9:15 am, et	Up 0.3%	Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization	Monday, Oct. 17, 9:15 am, et	77.2%	Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
Producer Price Index	Tuesday, Oct. 18, 8:30 am, et	Unchanged, Core up 0.1%	Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Consumer Price Index	Wednesday, Oct. 19, 8:30 am, et	Up 0.3%, Core up 0.2%	Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
Housing Starts	Wednesday, Oct. 19, 8:30 am, et	565k	Important. A measure of housing sector strength. Weakness may lead to lower rates.
Fed “Beige Book”	Wednesday, Oct. 19, 2:00 pm, et	None	Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Weekly Jobless Claims	Thursday, Oct. 20, 8:30 am, et	400k	Important. An indication of employment. Higher claims may result in lower rates.
Philadelphia Fed Survey	Thursday, Oct. 20, 10:00 am, et	-10.4	Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Leading Economic Indicators	Thursday, Oct. 20, 10:00 am, et	Up 0.2%	Important. An indication of future economic activity. A smaller increase may lead to lower rates.

Significant Data

Recent economic reports have carried mixed weight in driving the financial markets in light of stock market swings. While stocks have set the tone for trading in mortgage-backed securities recently, an abundance of significant data this week may begin to weigh upon the market as well.

It is possible for mortgage interest rates to trend lower again. However, the potential for increases is also very real, as we have seen the past few weeks. Signs from the data this week that the economy is recovering could lead to stock strength.

Stocks are likely to continue to dictate trade. A weaker stock market may help to maintain current mortgage interest rate levels. However, signs of recovery in the stock market can pressure mortgage bond prices lower and rates higher.

The price gap between REOs and short sales has narrowed substantially and disappeared completely for several price ranges.

Our new mid-point forecast for the average monthly sales $/SF on October 15 is $79.21, which is 0.49% above the September 15 reading, and we have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $77.63 to $80.79. A substantial change in the mix can have a significant effect on the average price per sq. ft. and we are still seeing considerable variation from day to day.

Since we are projecting a small and insignificant rise in pricing it is possible that our reading for August 25 - $78.69 per sq. ft. - will remain the low point over the near term. While prices for lender owned homes are on the rise, short sales and normal listings are still displaying considerable price weakness, so the overall price direction is still vague. The lowest monthly average sales price is $150,201 set on August 25. However the record low monthly median sales price is still standing at $107,000 and this was set seven months ago on February 24. Our current monthly median sales price is back at $110,000, where it has been for the majority of the last 9 months.

There have been several media stories making a big deal about increased foreclosure numbers in August. Outside Arizona, and especially in judicial foreclosure states. these may have had some significance. Inside Maricopa County, they seem to have no significance at all. The rise in completed foreclosures from July to August was small at 8% and less than the 15% increase in the number of days that the calendar gave the trustees to work. There was a noticeable rise in foreclosure notices issued by Recontrust, the company that handles the notices for Bank of America. However the notices for other trustees were at roughly the same level as July and substantially down from 2010. The underlying downward trend is reinforced by the month to date numbers for September. We are projecting about 4,500 new foreclosure notices during September, a drop of some 16% from August and about 2,850 trustee sales, a drop of about 21%. Part of the drop is because September has 9% fewer working days (21) than August (23). Nevertheless it still looks like the foreclosure tide is on its way out, and the inventory of bank owned homes continues to fall, as does the count of pending foreclosures

Mid Month Pricing Update and Forecast

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 $78.83 averaged for all areas and types. This is 0.7% lower than the $79.40 we now measure for August 16. Our forecast range was $77.17 to $80.21 with a mid-point of $78.74. Once again our forecasting technique proved remarkably accurate as the actual figure is only 9 cents higher than the mid point of our forecast range. The reason for the unusual accuracy over the last two months is that the market has remained fairly stable although it did change substantially after mid June. For the last three months sales activity has been concentrated at the bottom end of the market with the middle and top end much weaker than during the spring.

On September 15 REO sales across Greater Phoenix (all types) averaged $61.65 per sq. ft. (up a substantial 3.5% from August 16). Pre-foreclosures and short sales averaged $73.27 (down 0.3%) while normal sales averaged $100.73 (down a startling 4.9%). Normal sales gained market share, moving from 32.4% to 33.1% of sales, while REOs lost substantial market share, moving from 45.0% to 41.4%. Short sales and pre-foreclosures were the winners again this month, moving from 22.6% to 25.4% and recovering from a dip in August after a strong spike at the end of June.

On September 16 the pending listings for all areas & types showed an average list $/SF of $78.47, 0.5% above the reading for August 16 - the first time we have seen a rise for several months. Among pending listings we have 27.6% normal, a sharply declining 35.0% REO and a fast growing 37.4% in short sales and pre-foreclosures. The average pricing for pending listings on August 16 in each category were: $108.70 normal, $68.90 short sales & pre-foreclosures and $60.82 for REOs. We can see that compared with last month the pending $/SF averages are up for REOs, but down for normal listings and (especially) short sales.

February 2010 Market Data

Phoenix Metro Area Real Estate Report