By Scott Gaertner, Associate Broker
The Market Cycle graphic above illustrates where I think we are in the real estate market. If I’m right, you’ll probably look at this article with skepticism at first, but you’ll soon start to have hope.
To illustrate why: On the graphic, November and December represent despair. The Cromford Market Index (CMI) is our best leading indicator that provides a short-term forecast for the balance of the resale homes market. Readers may remember that a CMI score of 100 is a balanced market. Above 100 favors sellers, and below 100 favors buyers. I am writing this in mid-January, and just 60 days ago, on Nov. 14, Cromford officially declared the Valley to be in a buyer’s market. Most of the Valley had been favoring buyers for some time, but on that day, the overall index dropped below 90 for the first time in 10 years––and was trending lower. Despair for sellers seemed a fair representation.
Both the monthly median price and the average price per foot fell sharply in November. These price drops were partly because it was clear that the buyers had the upper hand. But based on the data, the drops were likely bigger than they should have been. People often overreact to their natural tendency to expect the worst, which the last time was a crash. But this wasn’t a market crash; it was just a correction.
Pricing data is a lagging indicator, and prices stayed low in December, but leading indicators were starting to look better by mid-month. There were signs that inflation was slowing down, and interest rates started to go down.
Fast Forward to Dec. 29, 2022:
Michael Orr of the Cromford Report had this to say about the Cromford Market Index (CMI) chart:
“This table is quite shocking – the market balance is now swinging quickly towards sellers, yet this does not seem to be reflected in market commentary in the general media. This shows the advantage of measuring the housing market every day, rather than once a month. One month ago, the situation looked bleak for sellers.”
Here is the CMI chart today
Not every city is in a seller’s market, but they are all in the green and trending that way rapidly.
The reason for the shift in the Valley is not just that supply has been falling rapidly, we are now seeing stronger demand. This may easily go unnoticed by those not paying close attention, but the numbers do not lie. Unlike pricing, the CMI is a leading indicator. The Fed could screw us up by raising rates, but if this trend continues, we have seen the bottom of the market, and the correction is complete.
January is off to a great start as the first two weeks saw some meaningful declines in inflation and interest rates hovering at four-month lows! And the timing for this shift is perfect because the Super Selling Season begins very soon.
Every year the highest-selling season of the year starts after the final whistle of the Super Bowl. This year that comes as demand is increasing and supply is down. That is a textbook formula for appreciation. And this isn’t just any Super Selling Season.
After years of reduced travel due to COVID, this year is seeing a resurgence in visitors. And moreover, this year Phoenix is hosting The Super Bowl, WM Phoenix Open, Barrett Jackson Auction, and the Arabian Horse Show––all right here in town!
Scott Gaertner is an Associate Broker with Keller Williams Arizona Realty who for the past 35+ years has helped more people find their lifestyle niche in the Scottsdale North area than anyone else. He also contributes his thoughts on the real estate market and lifestyle interests in the area and is the creator of ConnectingScottsdaleNorth.com. For additional info, visit scottgaertnergroup.com or call 480-634-5000.