Market Update: Not So Rosy for Homes over $500,000.00

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It's All In The Inventory

The big topic among working Realtors is inventory-it's down and it's lacking in turn-key/upgraded homes. Today's buyers in general do not want a project. Buyers are looking for upgrades upgrades upgrades, but they can't find it. Thus the number of units sold is down annually, but the sales price is up which is good for sellers. 

With that said, what can we say about today's current real estate market in Maricopa County? Is it a buyer's market or is it a seller's market? First, let's look at a market summary for Maricopa County, comparing March 2016 vs March 2015 and try to determine which way the pendulum is swinging. We will include all types of homes sold in this summary.

  • Active listings (not under contract) for March 1st 2016 is 22,587 vs 23,541 for March 1st 2015, are down 4.1%, but up from 22,096 or 2.2% in February 2016. 
  • Pending Listings for March 1st 2016 is 7214 versus 6709 for March 1st 2015, are up 7.5% and up a whopping 26.8% (5,688) from last month.
  • Monthly Sales for March 1st 2016 is 5,802 (units) versus 5,663 March 1st 2015, are up 2.5% and up 11.1% (5,224 units) from  last month.
  • Monthly Average Sales Price per Sq. Ft. for March 1st 2016 is $141.10 versus $130.82 for March 1st, 2015 is up 7.9%, and up 1.4% from $139.11 last month.

Overall these numbers are better than March 1st of last year from a sellers perspective. Supply is down, as noted, while under-contract listings are up by a significant amount. Though positive, the increases in sales volume over February of 2015 is weaker than forecasted. Moreover, it's taking listings more time, on average, to close. However, the monthly sales rate is still up year over year, so the overall picture is of a healthy market. Unfortunately, this can be deceptive, especially for homes priced over 500K. Let's look at the market in price segments to determine which market is stronger than others. 

Let's focus on on three different price segments.

Homes priced under $250,000.
Homes priced between $250,000 and $500,000.
Homes priced over $500,000.

In this breakdown we will only use single family detached homes, and not the condo/townhouse sector which is heavily skewed towards the lower price ranges. 

Single Family Residences under $250,000.00 .                                  

  • Active Listings (not under contract) for March 1 2016 is 5,2016, versus March 1st 2015 is 6,562, which is down annually a big -20.5%. 
  • Monthly sales for March 1st 2016 is 2,620 versus 2,921 for March 1st 2015 which is down annually at -10.3%.
  • Monthly average sales price per square foot is $107.60 for March 1st 2016 versus $99.44 for March 1st 2015 which is up annually +8.3%.

At the lowest end of the market, supply was already very low last year and its gone down another 20%. Closed sales are down more than 10%. This is a market crippled by far too little supply and consequently average appreciation is over 8%. This market cannot be described as healthy because of the chronic supply problem, but it is a great market for sellers as long as they are not over-ambitious with their pricing.

Single family Residences priced between $250,000.00 and $500,000.00.

  • Active listings not under contract for March 1st 2016 is 6,865 vs 6,624 for March 1st 2015 is up +3.6%.
  • Monthly sales for March 1st 2016 is 1,575 versus 1,387 for March 1st 2015 which is up annually at +13.6%.
  • Monthly average sales price per square foot is $140.15 for March 1st 2016 versus $136.54 for March 1st 2015 which is up annually +2.6%.

In the mid range, supply is modestly higher than last year while demand is sharply higher. Despite the stronger demand it is not enough to eat into the supply, but it is good enough to give us moderate appreciation of 2.6%. This is the picture of a very healthy and expanding market, good for sellers and buyers.

Single family Residences priced over $500,000.00.

  • Active listings not under contract for March 1st 2016 is 5,164 vs 4,772 for March 1st 2015 is up annually +14.9%.
  • Monthly sales for March 1st 2016 is 403 versus 310 for March 1st 2015 which is up annually at +30.0%.
  • Monthly average sales price per square foot is $240.03 for March 1st 2016 versus $252.00 for March 1st 2015 which is down annually -4.8%.

In total contrast to the low end, the market above $500,000 is wallowing in too much supply. Note that we have almost as many active listings above $500,000 as we have below $250,000. Yet we see almost 7 times as many homes sold below $250,000 than we see over $500,000. Supply was already high last year and has increased by another 15%. The contract writing and closing activity is good and we can conclude that demand is stronger than last year. But despite February sales being up 30% and a strong 21% rise in listings under contract, new listings keep flooding into the market and there is still well over a year of supply. Competing among themselves, most sellers have the weaker hand in negotiations and so pricing is suffering. Based on the monthly average $/SF, the current annual average appreciation rate for homes over $500,000 is a negative 5%.

With sales down 10% below $250,000 and up 30% above $500,000, the overall market price statistics are all being skewed much higher. The true pricing environment for the luxury market is far worse than most sellers appreciate. Even for mid range sellers, appreciation is more modest than many of them realize. Only for homes below $250,000 are the overall market's price appreciation numbers a realistic guide.

So, what can we take from all this? How is our market? Well, it depends on your price point. It is still fair to describe the bulk of the market as healthy, because only 8% of the homes that sell are over $500,000. That means 92% of sales are coming from appreciating markets. However 30% of sellers are trying to sell homes over $500,000 and for them, the market is not looking so great right now. In conclusion, the higher end homes are not in a favorable negotiating position, and buyers can get a little more home for the buck to make up for any shortcomings a house may have. In order to differentiate from other homes on the market over $500,000.00, a homeowner must do a little upgrading and polishing up of their home to capture today's fickle buyers.

If you are looking for a free home evaluation feel free to request one at juliandileano.com . Ask me and my team how we can get your home sold in today's market.

*Market data sourced from The Cromford Report, March 1st 2016.