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Attention Real Estate Investors – Housing Recovery Continues in Phoenix

The information below from The Cromford Daily Observation provides both a local and national perspective on the Phoenix housing market.  What should be of particular interest to investors – The Phoenix Housing Market continues recover at a robust pace but still has a long way to go to reach the peak!

Excerpt from The Comford Daily Observation dated August 27, 2013:

The last Tuesday of August means it is time for the S&P/Case-Shiller© Home Price Index© to be published. If we look at at the long term chart (below) for this index, we can see the following:

Inline image 2

  1. Phoenix started the recovery in September 2011, a few months before the other 19 areas covered by the index.
  2. It has moved 37.1% higher since reaching bottom in September 2011.
  3. It moved up 1.8% in the last month (Apr-Jun versus Mar-May)
  4. It moved up 19.8% in the last 12 months (Apr-June 2013 versus Apr-Jun 2012).
  5. The monthly rate of increase reached a peak of 2.5% in Apr-Jun 2012 and has moderated somewhat since then.
  6. The weakest period since Oct-Dec 2011 was Oct-Dec 2012 when the price index increased by 0.9% per month.
  7. The index would have to increase another 66% to match the bubble peak of 227.42 in June 2006.
  8. The current index is higher than June 2004 and October 2008. Between those months, the index was higher than now.

These conclusions are all very consistent with the price per sq. ft. measurements we take from the ARMLS data, once you allow for the time delay inherent in the Case-Shiller process.

Phoenix still sits further below the bubble peak than most of the country. The 20-city composite currently would have to increase 29% to regain it’s maximum. Las Vegas has the furthest to climb with a 100% jump required. Miami (68%) and Tampa (61%) are in a similar position to Phoenix. Dallas and Denver have both regained and surpassed their previous peaks and are setting all time price records now. However both are non-volatile markets. Denver is 43% above its January 2000 point while Dallas is up by only 30% in the last 13 years.

In terms of annual increases we have been overtaken by three of our neighboring cities and the ranking table looks like this:

  1. Las Vegas +24.9%
  2. San Francisco +24.5%
  3. Los Angeles +19.9%
  4. Phoenix +19.8%
  5. San Diego +19.3%
  6. Atlanta +19.0%
  7. Detroit +16.4%
  8. Miami +14.8%
  9. Portland +11.8%
  10. Seattle +11.8%
  11. Minneapolis – 11.5%
  12. Tampa +11.1%
  13. Denver +9.4%
  14. Dallas +8.0%
  15. Charlotte +7.8%
  16. Chicago +7.3%
  17. Boston +6.7%
  18. Washington DC +5.7%
  19. Cleveland +3.5%
  20. New York +3.3%

It is clear that the market is much stronger in the West than in the Northeast. However, even for New York, home prices are increasing faster than inflation.

Another trend that jumps out at you when looking at the long term chart is the sudden acceleration of price increases on the west coast and in Atlanta & Chicago. Between the reading for Dec-Feb and the current reading for Apr-Jun, a period of just 4 months, the index has increased as follows:

  1. San Francisco +16.7%
  2. Atlanta +12.5%
  3. San Diego +12.4%
  4. Las Vegas +11.2%
  5. Los Angeles +11.0%
  6. Seattle +11.0%
  7. Chicago +10.0%
  8. Portland +9.2%
  9. Miami +8.5%
  10. Tamps +8.3%
  11. Detroit +8.1%
  12. Dallas +7.5%
  13. Washington DC +7.3%
  14. Phoenix +7.2%
  15. Denver +7.1%
  16. Boston +7.1%
  17. Charlotte +6.6%
  18. Minneapolis +6.4%
  19. Cleveland +5.9%
  20. New York +4.2%

Note that Phoenix has “only” increased by 7.2% over the last four months (consistent with its annual trend of +19.8%), but this places us in a lowly 14th place and below the overall 20-city average of 8.8%. The rate of increase for the top 7 cities over the last 4 months is staggering, representing annualized rates of over 30% and over 50% in the case of San Francisco. The 20-city increase of 8.8% is the highest four month increase EVER posted for this index since it was first reported in January 2000. The maximum 4 month increase during the bubble was 7.7% in June and July 2004.

The 10-city index increased by 8.90% over the last 4 months and this also sets a new record since January 1987 when the 10-city index was first published. By a whisker it breaks the previous record of 8.88% set in June 2004.

Yet we still hear talk of a “slow recovery”. It doesn’t get any faster than this, folks. In the past 4 months the Case-Shiller 10-city and 20-city indexes have risen faster than at any time in living memory. Some cities were rising even faster in 2012 but the composite indexes were dragged down by other cities that were still declining at that point.

For the record, the fastest decline was at a slightly more extreme rate of -9.5% over 4 months reported in January and February 2009.

The press release issued with the report mentions “the pace of price increases is moderating”. However this moderation is actually fairly slight and represents a change in pace from insane to merely ridiculous.

The mass-obsession with interest rates and “the Fed” has caused the press release to downplay the actual numbers being reported and focus instead on what might happen over the next few months. It is indeed possible, even likely, that price increases may slow and the market quieten down, but none of this is evident in the numbers reported today. The interest rate rise happened too recently to affect the current Case-Shiller numbers in any meaningful way. Next month is the first time increased interest rates can have an impact on the Case-Shiller index.

So we can talk about the slowing numbers as and when they actually happen, but for now, as a statistician, I would like to focus on two more all-time records broken with this month’s report:

  1. Highest 4-month increase ever for San Francisco of 16.7% (previous record 15.3% in June 2000)
  2. Highest 4-month increase ever for Charlotte of 6.6% (previous records 5.5% in June 2012 and 5.4% in July 2006)

Even though Charlotte has a relatively non-volatile housing market, we should be fair and acknowledge the fact when it makes a new record. 

~Cromford Daily Observation for August 27th