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 April 15, we are currently recording a sales $/SF of $113.37 averaged for all areas and types across the ARMLS database. This is 0.78% lower than the $114.26 we now measure for March 15.
Our forecast range was $116.17 to $120.91 with a mid-point of $118.54. This month we recorded the largest forecast miss we have experienced since we started operation. The actual value was well below our low-point. Even stranger, the pending $/SF has continued to increase strongly over the same period, moving 3.2% higher. It is therefore a surprise that the sales $/SF has moved lower, but it is of no great long term significance as we shall see in a moment. It is quite unusual that the pending $/SF and sales $/SF numbers diverge like this, but it has happened on occasion and when it does, they always come back together again. Almost always the sales $/SF eventually follows the lead set by the pending $/SF. Since the pending $/SF is the principal number used in our forecasting model, when this happens our forecast diverges substantially from reality.
On April 15 REO sales across Greater Phoenix (all types) averaged $81.77 per sq. ft. (down 4.3%). Pre-foreclosures and short sales averaged $84.76 (up 0.2%) while normal sales averaged $123.35 (down 1.5%). The market share of normal sales rose again over the last 30 days, moving from 72.3% to 74.4% of sales. REOs lost market share from 12.5% to 11.2%. Short sales and pre-foreclosures continued to lose market share from 15.3% to 14.4%.
On April 15 the pending listings for all areas & types showed an average list $/SF of $111.75, 3.2% above the reading for March 15 – so pending $/SF has made another significant move upward over the last month, unaffected by the fall in sales $/SF. Among those pending listings we have 60.0% normal, up from 56.3% last month, a lower 12.9% in REOs and a weaker 27.0% in short sales and pre-foreclosures. The average pricing for pending listings on April 15 in each category was: $130.32 normal, $78.75 short sales & pre-foreclosures and $84.91 for REOs. All of these are showing an upward trend in pending $/SF although the short sales trend is only weak, However the favorable change in mix away from distressed properties should still cause sales prices to move even higher.
Our new mid-point forecast for the average monthly sales $/SF on May 15 is $117.75, which is 3.86% higher than the April 15 reading. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $115.40 to $120.11. In other words we still expect prices are move substantially higher in the next 30 days even though they didn’t over the last 30 days.
What went on between March 15 and April to upset our forecasting system?
If we look at the Average Price per Sq Ft chart we see that the sales $/SF jumped sharply upwards on March 1 then fell back by a similar amount on March 29. This is symptomatic of a some very expensive homes closing on February 28. Indeed when we look closely at the 942 closings on February 28 we the following:
ARMLS 4575989 sold for $6,665,000 at $562.02 per sq. ft.
ARMLS 4835291 sold for $2,100,000 at $500.00 per sq. ft.
ARMLS 4831716 sold for $2,730,000 at $411.02 per sq. ft.
These exceptional sales were included in our monthly average from March 1 to March 28 but dropped out from March 29 onwards. They have an abnormal impact because of their high prices and their larger than average living space.
The end of March saw no homes close over $328 per sq. ft. The 3 highly priced homes above made the March 15 average $/SF number exceptionally high and their absence made the April 15 number return to normal. If we compare February 15 with April 15 we see an increase of $108.47 to $113.37 which is still a major step upwards. The “blip” of March 15 at $114.26 can safely be regarded as a freakish result. April 15 is the normal result and if we ignore March 15 we see a continued strengthening trend remains in place.
The pending $/SF line has behaved in a much more regular and reasonable looking fashion than the sales $/SF and you can see this on the same line chart we mentioned above.
Sometimes reality is more random than our forecasting model allows for. This does not undermine our confidence that our model will be correct within plus or minus 2%, better than 9 times out of 10. We have just experienced one of the exceptions.