Cromford Market Update by Tina Tamboer – 10/5/23

Case-Shiller Index

  • Case-Shiller is behind – 3-month moving average with a 2 month lag
  • So they are reporting June, July and August – looks like butterflies and rainbows
  • Their report looks like prices are still rising, but that’s not correct now.  That was correct 2 months ago. 
  • Going forward, YOY numbers will get better and it will show a price flattening in Phoenix
  • Wall Street uses Case-Shiller to forecast
  • July to July is down 5.1% in avg $/sf
  • Housing market typically doesn’t move very fast – that’s why a 2-month lag has been ok
  • CS Index has been fine to predict housing market for years, but when the housing market is volatile the CS is NOT a good indicator of future prices
  • Sales $/sf is a much better tool for forecasting

Average Sales $/SF – 3-Month Moving Average

  • October so far – 1 closing day ONLY in data – up 0.6%
  • Monthly average is first runner across the finish line on getting our clients the most up-to-date data
  • If you look at monthly average for Sales $/SF, then September is up 2.2% over September 2022
  • Avg sales $/SF is now $285.39
  • But, this includes luxury which drives average price up

Appreciation – Median Sale Price

  • Median sales price is down 2% from September to September
  • Median sales price is now $435,000
  • Buyers’ budgets have come down because interest rates have gone up so much
  • Medians are not as affected by the luxury market – this year has been the 3rd best luxury market in AZ history
  • Median means half of sales are more and half are less
  • Average sale price is well over $500k
  • Median sale price needs to rise by 1.6% by October to break even with last year

Price Seasonality in Greater Phoenix

  • Fewer luxury sales in summer = this results in a lower $/sf average
  • Typical years (2015-2019) – luxury slows down in summer
  • When you take luxury out, there is almost no price seasonality
    • you take out everything over 2,500sf to remove entry-level products
    • Now looks like a relatively flat line
  • If you look at monthly average sales $/SF removing homes under 2,500fs, then the average is down 2.5% YOY

Where are prices going to go?

  • Prices are coming down a bit, but we are still in a sellers market
  • As long as we are in a sellers market (CMI over 100), we can expect prices and annual inflation to be higher than the rate of inflation
  • We’re pushing towards 4.3% appreciation at this stage of the game – if you look at monthly average SFH under 2,500 sf
  • Inflation rate is about 3.8% currently, source dependent and we aren’t seeing big movements
  • Even if it stays flat, we will still be hanging out in seller market
  • If inflation comes down, our annual appreciation will be above the rate of inflation

Affordability in Phoenix

  • CMI is telling us that we are starting to see a bit of a weakening
  • In order for Phoenix to reach moderate affordability level, you’d have to see home prices come down significantly
    • Tina won’t dispute that they may come down a bit and go flat, but doesn’t think they need to come down significantly
  • You could potential see home values stagnate – to 5% appreciation rate
    • This would be healthy and sustainable
  • But, you can’t really gauge affordability unless you know what people are making
  • Which we don’t because the last Census was garbage
    • The Census Bureau put out a statement saying “estimates did not meet our statistical quality standards” due to election disruptions
    • They are “experimental estimates”
  • 5-year average of incomes is not a good enough estimate to gauge actual affordability.  We’ve had a 5% growth rate in household income per year since 2014
  • Household income tends to be lower than family income (family income is what they use)
  • Most single-family home purchases involve single or dual-income families, not single householders
  • Household is $10-15k less than family income generally
  • Income required for a $400,000 purchase with 20% down = approx. $103,000/year @6.7% mortgage rate

Jobs – FRED – AZ Earnings

  • We have seen a 5% growth rate in average hourly earnings of all employees in AZ since October 2020
  • Private sector (W2 income) – 3.4% growth rate in August 2023
  • So, income growth rate in AZ has been positive since 2015 with significant growth in 2022 (as high as 7.8%/year)
  • Last year Phoenix area workers saw highest wage increase in the US according to the Bureau of Labor Statistics at 6.4%
  • The Feds are going off of old data – Tina doesn’t think it’s accurate
  • These arguments about affordability are gray because we are going off estimates and theories due to bad census data
  • Population growth in AZ – is still growing but not at the same rate that it was; slowed down bc affordability tightened

Mortgage Rates

  • “The dating scene for mortgage rates is ugly” – Tina
  • Don’t use marry the house, date the rate because no one wants to date when prospects are bad – Tina joke
  • FHA is around 7.15% and conventional is around 7.75% (Mortgage News Daily on 10/4/23)
  • When you have rates that high, you are not going to have the demand and seasonally speaking this is not the best time of year for transaction count either
  • 2 things are happening and affecting demand –
    • People are priced out of the market
    • People waiting for rates/prices to come down (don’t want to settle)

Weekly Accepted Contracts

  • Weekly accepted contracts levels are TERRIBLE – 1,314 last week
    • This should be above 2,000/week
  • If you look at closed sales on an annual basis, it’s less bad
  • We’ve had about 69k closed sales so far this year
    • We are in line with 2006 for annual closed sales
  • But, this is leveling off
  • She believes we will see some changes and probably won’t hit 100k for the year
  • We have no short sales, foreclosures or REOs

Renting vs Buying Today

  • It is currently cheaper to keep your mortgage payment (as long as you bought 9+ months ago) than it is to rent a small place
  • Back in 2006-2008, rent payments were WAY lower than mortgage payments – that’s why people let their homes go
  • Median rent is currently just under $2,200/month
  • Old mortgage payments are not higher than rent – but new (current rates) mortgage payments are
  • Worst case, people can still rent their house out and cover their mortgage payment

Mortgage Rate Forecast for 2023

  • 9/11 Forbes article basically said we can’t predict right now
  • Will we go into recession? There are 2 schools of thought;
    • Feds – no (soft landing) – rates will stay high
    • RE industry – yes (recession is coming) – rates will come down
  • Mortgage rates come down during/after a recession – every time in history
  • People who believe that rates are going to come down are actually pessimistic about the economy and believe we are going to have a recession

Recession Talks & Yield Curve Inversion

  • Yield curve inversion – short-term yield is above long-term yield
  • Currently, the Fed Funds Rate is in line with the 3-month Treasury, and higher than the 2-Yr Treasury
  • NABE’s survey shows economists are divided on what the yield curve inversion means for the US economy;
    • 38% believe that it points to declining inflation without a recession
    • 36% believe we are heading for a recession in next 12 to 18 months
    • 14% believe we will see low long-term bond premiums and no recession

Fed & Rates

  • Profit reports are lagging – stock markets are shaky
  • Bond premiums go up – they are having to bribe people to buy them
  • When do the Feds get alarmed?  The long-term yield is typically higher than the short-term yield, when it flips and the short term goes above they get nervous

Fed Funds Rate

  • Fed funds rate goes up with the 2-Yr; Fed funds rate usually goes up second
  • Not seeing any changes in 2-Yr T or Fed funds rate
  • When the 2-Yr goes over the 10-Yr – which is happening now
  • 8 of the last 10 recessions have been preceded by a yield curve inversion
  • Recessions are typically called when the unemployment rate increases
  • That typically doesn’t happen until you see the inversion correct
  • We have been in an inversion since July of last year
  • We have not seen any increases in unemployment
  • Feds believe that they are going to be able to manage the economy without a recession
  • The longer you go in an inverted yield curve, that’s when analysts say maybe this time it’s different
  • Goldman Sachs thinks it’s different this time – not signaling a recession

30-Yr Mortgage Rates vs. 10-Yr Treasury

  • The 30-Yr Mortgage Rates are tied closely to the 10-Yr Treasury
  • The long-term average gap between the two is 1.7%
  • The gap measured on 8/17/23 was 2.79%
  • Typically both 10-yr Treasuries and Mortgage Rates decline sometimes during and after a recession, sometimes before but not always

Would an increase in unemployment locally affect our housing demand?

  • If we look at the median household income and that income is rising, and you see your labor force is growing, then you have more people making more than more people making less
  • All we need is the top echelon to be buying to sustain our housing demand locally
  • Lower wage service level jobs are making less now, but that doesn’t affect housing because they aren’t the demographic that is buying

Good news for Arizona

  • Phoenix Business Journal article on 10/3/23 – GPEC says even more jobs in the pipeline for AZ
  • 37 companies announced that they are expanding = 7,731 new jobs with an average salary of $72,443
  • Of these new jobs, more than 5,000 were considered high-wage, with a median wage of $85k
  • Make friends with HR managers!
  • 14 years since normal recession – Mortgage rates have been under 5% until this year

Home Sales by Intended Use

  • Owner-occupiers back to normal at 75.7%
  • Investor + iBuyer is now at 14.9%

Cromford Market Index

  • CMI is currently at 142.1 – still a Sellers market
    • This is down 13.5 points over the last month (weakening seller market)
  • Supply is 47% below normal
    • but rose 3.4 pts over the last month
  • Demand 25.3% below normal
    • but dropped 1.8 pts over the last month
  • Supply is rising faster than demand is falling
  • If the CMI keeps dropping, we could be in a balanced market by November
  • Long-term holds don’t need to worry right now – still a good time to buy
  • Investors should be careful if you are going to purchase anything and be prepared to hold it for 3-5 years
    • If you continue to see the market dropping, stop buying
  • The Seller market is squeezing – prices will go up at a slower rate

Cromford Market Index by City

  • Outskirts are weakening into balanced markets – Buckeye, Goodyear, Maricopa, Queen Creek
  • Other cities are still Seller markets
  • All cities are adjusting – Chandler down 28%
  • 15 of the 17 Valley cities had a weakening over the last 30 days
    • Cave Creek and Tempe were the only 2 cities that didn’t with only very slight increases

Contract Ratios

  • We are seeing the seasonality that we expect, but it’s a bit steeper due to rates
  • Tina suggests to keep buyers in the game especially if they can shoulder the rate, in q4 when sellers get nervous they are willing to negotiate more
  • Luxury market will come back if stock market is doing well
  • September contract ratios are where we would expect it to be 2017-2018

Contract Ratios on the Map

  • The Valley is cooling off
  • We are now pretty white with some blue
  • In May, the whole Valley was red
  • The only hot markets now are the SE Valley, Laveen, South Phx around I-17
  • Luxury cooled off first and then the outskirts of town
  • Tina predicts this will continue through December and we won’t heat up until the spring


  • Down 36% from this time last year
  • But, the supply line is rising
  • We had 11,980 active listings last week vs. 18,605 last September

Price Reductions

  • Price reductions are down 60% from 2022
  • Only 13.7% of supply seeing a price reduction right now
    • Vs 22% of supply last year reduced each month


  • 45% of closings had Seller paid closing costs in September
  • The median seller concession was $8,500 in Sept
  • This tells us that sellers are going to have to budget more for rate buydowns in this environment
  • Rate buydowns will continue to be a part of negotiations until rates come down

Closings Over Asking Price

  • In September, 22% of closings went over asking price
    • That is starting to come down a bit
  • That is not normal historically.  It’s high showing buyers meeting sellers halfway on price to get concessions for buydowns

Days on Market

  • Median DOM – 22 days in September
  • This is the beginning of longer days on market for 4th quarter – tell sellers an extra week going forward
  • Once we hit mid-October through mid-November, add 2 weeks to accommodate for holidays

Rental Supply

  • We had 4,625 active rental listings last week
    • This is the highest we’ve ever had since tracking started in 2018!
    • This historically has been under 2,500

Rental Prices

  • Rents have been declining – down 7.7%
  • $2,295 is the median rental listing price now for a SFR
  • But, the median closed lease is $2,165
    • This is down from $2,250
  • Long term this has been pretty consistent

Rental Concerns

  • Short-term rentals have been consistently converting into long-term rentals after SB
    • That is part of the reason rental supply is going up drastically
  • Build-to-rents that started construction last year are now coming on the market and competing with older rentals
  • Expect rent prices to continue declining if we continue seeing listing counts go up
  • If owners can’t find a tenant, these may become homes for sale
    • That could affect the resale market and pricing