Yes, it is crazy. The more things seem to change, the more they stay the same. Now, remember, we have to take the market into the context of the season, and this is the slow season in Arizona. Summer into late September has been typically the slowest season since I got my license nine years ago.
What is the Contract Ratio showing about the Phoenix real estate market?
First, let’s start with, what is a Contract Ratio? We use Contract Ratio to show how hot or how cool a real estate market is. This ratio compares the number of active listings to the number of completed sales over the last month. The higher the number, the greater the demand. If a number is rising, it is a growing demand while if the number is falling it is a weakening market. We use Cromford Report for these market numbers, and if the Contract Ratio is between 30-60, we consider this a normal market, below 20 is seen as a cold market and above 60 is considered a hot market. If the number tops out above 100, then the market is considered on fire!
Over the last month, the $1m plus market has been cooling off as would be expected this time of year. All of the market segments above $1m are down and are considered a cool market over the last month.
The under $100k segment of the market, which historically has been the hottest segment over the last decade, has really cooled off. The Contract Ration this last month was 67.4 which is just out side the range of normal. And it was down from 69.3 the month before showing it has been cooling. This time of year, cooling is standard thought.
The $125-$150k and the $150-$175k segments of the Phoenix real estate market come in at a healthy 130 and 122 Contract Ratio, but they are both down by 10% or more over the last month showing a higher than normal cooling off of the market.
There are a few segments of the market to pay attention to include the $225-$250k range which went from 82.9 to 103.3, a +24.6 increase. Also up was the $250-$275k market, up to 80.0.
Everything below $350k is considered a hot market right now. $350-$800k is considered normal, and everything above that is below normal.
What Phoenix area cities are hottest right now?
The Cromford Market Index shows the 17 major markets in the Valley are all considered Seller markets, but there are a few that are hot right now. Mesa, Surprise, Chandler, and Gilbert have been showing the hottest trend of late. Over the last year, the hottest markets in the Valley have been on the West side of town, but the recent trend is showing a swing in favor of the East Valley.
The average time on the market across all of Phoenix is down to 66 days. That number is the lowest since 2013.
One thing that Cromford Report points out that is interesting is the weakening markets in outlining communities such as Maricopa and San Tan Valley. Why is this interesting? Because when a market slows down, locations that are less expensive in the Valley tend to be the first ones to show signs of weakening. These were the first communities to demonstrate the weakening in the second half of 2005. Does this mean another crash is coming? No, but it is something to keep an eye on in the coming months.
Let’s look at the rental market.
You may have noticed many rental complexes starting to go up in the Phoenix market over the last year. I know I feel I see them all over the place when I am out driving to showings and listing appointments. Most are still under construction and have not had an impact on the Phoenix rental market, yet.
Right now the rental market is at about a 1.2 month supply of rentals, which is about where we were last year at this time. With the season market that Phoenix has in both rentals and sales, it is a better comparison to compare the same time last year over recent months to see what is going on. The prices of rentals reflect the inventory numbers. Rental prices are up 4.3% over where they were last year, which is a significant increase compared to inflation. This is exactly why you see all the new rental complexes going up around the valley.