Is it like 2006 all over again?
Given the strong recovery the Phoenix housing market has posted, it is understandable that comparisons are still being drawn to 2006 (the peak of our housing market). We have commented in the past that we are not in a “bubble”. But a recent commentary by the Cromford Report on pricing really caught our eye. It is not surprising to us that the press routinely shares erroneous housing market information often using statistics to make a poorly examined point.
Homeowners would be well advised to have a skeptic’s heart when accepting the media’s research. As British Prime Minister Benjamin Disraeli so famously said (and Mark Twain popularized) “There are three kinds of lies: lies, damned lies, and statistics.” The latest premise is that housing prices have exceeded the prices set in the 2006 market. Uh… not exactly. As no one says it better than our guru Michael Orr of the Cromford Report, here are his comments (with only bolding by us for emphasis) that explain the facts about the housing numbers:
“The local press has been headlining that sales prices for homes in Maricopa County have hit an all-time high. This is a very misleading statement that I take strong issue with. Although the median sales price has recovered to 2006 levels, the conclusion that sales prices in general are higher than June 2006 is completely wrong.
There are very few homes that would sell in 2018 for more than they would have sold for in 2006. The vast majority of homes in the valley have not recovered the value they had in 2006 and are still quite a long way from doing so. If home sellers believe they can sell their home for more than it was worth in June 2006, they are going to be bitterly disappointed, unless they live in the heart of Arcadia or a few isolated parts of South or Central Scottsdale. These media stories make life hard for agents trying to set reasonable asking prices when taking new listings.
The first problem is that the stories in the media are comparing the monthly median sales price for May 2018 with that for June 2006. The homes that sold in May 2018 are a very different collection from the homes that sold in June 2006, so this is an apples to oranges comparison. Let us compare the two sets of homes:
1. June 2006
o number of affidavits describing the property as a single-family home = 10,715
o median sales price = $280,000
o percentage of homes that were new builds = 28%
o average sales price = $357,067
o average home size = 1,840
2. May 2018
o number of affidavits describing the property as a single-family home = 9,987
o median sales price = $285,000
o percentage of homes that were new builds = 14%
o average sales price = $354,727
o average home size = 2,007
We can see that the sales mix is very different between June 2006 and May 2018. In June 2006 we had twice as many new homes as in May 2018 and the average homes size in 2018 is over 9% larger than in 2006. The average price per sq. ft. is much lower in 2018 than 2006.
A second problem is that affidavits of value are woefully inaccurate about property types. Hundreds of townhomes and condos are mis-classified as single-family properties every month. Therefore any numbers quoted for single-family homes in May are likely to be wrong until the affidavits have been checked and corrected, which takes several weeks.
In general, median sales prices are often misused and should NEVER be the basis for comparing the values of homes or comparing new home prices with re-sale prices.
A much more reasonable measurement is average price per sq. ft. which, though not perfect, adjusts for the difference in the average home size. In June 2006 the average price per sq. ft. of single-family homes sold in Maricopa County through the MLS was $193.65 while the average for May 2018 was $170.02.
We therefore estimate that the average single-family home in Maricopa County has a 14% rise in price to achieve before it reaches its value in June 2006. Individual homes will obviously vary quite a bit.
While the median sales price has recovered to the level of June 2006, the value of the average home has certainly not achieved this. Do not let your clients be misled.”
So we accept his missive to not let our clients be misled and hope this article helps to that end. The 14% mentioned above is an average and every neighborhood has its own “number”. As always, we are happy to answer any of your concerns or questions about your specific neighborhood.
Russell & Wendy Shaw