Given the recent changes to the Phoenix real estate market, I created 5 new graphs to learn more about what’s happening in the Phoenix housing market.
- Phoenix Real Estate Market at a Glance
- Phoenix Real Estate Market with New Listings
- Phoenix Inflation-Adjusted Median Home Price
- Phoenix – “Months Supply” & “Median Price of Homes Sold”
- Phoenix – “Months Supply” & “Homes for Sale”
- Phoenix – “Sold Listings to New Listings” & “Median Price of Homes Sold”
- Phoenix – “Sold Listings to New Listings” & “Homes for Sale”
- Phoenix – “Months Supply” & “Sold Listings to New Listings”
I calculated the metric “Months Supply” by combining the data in the blue line (recent demand) with the data in the red line (total supply) in the graph above.
And I created the metric “Sold Listings to New Listings” by combining the data in the blue line (recent demand) with the data in the pink line (recent supply).
In the graph above, you can look at the supply versus demand situation by visually comparing the red supply line (Homes Listed for Sale) and the blue demand line (Homes Sold) and get a decent idea of the general trends in the market but “Months Supply” combines supply and demand in one number.
“Months Supply” = Total Number of Homes Listed for Sale / Number of Homes Recently Sold
That is, the number of homes listed for sale in the MLS (total supply) divided by the number of homes sold over the month (recent demand).
It’s the number of months it would take, at the current pace of homes sales, to sell all the homes currently listed for sale in the MLS.
In real life, more homes hit the market every month and some homes are taken off the market unsold every month. But given the current supply of homes for sale, the “Months Supply” tells you how long it would take to sell all those homes given how fast homes are currently selling.
Also, this metric only looks at the homes in the MLS and not all homes are sold via the MLS. Nevertheless, this metric gives you a great feel for the supply/demand relationship for the entire market, MLS and non-MLS, because MLS sales dominate the Phoenix real estate market.
If the number of homes listed for sale decreases OR the number of homes sold increases, the “Months Supply” goes down. That would mean the market is getting tighter. Home prices are likely to increase more when the “Months Supply” is low than when it’s high.
You can see in the graph above, when “Months Supply” is below ~4 months, home prices tend to increase strongly and when “Months Supply” is above ~6 months, home prices tend to fall, although sometimes with a lag.
“Months Supply,” of course, generally moves with the total supply of homes for sale. “Months Supply” also incorporates demand (recent home sales) so it also moves when the demand changes, that is, when the number of recent homes sold increases or decreases.
You can see how the “Months Supply” (orange line) skyrocketed in 2006 and 2007 as the number of homes sold tanked. It peaked at over 18 “Months Supply” in January 2008! That means at the rate homes were selling that January, it would take 18 months to sell all the homes listed for sale at that time, even if no other homes hit the market. The “Months Supply” this January is 3.8 months.
Months Supply – January 2019
Just looking at “Homes for Sale” (red line) for February 2019, you can’t see much of a change in trend but when you combine supply and demand into one number – into “Months Supply” – it’s easier to see that the supply/demand relationship has started to change.
Although the supply of homes for sale hasn’t changed much, the demand has fallen (sales were down 12% in January compared to January 2018) so we can see that “Months Supply” has visibly increased.
Even though “Months Supply” had been on a downward trend for 4 years, it started to increase around last November and now “Months Supply” is clearly on a moderate upward path. That means less upward pressure on home prices now.
The “Months Supply” in January 2019 was 3.8 months which is the same as in January 2017 although they were headed in different directions. In January 2017 the trend was toward lower supply instead of toward higher supply like the current trend.
Sold Listings to New Listing Ratio
Although in Phoenix and the United States we key on “Months Supply” to get a feel for the balance between supply and demand, I noticed that in Canada and Australia, they key on a different metric, “Sales to New Listings.”
[Definition: A “listing” is a home “listed” for sale in the local MLS (Multiple Listing Service).]
Since “Sales to New Listings” is not a familiar metric here, I decided to call it “Sold Listings to New Listings” which I think is a bit clearer name.
“Sold Listings to New Listings Ratio” = Number of Homes Recently Sold / Number of Homes Recently Listed for Sale
Here it means the number of homes sold over the last 3 months (recent demand) divided by the number of homes newly listed for sale over the last 3 months (recent new supply).
You might wonder why the metric is less than 100%. Part of it is the data quirk mentioned below but mainly it’s because a good percentage of homes listed for sale in the MLS fail to sell, those sellers take their homes off the market unsold.
Note: There’s a quirk in the way I currently calculate “Sold Listings to New Listings.” The data for sold listings that I use doesn’t include manufactured homes but the data for new listings I use does include manufactured homes.
It’s easy to see that “Sold Listings to New Listings” moves opposite of “Homes for Sale”. Occasionally – and this is the key advantage of this metric – “Sold Listings to New Listings” moves before supply increases and right now might be one of those times.
In the fifth and last new graph, I compare the two “new” metrics to each other, “Months Supply” to “Sold Listings to New Listings.”
Sold Listings to New Listing – January 2019
Although it’s hard to see visually, if you go to the interactive version of the graph, when you mouse-over the light-blue line for January 2019, you’ll see that the ratio was 72% in January 2019 which is down from 82% in January 2018. The upward momentum in Phoenix home prices is, therefore, getting weaker.
New Insight into Phoenix Real Estate Market
I really like this Canadian/Australian metric. I’m always looking for more data points so I can better understand the current Phoenix real estate market and to better forecast where it’s headed.
Both “Months Supply” and “Sold Listings to New Listings” in different ways just compare two of the lines of the graph at the top so that we can extract more information.
I hope this post wasn’t too confusing. Let me know what you think in the comments.
2 Responses to 5 NEW Phoenix Real Estate Market Graphs
Thanks for the new data, very interesting. Although the new metrics are related to previous ones, looking at them in a slightly different manner can reveal some interesting trends.
You make an interesting observation about the Sold/New ratio. Although it appears at first glance to be following an upward trend with a lot of seasonal noise, you’re right – the drop occurred earlier this year. That series has been bottoming out in March each year and so we should see a drop to around 60% in March which will make the change in trend more obvious.
And I don’t know that it really means much, but it’s interesting that the Sold/New ratio reveals much more seasonality than either #Sales or #Listings do by themselves. Apparently, a lot of new listings start to come online in Jan-Mar but not many buyers yet. But by May-July this flips, people slow down on the listings but lots of closings.
Excellent analysis! Thanks for taking the time to comment! I’m VERY interested to see the February data when it’s published in a week or so.
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