Up or Down? Where is the Real Estate Market Headed Next?
The housing market has been on fire for the last year. Just in the last twelve months, Phoenix appreciated 17.4% and San Diego 17%. The Cromford Market Index, which measures the heat of the residential market, was at 360 in November and climbed all the way to 520 in March. These numbers are very high considering that a value of only 100 is normal! But as you can see in the graph, the index peaked in March and is now on its way down, with a current value of about 470.
Oh no! Does that mean we’re in a housing bubble and headed for a crash?
The simple answer is no. This is not a housing bubble; it’s a supply and demand issue with too many buyers and not enough homes on the market. Normally, we expect to see a six-month supply of homes available on the market, but right now our supply is at only two weeks! No wonder we are seeing such high prices! The recent turnaround simply means the market has peaked and is now correcting itself through lower demand as high prices force buyers out. So you can breathe a sigh of relief! We are not expecting a precipitous fall in prices; rather, just a correction to bring the market back closer to normal supply and demand levels.
But if the market is declining, why aren’t prices falling?
Prices aren’t falling yet because the heat of the market is a predictor of prices. History has shown us that price changes lag behind the Cromford Market Index. As you can see in the graph, in late 2004, the index started falling but prices kept appreciating, and it wasn’t until mid-2006 that prices actually started to follow suit. In today’s market, experts are predicting that the Cromford Market Index will gradually march its way down to around 150-200—a value that is still above normal but not quite as high as it has been. And we are expecting the index to then remain at this value for another couple of years.
So, what does all of this mean for me?
It means that this is a great time to buy or sell your home!
If you’re thinking about selling: Remember, you don’t need to panic because the market has turned. In fact, it’s the opposite—you can still capitalize on the market being hot right now because it’s going to be a while before prices fall.
If you’re thinking about buying: Although the number of buyers (and therefore the amount of competition) will likely reduce over the next six months, prices are going to keep appreciating for a while, so your best bet is to get in now!
If you want to learn more about current housing market conditions and why this is such a great time to buy or sell a home, check out our blog. We’d love to keep you in the know! And, whether you’re thinking about buying or selling, we’d love to help you, so get in touch with us today!