How To Stay Warm In This Cooling Real Estate Market

I think we can all agree that winter is the best time of year in Phoenix. Sure, we pretend we like Fall but nobody really thinks sweating through a wool batman costume on a 90 degree Oct night is a great time. The real good stuff is sweating your way through a t-shirt while you put up your Christmas lights on a 78 degree Nov day. The mild cool down we experience each winter in Phoenix is actually a fantastic metaphor for the real estate market shift we are finally experiencing after an eight-year housing rally. But have no fear! We’ve got some scary looking charts for you and some less scary advice on how to survive this market shift.
Bring Out The Scary Charts!
Just to get your blood pumping and prove I’m not making this stuff up let’s kick things off with the charts!

Alright so now that we’ve established that I know stuff about numbers and how to find charts online let’s talk about what these mean. First, it’s important to note that you will not hear much on the news about the market slowing down. The media focuses mostly on housing prices and those are still moving up nicely. Prices are a lagging indicator, meaning they tell us what has already happened in the market, not what is going to happen. I picked out two leading indicators to discuss so that we can see what is going to happen and make you smarter than your friends.

The first chart represents The Cromford Market Index (CMI) which is a measure created by statistician Mike Orr formerly of ASU. This index combines thousands of data points to create a single number that shows us how hot or cold a market is. A CMI of 100 is a perfectly balanced market and anything over 100 represents a hot seller’s market. The CMI has been above 100 with a few short exceptions since June of 2009 and as a result, we have seen unprecedented growth in housing prices. As you can see the CMI is falling steadily now moving ever closer to a balanced (cooler) market. The second chart is the Listing Success Rate (LSR) which shows the percentage of homes listed for sale that actually sell (as opposed to being canceled and taken off the market). A falling LSR means that sellers are having a harder time getting their homes to sell which shows a clear cooling off in the marketplace. The charts above represent just two metrics but I could post a half dozen more that prove my point and I give a more detailed video explanation of these charts on the blog so be sure to check that out at

Why Has Winter Come?
Our best guess is that the market is cooling for three reasons:

  1. Interest rates are rising causing some buyers to be less excited about what they can buy for the money.
  2. People who bought 3-7 years ago at much lower prices and interest rates are less likely to move up into a bigger, nicer home right now. They are sitting in a nice enough house with a 3.5% interest rate and the prospect of getting into a better home and keeping up with the Jones’ is not appealing enough to swallow a more expensive home and 4-5% interest rate.
  3. Homes are less affordable on average and on average the advantage you have buying vs renting is shrinking (meaning as homes become more expensive renting doesn’t look so bad anymore).

What Do I Do Now?!

  1. Most importantly get excited! The market SHOULD be cooling! The environment we find ourselves in is very similar to what we were seeing in 2004 and 2005 and as you may remember things stayed super hot. That did not end well! These are very healthy signs of a stable market
  2. If you have been waiting to sell or move up / move down you may want to consider getting off the fence. The market will almost certainly be worse for you as a seller in six months. Brynne and I are selling two of our homes right now for this very reason.
  3. If you are wanting to buy a first home I would not be in a hurry but I also would not intentionally delay. In six months you are likely to be in a much better negotiating position with more options but interest rates will be higher.
  4. Pay off debt and save up cash. This is total speculation and is very informed by my distaste for debt but I suspect a time is coming in the not too distant future when those with piles of cash laying around will be able to scoop up good deals from people who have become too dependent on debt in these favorable interest rate years. I also just think less debt and more cash is a more peaceful way to live.

As always we will keep you in the loop on all future developments. Stay tuned and subscribe to the blog. Now sit back and enjoy these brisk low 60 degree nights!

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