By Mike Bodeen · 16 January 2023
The End of the American Dream?
Before I wax philosophically prophetic, I’d like to share two Cromford Market Index charts that will perhaps act as a segue to my cloudy and rainy MLK day musings.
August 25th:
January 12th:
In the opinion of many, The Cromford Market Index (CMI) is the genius of all leading Market Indicators. Per Cromford, “the CMI tends to go down before most people expect it to and it goes back up before people think it should. It can be up to a month before other market indicators follow suit. For example, last year it peaked on February 7 and started to weaken. During the bubble years, it reached an all time low of “26.5” (100 is balance) on November 6, 2007 and then rose very slowly over the following 2 years, not exceeding “100” (balance) until May 2009.”
This August 25th 2022 CMI chart showed the bad news that every one of the 17 larger Phoenix Metro cities was heading south towards a buyer’s market culminating in the state of the market we have found ourselves currently in. Or are we?
Fast forward to the January 2023 CMI report. All 17 cities have reversed course direction and are heading north towards a seller’s market-in less than 5 months. 7 cities are now in Seller Market territory (Above 110) while 6 are in or nearly in the balanced market range of “90-110.” Remember this happens when demand is growing higher than supply.
Of course, we’re not at all out of the woods and market conditions can change quickly as they obviously did following August of ’22. If mortgage rates start heading back up because inflation is showing signs of the same, then we’ll begin seeing more “red” again.
Segue.
America’s greatest housing danger is not a recession, or even a depression. Historically recessions and depressions are temporary. America’s greatest danger can affect our country for generations to come. And honestly, without intervention of some wise-sort, the American dream will be gone.
I will elaborate on this more in the coming weeks but today you’ll get the point. And to be honest, I haven’t read anything about this being a long-term danger anywhere. Perhaps because we’re in a market (Phoenix-Metro) that radically gyrates faster than most, though I’ve not read anything locally about this either.
Our greatest danger is that we will become a land of renters/rentals losing tens, even hundreds of thousands of homes to rentals due to the demand for rentals as a result of unaffordability, both in terms of pricing and high mortgage rates, prodding corporate entities to invest – by the thousands.
We are in a purchase housing shortage now. According to a November 2022 study, by the National Low Income Housing Coalition, Metro Phoenix has an affordable housing deficit of almost 120,000 homes. Homes. Yes, I’m talking single family detached homes, but also condos and townhomes.
What we’ve been seeing over the past few years and what we’re seeing being built now in Phoenix are apartments and single family detached homes for rentals, not ownership. The single family detached homes that are being built are costly – well above our median affordability. One company, Progress Residential owns 5000 single family units in the Valley, per a Channel 12 news report. See this news article here.
What, if anything can be done to reverse this? Stay with us in the weeks ahead. Spoiler alert: No easy answers.
Market data referenced in this article comes from The Cromford Report.