Before about 2019, and especially COVID in 2020, we had several years where we really struggled with what to write each week. The market was just plain boring! We had a relatively balanced market with slight advantage to sellers that resulted in decent, predictable appreciation over time. Since April of 2020 of course, like anything else in the world, it’s been anything but boring.
The Cromford Market Index, which we watch closely, is now falling quite rapidly. That should be taken with a grain of salt though, considering that today’s measure of 406.1 is still wildly above historic measures.
The reason we love the Cromford Index so much, is that it is the best predictor of future appreciation or depreciation that we have in the Phoenix Area market. When the Market Index is in the green, we can bet that the market will continue to appreciate. If it falls into the red area, below 90, we can make the opposite sort of gamble.
And so, if the Cromford Index dips below 90, we don’t believe that means prices will drop the next day. In fact, in the last crash, it took about 6 months from the day the Cromford Index went below 90 to the point where prices started coming down.
So the big question we are asking right now is, where will the current Cromford Index drops bottom out? If, like last year, they bottom out in the 300 zone, it will mean a continuation of what has been our crazy norm over the last two years of 20 to 30% annual appreciation. If it goes lower, we could return to more normal appreciation. If, like in early 2006, it goes below that 90 mark, then that means there will be price drops on the horizon.
Would that mean a big market crash, or just a small correction? Who can say.
A few realities on the ground:
- Your average joe is having trouble affording a new house.
- The rental market has not been appreciating the way it did last year, as my dad recently reported. This could mean the investors cool down their buying, which has been a large segment of the market.
- Supply is on the way up (still historically low).
- Demand is tepid. It doesn’t always feel that way. It only feels like there is a high demand because supply is so darn low. It’s now an average amount of buyers competing over a small, but increasingly large pie.
In the short term, expect more appreciation, probably for the next 6 months or so. But these next 6 months will give us more real clues to what may be around the corner.
If the market does begin showing signs of another crash, you will probably hear it hear first!