March 14 - There are many possible reasons why someone might decide to list a luxury home for sale:
- downsizing to a smaller home after the kids have all moved out
- US currency strength (e.g. versus the Canadian dollar) making cashing out attractive for foreign owners
- illness making it hard to manage a large home
- death leaving a home to beneficiaries who have no need for it
- need for liquid funds due to financial problems elsewhere (this particularly applies to oil & gas executives at the moment)
Whatever the reasons, there are strong signs that the current owners of luxury homes are much more interested in selling than usual. This is creating an excessive number of active listings in many areas. Our favorite way to measure supply is to compare the number of active listings (excluding UCB and CCBS) with the annual sales rate, expressing the result as the number of days of inventory. As of March 12, the overall days of inventory in Maricopa County is 96, not a large number by any means, though slightly higher than the running average since January 2011 (85). However when we look at the number of days of inventory by price range we find the following (using the Tableau chart Days of Inventory):
Between $100,000 and $400,000 sellers are enjoying a lack of competition from other sellers, especially if their home is priced between $125,000 and $200,000. For these price ranges we can expect appreciation to remain strong relative to inflation.
Seller's problems start at $400,000 and stop at $3 million. Despite the huge number of 1116 days of supply over $3 million this is quite normal for this sector of the market and is actually lower than the last four years at this point in the season. It is always hard work selling any home over $3 million because there are so many for any one buyer to choose from. 2016 is no worse than normal.
It is the sectors ranked from 12 through 19 that are giving sellers more problems than normal and the biggest problems at the moment are for homes priced between $1.5 million and $2 million.
Those sectors ranked 15 through 19 are the ones most likely to depreciate over the coming 12 months.
Tomorrow we will add geographic location into the mix to see where the problems are most severe.