What’s happening to short sale Arizona listings as interest rates rise and the buying frenzy continues?
 
What is contract ratio?
 
One indicator of how “hot” our Arizona market is, is to look at contract ratio. How it does this is by taking the number of finalized sales contracts compared to the number of active listings. As an equation, it’s broken down like 100 x (Pending + UCB listings)/ Active Listings (excluding UCB.) So, if the number is going up, it’s positive for sellers, since contract activity is rising. On the other side, if it’s falling, it shows the market is softening. This could be due to contract activity slowing down, or supply of listings climbing, or both. In a “normal” market, we want to see a Contract Ratio of around 30-60. Above 60 could be seen as a “hot” market and when it goes above 100 it’s basically a feeding frenzy. Below 30 shows the opposite.
 
Now that you know the definition, let’s move on to what’s happening now in Arizona. Contract ratios are down quite a bit from last year. But given the above information, coupled with the fact that this is most definitely a Sellers Market, what gives?
 

High demand for short sale Arizona transactions

 
You might think that the market has cooled, but, that’s not the case at all. The change has actually been cause because of the amount of sales that are normal, versus distressed. Short Sales and REO’s have gone down very significantly since last year. Those transactions tend to stay in the UCB (Under Contract Backups) or Pending status for longer, while they’re waiting for bank approval. That in turn boots the number of houses under contract compared to the amount of houses that are actively for sale. If we took a look at some other charts, we would see that short sale Arizona transactions still have unusually high contract ratios.
 
But, last year short sales were 45% of pending listings; now they’re only 26%.
 
To put it in perspective, for normal listings the contract ratio is around 56. Short Sales have a contract ratio over 600. REO’s have a contract ratio of around 133 (Side note: could this be because homeowners and investors alike are targeting short sales now to get a good deal, since it’s so hard to get a normal listing?)
 
If you combine all these stats, it really skews the overall contract ratio, so you really need to break them down separately. Being that normal listings are dominating the market again, let’s take a look at those.
 
Then Versus Now
 
Contract ratio for normal listings has gone down to 56. As of April of 2013, it was at 71. But, this really is normal for this time of year, and it’s simply showing the “cooling” that happens as we move out of the Spring busy season to summer. But, last year (July 2012) is was at 53, and July 2011 was at 31. If it appears the number is about the same as last year, is the market cooling? The answer is no, but let’s look at some other factors.
 
Interest Rates
 
All the news of higher interest rates has an odd effect on home buyers. In lower price ranges, a small uptick will not change how much a homeowner can afford very significantly. However, it does create a sense of urgency.
 
Between June 5th, 2013 and July 5th, 2013, we saw the contract ratio drop by about 13%. Last year during the same snapshot we saw about a 13% drop. So, the drop is just seasonal. Buyers are still out there searching and buying.
 
So, the recent rise of interest rates doesn’t seem to be showing any real impact here.
 
Join the conversation. What do you think?
 
(Information was provided by Cromford Report)
 
Tracy (G+) is an Arizona Short Sale Realtor, Investor, Rehabber, and Foreclosure Expert.
 
She also is an avid blogger, vlogger, contributor to Real Estate Magazines, and hosts Real Estate Rescue, a radio show dedicated to the distressed property market.