Daily Commentary: The Cromford Report 2013

September 7 - One more trend developing now is a significant reduction in the percentage of homes being purchased by investors. During August 2013, 21.7% of purchases recorded with an Affidavit of Value were made by investors. This compares with 24.2% in July and 32.5% in August 2012. The last time we saw investors at this low a level was in November 2010. September 6 - Another significant trend that we see developing is a decrease in the share of homes being purchased by foreign buyers. For Maricopa County in August there were only 103 homes purchased by Canadians (1.3% of the total). This is the lowest absolute number since November 2007 and the lowest percentage since September 2007. The peak was 5 times higher at 519 in April 2011. This was close to the bottom of the market. Canadians seem to know how to spot a bargain. Out of state purchases were at just 16.9% in August 2013 which is the lowest percentage since January 2009. The peak for out of state buyers was 29.8% in May 2011. I guess all out of state buyers know how to spot a bargain opportunity. It appears that normal market forces are in effect in the out-of-state market. When prices increase, demand declines. This appears to be having more impact on out-of-state buyers than on Arizona residents. September 5 - We can sometimes get too focused on counting houses instead of counting dollars. This is particularly true when looking at how homes are funded. We are seeing a strong trend back towards normal in financed purchases, although we are not quite there yet. Here are the numbers for August 2013 and August 2012 based on Maricopa County Affidavits of Value (i.e. excluding HUD sales and trustee sales) August 2012 Units Sold Cash Sales Financed Sales Dollar Volume Cash Sale Dollar Volume Financed Sale Dollar Volume 8,257 3,048 5,209 $1,664 Million $501 Million $1,163 Million August 2013 7,968 2,130 5,838 $1,977 Million $433 Million $1,544 Million Change % -3.5% -30.1% +12.1% +18.8% -13.5% +32.8%

Those who only count units will see a 3.5% decline since last year and conclude that the market is weaker. However buyers spent almost 19% more on homes in August 2013 than they did a year ago. A market with revenue up 19% is hardly a weak market. We also see that despite higher interest rates, it is financed purchases that are growing while cash purchases are down over 30% by unit and 13.5% by dollar volume. This is a big swing back to finance which has accelerated over the last 3 months. It would appear that loans are becoming easier to get. It also appears that cash is now starting to go out of fashion. Here is the trend for cash sales as a percentage of all sales over the first 8 months of 2013: Jan = 35.0% Feb = 36.3% Mar = 33.4% Apr = 34.3% May = 32.3% Jun = 30.4% Jul = 29.3% Aug = 26.7% That's a fall of 24.6% in 8 months. If we look at the dollar volume of all cash sales it has fallen even further - a 28.7% decline from a 31.8% share to a 21.9% share. August 2013 had the lowest percentage of cash sales we have seen since December 2008. This is a big change in the market that no-one else seems to be commenting on yet.