Saturday, May 14, 2022 / by Bryan Baylon
It is time to look at another of the dominoes that have fallen over - the contract ratio. The contract ratio compares the number of listings under contract with the number of active listings without a contract. It is a classic case of comparing demand with supply. This ratio has plummeted over the past 4 weeks because demand has weakened while supply has increased sharply.
This tells us that the previously crazy hot market has turned into just a hot market. But it also tells us that if the cooling trend continues at a similar rate, we could be in a warm market within a month and a normal market in just 2 months. The former is very likely, the second is more speculative and anyone who tells you they know what the market will be doing in 3 months is kidding themselves.
Here is the contract ratio chart for single-family homes in Phoenix:
The fall from 250 four weeks ago to 145 this week is even more dramatic than the sudden drop we saw at the start of the COVID-19 pandemic. The drop in 2020 was quickly recovered and within two months we were back higher than we started. The current decline appears to have more staying power and momentum - and we can see that a drop back to 2018 levels is likely by the end of May.
2014 was the last time we had a market that was fairly "normal" so use that line for reference.
Market incites provided by the Cromford report.