Are my property values going down?

I know you have been anxiously awaiting this week’s update on the real estate market!  I’m going to start off this week’s update by saying this.  There isn’t a single analyst that can predict the future, regardless of what their name is, how great their reputation is, how many websites they own under different names or how long they’ve been in business. All they can do is place their best guess. Most of the time those guesses are completely wrong. Sometimes they are correct. All we can do is look at history to hopefully repeat but we won’t know until we are there. That’s why we always discuss what is happening TODAY and what happened the last time we were in this position in my updates so you can make the wisest decision for your particular circumstance. Be careful who you are listening to and consult a professional Realtor that actually does business here in Arizona before making any important decisions regarding selling or buying property.

The stats are as follows. They aren’t too far off of last week but we are seeing just a little more of the same trajectory….

Interest rates are and will probably continue to go up, at least in the short term. Remember though, 6% interest rates are still incredibly low in comparison to other recessionary periods. While I’m not saying we are in a recession, this is what’s on everyone’s mind right now so, let’s use it as a measure. I will remind you that after every recession interest rates fell back down to where they were prior to the recession. Historical Fact! So is refinance once those rates do go back down.

If interest rates go up but the sales prices go down by roughly the same percent we are breaking even financially speaking so is it actually more expensive to buy now?. The financial return comes with owning the property, paying the mortgage and letting the market go where it’s going to go. It’s when you sell that matters. I’m not saying property values are dropping!  What we, as Realtors, are doing is listing and selling properties based on what a hot market calls for instead of what an insane or frenzy market would dictate.  Notice the difference in the words “calls for ” rather than “dictates” . Nobody wants to feel forced into anything, least of all sellers and buyers of property. This is why Realtors are so happy to be able to do what they love the most again! Educate you about the market, help set your expectations accurately about the true state of the market and protect you and your interests to the best of their ability. Anyone can sell a home far above the market and waive everything in a frenzy and insane market, even an unrepresented homeowner. A Realtor’s value comes to the surface when the market shifts!

Overall, new listings are up 11.8% over last year but the under contract listings are down 11.4% over last year and down 16.4% in one week! These are not alarming numbers simply because we still have higher buyer demand than the active supply. Active inventory for $400,000 to $1.5 million is up 188% and 126% in just 8 weeks year over year while under contract listings are up 27% over last year. The $400,000 to $1.5 million price range is where most of the buyers in Phoenix Metro will buy so I will focus more on that price range this week. Price reductions have increased by 435% in the last 8 weeks. Why is this happening? It’s not because property values are decreasing, it’s because many of those homes were already listed on a frenzy or insane market standard, hence pushing values too high, not a hot market standard which is what we’ve shifted into in a matter of a few very short weeks. Pricing will always need to come in line with what the market will accept. Wise and experienced Realtors are aware of this and are very proactive with their sellers in reducing the price quickly so they don’t waste valuable days on market for their sellers and are still able to sell at the top of the HOT market. The media will tell you that property values are dropping. Maybe they are in certain locations across the country. I’m not familiar with other markets. Arizona is a prime destination for relocation so we should be well insulated. The definition of a buyer’s market is when supply outweighs demand and we are still 60% short on supply so don’t worry. No buyer’s market in sight.  The median price reductions for this price range are between $10,000 and $50,000 (reflected in what the list price is) so this isn’t a massive or detrimental shift. At this time roughly 50% of properties are still selling over list price, depending on the specific home and the price point, so we do still have a very strong market.

We’ve spoken about institutional investors quite a bit. Typically if we are seeing a market downturn institutional investors pause their buying activity. As of today, this is not happening, oddly enough! Institutional investors are still buying properties. This is Wall Street and other large investment firms that are buying homes to hold and rent for the long term. Not the private landlord using a mortgage to buy a rental property or a flip investor using hard money loans. Could that change next week? Yes! We will have to wait and see. Every week we have updated data so let’s see what happens here. Open Door and OfferPad are still buying and selling homes also (the IBuyers) but at a far lesser rate and at a greater expense to the person selling their home to them. Yes, sellers actually do pay Open Door and OfferPad to buy their home and the cost is high! 6% Realtor fees are a drop in the bucket compared to 13% commission paid directly to the IBuyer for the blessing of selling your home to them (not to mention the $20,000 to 30,000 in so-called repairs that go straight to their bottom line).  Just an FYI, when IBuyers can’t sell homes in the open market they are prone to selling them to institutional investors. The rental market is still very good, but as we discussed last week, rental rate increases have gone flat signifying the top of the rental market has been hit. So why aren’t institutional investors worried? Keep you posted on that!

Foreclosures are entering into many discussions and the media will tell you they’ve increased by 300%. Yep. They sure did! But here is what is actually happening. Pre-foreclosure is different from foreclosure in the way that pre-foreclosure gives the owner of the property 90 days to bring the loan current. With property values being as high as they are, homeowners have quite a bit of equity to sell the home, pay off the lien and actually come out ahead in the worst case scenario. In May of 2019 we had 413 pre-foreclosure notices sent. 2019 was a very good year for real estate and overall for the economy. By May of 2022 we had 281 pre-foreclosure notices sent with a whopping 31 homes that made it into actual foreclosure for all of Maricopa and Pinal Counties, mostly in rural areas or areas where water resources are scarce. Here in Cave Creek we understand the water resource issue with Rio Verde right next door to us. The 300% being reported are the pre-foreclosure notices, not the actual foreclosures. Hopefully that settles a few ruffled feathers if foreclosures were becoming a concern.

What does all of this mean?  Whether you are looking to buy a home or sell your current home the days of insanity have come to an end, at least for now. This is great news! Everyone can catch their breath and plan for their future. This is where Realtors really shine! Our sole purpose is to educate, prepare and protect you. We have so many resources at our disposal and experience in these markets that shift all the time that we are happy to discuss how to get you where you need to go. If you have a trusted Realtor, use them! Talk to them and build a plan. If not, give me a call!  Let’s discuss the details.

I hope you’ve enjoyed this week’s market update. I will have more next week to keep you informed and up to date on what is happening right now in our Phoenix Metro real estate market.