June 28, 2022
I hope everyone had a great week! I know you’ve been anxiously awaiting this week’s market update so let’s get to it!
As we all know it’s very difficult to sift through everything we hear in the media surrounding real estate and how the market is really being impacted by the current state of our economy. As I’ve stated in previous weeks, we are not looking at a housing market crash! The one thing we need to see in the Metro Phoenix market for that to occur is a surplus of vacant homes. As of this week the Cromford Market Index is still 56% below normal for supply. Normal is a balanced market not a buyers market. Don’t worry and don’t believe everything you hear from the media!
We are starting to see household formation shrink a bit, meaning more people are moving in with each other to share the cost of rent. Rental rates have peaked and we have been watching them decline for a few months, but not by much. Median reduction of roughly $100 per month. It’s still a very good rental market in Metro Phoenix. We are starting to see more buyers pull back for affordability reasons. 44% of buyers with a household income of roughly $90,000 per year have been priced out of buying a home for the short term. For now it does appear that interest rates will not be coming down, at least not in the short term. I will remind you that after every recessionary period interest rates came right back down to where they were prior to the recession. That could be 1 year, 2 years, we will have to wait and see.
As of last week we were still seeing institutional investors and IBuyers buying homes in droves. If you remember my comment last week I did allude to that activity possibly changing, and quickly. Well here we are one week later and we are seeing institutional investors cancel their escrows and pull back. We are also seeing IBuyers like Open Door and OfferPad pull back. IBuyers are trying to renegotiate their agreed upon purchase price with the sellers mid escrow. Investors are low balling offers to sellers and being denied the win finally!
All of this pull back signifies our market is balancing out from the insane and frenzy markets we just came out of. Believe it or not this is great news and Realtors are celebrating! Everytime Wall Street and heavy investor activity are involved things get out of whack. Insane and frenzy markets hurt everyone, buyers and sellers alike. Hot sellers markets, like what most of Metro Phoenix has entered into, offer both buyers and sellers the ability to come to a meeting of the minds that both parties are happy with, benefit from and business can actually be performed fairly! Buyers watch their new properties increase in value while sellers benefit from property values increasing during their ownership to fund their next purchase.
I must point out something that is very important for sellers to see clearly. Even though they are selling right now instead of 3 months ago they are not losing money simply because they aren’t getting $25,000 more for their home than their neighbor did 3 months ago. Sellers are not “losing money”! Your return on investment just might not be increasing as quickly as it has been over the last 2 years. Remember, your property has increased in value between 35%-50% depending on location and property type in 2 short years. Those are massive gains any way you look at it. A sellers market sees property values increase above the rate of inflation per year! Not per month like we’ve seen for 2 years.
Let’s do the math…If you purchased the home 5 years ago for $200,000 with $50,000 down you have a mortgage of $150,000 that you’ve been paying down over the course of years. So let’s just say you still owe $150,000 but are able to sell that property for $450,000 today. You made your initial $50,000 back but leveraged that initial investment to yield you $250,000 more in just 5 years. Pretty good return on investment wouldn’t you say? You can run the simple math anyway it might apply to you. The point is sellers are not losing money right now. Just don’t sell the home if property values are actually declining, which we are not seeing quite yet.
As we discussed in previous weeks we are seeing our available supply increase and buyer activity slow, however, our demand is still normal and supply is still low. So are property values dropping? No. Not today they aren’t. Sellers are adjusting to what the market says, just like always. In an insane and frenzy market the market is saying sellers have all of the power and property values skyrocket. Just like the price of lumber did. A hot market is saying prices won’t be increasing exponentially month over month, but properties are still selling.
In the $400,000 to $1.5 million range we are still up 25% in under contract listings over last year but that number is incrementally coming down every week. 48% of all sales are still being sold above list price. Sellers are having to test out their list price based on the number of showings and agent feedback from potential buyers. If it’s not in line with the market and they have a savvy Realtor, that seller is reducing their list price right away. If they do that then days on market will work positively for them, otherwise they will add up and could potentially hurt the seller. Sellers are also more willing to give concessions to the buyers before they lower their price. This gives the buyers a little more wiggle room for their loan and the sellers still get their price. While the number of sellers that are offering buyer concessions are still low we may see this increase as the weeks progress,
We’ve seen our monthly appreciation for median sales price go flat for the first time since July of 2021. Yes, 2021. We are seeing some seasonality in the $1.5 million and above listings, meaning it’s common for these properties to be taken off of the market until closer to fall. That could be playing into sales price appreciation going flat in the short term. We have also seen our price per square foot have only a .01% increase so that is also basically flat.
In summary this is all very good news! I know it sounds scary. Every time a market gets out of balance something has to occur to bring that market back into balance. Interest rates may be very concerning to many right now. Remember this very important point. You meet, fall in love with and marry the home. You only date an interest rate for a little while until you find a better one. When interest rates come back down guess where prices go? Right back up. Be in the market when they do and ride the wave. Otherwise you’ll be right back where you started