Happy New Year! We hope that you had a wonderful holiday season.
2018 closed with a bit of a whimper in the valley as buyer demand, after years of unflinching strength, finally wavered. Demand began to drop in July – rather precipitously by October - before settling in to a gentle landing to end the year. Despite lessened demand and the dreary national headlines to the contrary, 2019 begins in the valley with sellers still retaining the upper hand. To summarize the market conditions, no one says it better than Michael Orr of the Cromford Report:
“The reality in Greater Phoenix is that we have shifted from a strong seller's market with high volumes to a moderate seller's market with slightly lower volumes. In due course this is likely to adjust appreciation rates from the 8%-10% level to more like 6%-8%. If the CMI** drops below 120 I would change our prediction to 4%-6% but at the moment there is little sign of a fall much below 130. At a CMI of 100 we would expect appreciation. Of course things could change at any point but it would need a new factor coming into play.
The housing market has seen 3 factors put a slight dent in demand:
1. Mortgage interest rates are at a much higher level than in 2017, though still far below long term averages.
2. The cost of home ownership has risen faster than rents.
3. The tax law changes since 2018 have removed many of the tax benefits of owner-occupied housing relative to renting.
We definitely do not have anything approaching a crash or a slump, which would require a large increase in supply. Supply remains weak because many existing homeowners are more reluctant to move. Doing so would require them to give up their existing cheap loan and take out a new more expensive one. They are tending to stay put, which is good news for the likes of Home Depot and home remodeling and redecorating companies.
Other parts of the country are reporting weaker markets at the upper levels, but in Greater Phoenix, the luxury market is looking strong. Supply of higher end homes is down from last year and demand is holding up rather well. Of course the luxury market in Arizona is priced like the mid-range market in many parts of California. Population flows are favoring Arizona too, so it looks as though Phoenix will have one of the leading housing markets over the coming year, even though it is likely to be somewhat less active than 2018.”
So what is the take-away for sellers and buyers in this market? Despite lessened demand, buyers are still exceeding the chronically low supply leaving most sellers in a gentle seller’s market. The weakened demand is however contributing to more price reductions and a greater likelihood of sellers paying buyer concessions during contract negotiations. For buyers, any plan of waiting for lower interest rates and lower prices will likely result in a very long wait. Even balanced markets typically appreciate at the level of inflation – and it is not likely to be in a balanced market in the first quarter of 2019, perhaps not even in the year. Therefore buyers will still be better served shopping in this gentle seller’s market than waiting for a buyer’s market to arrive.
Of course, neighborhoods and price points vary in their supply and demand. For details on your specific area, please contact us. We are always here to help! Thank you for all your support in 2018. Here’s to a wonderful 2019!
Russell & Wendy Shaw
**Cromford Market Index; definition: is a value that provides a short term forecast for the balance of the market. It is derived from the trends in pending, active and sold listings compared with historical data over the previous four years. Values below 100 indicate a buyer's market, while values above 100 indicate a seller's market. A value of 100 indicates a balanced market