𝗠𝗮𝗿𝗸𝗲𝘁 𝗦𝗻𝗮𝗽𝘀𝗵𝗼𝘁

𝗦𝘂𝗽𝗽𝗹𝘆: Supply has been slowly dwindling all year as sellers have elected to stay put given their current low interest rate mortgages.  We have already dropped below last year in supply. As of today, the current supply of properties for sale is 11,609.  For perspective, a balanced market typically occurs with active listings at around 25,000.  As the Cromford Report shares:   New listings continue to be insufficient in replacing properties that have gone under contract, resulting in overall supply dropping an average of 151 listings per week within the last month.  All areas in the valley favor sellers with the exception of two - Buckeye and Maricopa which are currently balanced.  Further afield, Casa Grande remains in a buyer’s market.

𝗗𝗲𝗺𝗮𝗻𝗱: Just like supply, demand remains below normal although stronger than supply.  Hence the dropping number of homes for sale.  Investor purchases are back to normal levels finally allowing for FHA buyers to compete for homes.  Per the Cromford Report:  FHA increased the amount of money they’re willing to loan to $530K. They also lowered their Mortgage insurance premiums by $100s on monthly payments annually. These changes have resulted in the market share of closings in Greater Phoenix funded by FHA to go from just 9% in April 2022 to 22% in April 2023 on sales under $600K.

Even with the market favoring sellers – over 50% of the sales between 200K-500K involve the sellers contributing towards buyer’s closing costs and interest rate buydowns.  Additionally, in May many lenders began to offer new down payment assistance programs with just 1% down focused on first time home buyers (defined as anyone not owning a home in the last 3 years!) Both of these encourage buyers get in to homes regardless of the rates.  

𝗣𝗿𝗶𝗰𝗲𝘀: When demand outpaces supply (as it does currently) prices rise. While we are not yet back to 2022 pricing, the median sales price has recovered 5% since December and looks likely to meet 2022 pricing by the 4th quarter.

𝗔 𝘄𝗼𝗿𝗱 𝘁𝗼 𝘁𝗵𝗲 𝘄𝗶𝘀𝗲:

Demand can change far more rapidly than supply.  Especially demand that is artificially suppressed by interest rates.  If rates drop, we could see this market quickly tilt strongly in favor of sellers.  In any case, the marketplace is showing no signs of improving for buyers.  If you’re a buyer, it would seem wise to act now.

Russell & Wendy Shaw

(mostly Wendy)

𝗧𝗵𝗲 𝗩𝗮𝗹𝗹𝗲𝘆'𝘀 𝗥𝗲𝗮𝗹 𝗘𝘀𝘁𝗮𝘁𝗲 𝗛𝗼𝘂𝘀𝗶𝗻𝗴 𝗖𝘂𝗽𝗯𝗼𝗮𝗿𝗱 Getting Bare

 Most are now aware that the low supply of housing inventory is currently the driving force in the valley’s real estate marketplace.  According to the Cromford Index, supply is down a whopping 42% from the peak of October 2022. Where have all the sellers gone?  Answer: they are staying home and hanging on to their low interest rates.  When will that all change?  Either when market conditions (interest rates, economy, shifts in pricing) prompt change or with life changes (divorce, marriage, illness, job loss/change, relocation).  Moves can only be put off for so long – whether buyer or seller.

To that point, we saw a sudden drop in demand as interest rates spiked in 2022. Yet even with rates currently only moderately lower than their peak – demand has picked up.  Buyers needed time to adapt to the change in rates.  Eventually, time wins over inertia and the need to move forces action.  This rise in demand is continuing to put pressure on prices to rise, albeit more gently than in years past.  

While demand tends to be volatile – supply is generally not.  Large jumps in supply typically only come from market manipulation or catastrophe.  Nearly everyone shivers at the mention of the 2008 market – a shining example of catastrophe if ever there was one.  The valley currently has the lowest number of delinquency rates and foreclosures in history.  No catastrophe lurking around the corner for now.

The point is this – supply is scarce at the moment and getting scarcer.  The supply needed is not on the immediate horizon.  That means prices are rising as they must when demand outpaces supply.  But as usual, this is more nuanced as explained by Michael Orr of the Cromford Report:

Those who predict more drops in sales prices will have to explain where a vast new supply is going to come from. Prices only drop when there is a glut of homes coming to market and not enough buyers. In the current circumstances, this is looking very unlikely.

Prices remain far higher than they were before 2022, and have rising [sic] from below $267 in early January to above $281 in mid-May. The rate of increase over the past 4 months could be described as modest, but that would be a little unfair. A 6.6% rise between week 2 and week 20 is equivalent to an annual appreciation rate of 18%.

Do we expect this more-than-modest rate to continue? No. From May through September the weather in Central Arizona gets a little toasty but the housing market usually gets cooler, at least where average $/SF is concerned… the average $/SF tends to go flat or even decline during this period in most years. The main exception was 2020, which was due to the sharp rebound after the initial COVID panic during the spring.

In most years with a healthy CMI, like 2023, we expect the majority of the upward price movements to occur between January and May and between October and December. Our tentative expectation is that prices will remain roughly flat (or dip slightly) from now until October and then rise again during the fourth quarter, as long as nothing dramatic occurs to change our assumptions.

This projection means that we expect to overtake the 2022 price line during September or October and finish the year well ahead of December 2022. It is unlikely that in 2023 we will exceed the peak of May/June 2022, which was fueled by over-excitement among the institutional buyers and iBuyers…

All this assumes conditions remain largely similar to today. The further out we look, the less we can rely on this assumption. Anything more than 2 months into the future should be taken as conjecture rather than a forecast.

𝗠𝗮𝗿𝗸𝗲𝘁 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀:

- Delinquencies are at all time lows.  Therefore foreclosures are at all time lows

- Prices are not going down

- Builders are not building in sufficient quantity to fix supply shortage

If you are a buyer – it is time to buy.  Ignore the doom and gloom of the media and pundits – we have a supply problem that cannot be solved this year.  If you are a seller, remember that eventually supply will show up.  Take advantage of an empty cupboard.

Russell & Wendy Shaw

(mostly Wendy)

𝗜𝘀 𝗢𝘂𝗿 𝗥𝗲𝗮𝗹 𝗘𝘀𝘁𝗮𝘁𝗲 𝗠𝗮𝗿𝗸𝗲𝘁 𝗕𝗲𝗰𝗼𝗺𝗶𝗻𝗴 "𝗢𝗹𝗱 𝗠𝗼𝘁𝗵𝗲𝗿 𝗛𝘂𝗯𝗯𝗮𝗿𝗱"?

The cupboard full of active listings for sale is starting to dwindle and trending towards bare.  According to the Cromford Index, supply is down a whopping 42% from the peak of October 2022.  Where have all the sellers gone?  Answer: they are staying home and hanging on to their low interest rates.  When will that all change?  Either when market conditions (interest rates, economy, shifts in pricing) prompt change or with time.  Moves can only be put off for so long – whether buyer or seller.

To that point, we saw a drop in demand as interest rates spiked in 2022. Yet even with rates currently only moderately lower than their peak – demand has picked up.  Buyers needed time to adapt to the change in rates.  Eventually, time wins over inertia and the need to move forces action.  This rise in demand is continuing to put pressure on prices to rise, albeit more gently than in years past.  

While demand tends to be volatile – supply is generally not.  Large jumps in supply typically only come from market manipulation or catastrophe.  Nearly everyone shivers at the mention of the 2008 market – a shining example of catastrophe if ever there was one.  The valley currently has the lowest number of delinquency rates and foreclosures in history.  No catastrophe lurking around the corner for now.

The point is this – supply is scarce at the moment and getting scarcer.  The supply needed is not on the immediate horizon.  That means prices are rising.  If you are a buyer – it is time to buy.  Ignore the doom and gloom of the media and pundits – we have a supply problem that cannot be solved this year.  If you are a seller, remember that eventually supply will show up.  Take advantage of an empty cupboard.

Russell & Wendy Shaw

(mostly Wendy)

𝗦𝗸𝗲𝗽𝘁𝗶𝗰𝗶𝘀𝗺 𝗟𝗶𝗻𝗴𝗲𝗿𝘀 𝗗𝗲𝘀𝗽𝗶𝘁𝗲 𝗮 𝗦𝘁𝗿𝗲𝗻𝗴𝘁𝗵𝗲𝗻𝗶𝗻𝗴 𝗛𝗼𝘂𝘀𝗶𝗻𝗴 𝗠𝗮𝗿𝗸𝗲𝘁

“I'm skeptical that the world is round

What keeps it up and what keeps me down?”

~Kim Carnes, from the song “Skeptical Shuffle”~

The average person could be forgiven for being skeptical of this real estate market.  After all, it was just over a year ago that sellers were dancing on the tables in euphoria as they achieved record pricing for their homes. By May the music had stopped and June ended the party for the rest of the year.  2022 closed in the doldrums.

But this is 2023.   Valley homebuyers might be in for a surprise as they enter the market. Two more cities, Surprise and Goodyear, have entered seller's markets this month, bringing the total to 14 out of the 17 biggest cities now in favor of sellers. Only 3 cities remain in a buyer’s market:  Queen Creek, Maricopa, and Buckeye.  Queen creek will soon be a balanced market, and conditions in Maricopa and Buckeye continue to improve and they may well join in.

This shift in the market is not unexpected, as leading indicators have been pointing in this direction since January.  Despite bank failures, fed funds rate hikes, and the most volatile mortgage rates we have seen in a long time – sale prices have rising for 4 straight months.  The average sales price per square foot has recovered by 5.7% since December according to the Cromford Report.  All while demand hovers around 18% below normal.

How can this be?  It is the same answer we have been giving for months: supply.  Supply is a shocking 40% below normal and shows no signs of increasing.  New listings being added to MLS are not even close to replacing the homes going under contract.  Since April 1st the deficit has been running on average 54 listings a day (meaning 54 more a day are removed vs. new additions) Gulp.

Where can the new supply of homes come from?  Builders, the main source of new supply, are not the answer as single family permits have dropped by 74% between March and December of 2022.  Foreclosures are at record lows.  There is some faint hope that short term rental properties may come to market as restrictive regulations begin to be implemented. Or increasing pricing may induce sellers to sell to “not miss out this round of price increases”.  It is very uncertain that any significant supply is the offing.  Until it shows up, prices will continue to push up.  Buyers who are on the fence should act quickly.  As agents like to say “date the rate, marry the house”.  

Russell & Wendy Shaw

(Mostly Wendy)

The media continues to push the narrative that interest rates are killing the spring home buying season and that danger lurks everywhere. News of failed banks SVB and Credit Suisse creates fear that the banking crisis of 2007 is repeating.  YouTube “experts” claim that foreclosures are on the rise.  Yet the facts do not support any of these theories in the greater Phoenix area.  What is good for headlines (alarming or controversial news) is not good for reality.  What is true is that uncertain times create jitters in the financial sector which can have an impact on housing.  Let’s look at what we do know.

𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗿𝗮𝘁𝗲𝘀

As they say, bad news is good for mortgage rates.  That has proven to be true – mortgage rates have dropped.  In fact, the rates have been unusually unstable. The Cromford Report makes this very point on mortgage rates: “They have been extraordinarily volatile recently with the 30 year FHA rate dropping from 6.20% to 5.75% in just a single day. The VA rate has declined 50 basis points in 2 days, but the 5/1 ARM has risen from 6.14% to 6.55% during the last 3 days. I can't remember a time when interest rates jumped up and down so fast and frequently. However, FHA and VA loans look particularly attractive right now which will favor the low to mid-range market below $900,000”.

As a note, when you hear on the news “the feds are raising rates” it is referring to the short term interest rates between banks which has little to do with mortgage rates.  Mortgage interest rates are inversely tied to Treasury bond rates.

𝗗𝗲𝗺𝗮𝗻𝗱

With interest rates down, that should spur demand, right? After all, if headlines say interest rates are killing the market then shouldn’t lower rates should be jet fuel for the market?  Unfortunately, it is not that simple. Multiple factors control demand such as:  interest rates, appreciation/depreciation, inbound relocation, population growth, lending practices and consumer sentiment.     Right now consumer sentiment is likely playing an outsized, even if temporary, role.

The Cromford Report shares these numbers on listings under contract in mid-March:  “At 9,001, contracts are at their 4th lowest count since 2005, the lowest counts were in 2006-2008 and normal range is 11,000-13,000. “  

While that sounds alarming, the fact is that demand has been below normal for quite some time.  Phoenix demand has been below normal since February 2021.  If that is true, then why were prices still dramatically rising until the beginning of first quarter 2022?  The answer is low supply.

Supply While interest rates may be keeping some buyers out of the market – the impact of higher rates seems to be the greatest on would-be sellers.  When sellers cannot comparably replace their current interest rates if they buy – they stay put.  So although listings are far more abundant than last year, they are still roughly 40% below the normal range of 20,000-24,000.  Here are some interesting facts reported by Tina Tamboer of the Cromford Report:

New listings added to the Arizona Regional MLS are the lowest ever recorded going back at least 23 years. This may be shocking to some as there has been a 200% increase in supply year-over-year, but last year at this time supply was merely 4,820 active listings.

We repeat, the lowest supply of new listings ever recorded in the last 23 years.  Gulp.  That is the buried headline.  When you combine low demand with even lower supply what do you get? The report states:

“Low-level demand combined with even lower-level supply equals a seller’s market for Greater Phoenix. Not a crazy one like the last 2 years, but since coming out of a buyer’s market last December sale price measures have stopped dropping and have risen a modest 3.5% so far.”

To summarize – we are in a gentle sellers’ market.  Demand is below normal (as indicated by the contract rate) but supply is even more constrained.  At the moment, only 3 exceptions in the valley which fall into a buyer’s market: Queen Creek, Maricopa, Buckeye. Predictably, the outer areas of the valley tend to be the first to tip to a buyer’s market and the last to recover.

Supply is a slow moving number and nothing on the immediate horizon seems likely to increase it. Further, new builds of single family homes which add to the supply, are not being created in sufficient numbers to improve things.   For good or bad, demand is far more mercurial. Recent changes in FHA loans (loan limits increased to $530,150 while also lowering buyer expenses) and sellers’ current willingness to help buy down buyer’s interest rates may encourage first time homebuyers to buy.  If demand takes off as it is threatening to do, we may once again find ourselves in the midst of a strengthening seller’s market in defiance of the headlines.  Time will tell.  As always, we are here to answer your questions about your specific neighborhood.

Russell & Wendy

(Mostly Wendy)

𝗧𝗵𝗲 𝗛𝗲𝗮𝗱𝗹𝗶𝗻𝗲𝘀 𝘃𝘀. 𝗥𝗲𝗮𝗹𝗶𝘁𝘆

The media continues to push the narrative that interest rates are killing the spring home buying season. Yet the facts do not support this theory in the greater Phoenix area.  While interest rates may be keeping some buyers out of the market – the impact seems to be the greatest on sellers.  When sellers cannot comparably replace their current interest rates if they buy – they stay put.  So although listings are far more abundant than last year, they are still roughly 40% below the normal range of 20,000-24,000.  Here are some interesting facts reported by Tina Tamboer of the Cromford Report:

New listings added to the Arizona Regional MLS are the lowest ever recorded going back at least 23 years. This may be shocking to some as there has been a 200% increase in supply year-over-year, but last year at this time supply was merely 4,820 active listings.

At 9,001, contracts are at their 4th lowest count since 2005, the lowest counts were in 2006-2008 and normal range is 11,000-13,000.

Low-level demand combined with even lower-level supply equals a seller’s market for Greater Phoenix. Not a crazy one like the last 2 years, but since coming out of a buyer’s market last December sale price measures have stopped dropping and have risen a modest 3.5% so far.

To summarize – we are in a gentle sellers’ market.  Demand is below normal (as indicated by the contract rate) but supply is even more constrained.  At the moment, only 5 cities are in a buyer’s market: Queen Creek, Maricopa, Buckeye, Casa Grande, and Sun City West. This is to be expected as the outer areas of the valley tend to be the first to tip to a buyer’s market and the last to recover. Supply is a slow moving number and does not appear to be on the rise.  Recent changes in FHA loans (increased loan limits of  $530,150 combined with reduced expenses) and sellers’ current willingness to help buy down buyer’s interest rates may encourage first time homebuyers to buy.  If demand takes off as it is threatening to do, we may once again find ourselves in the midst of a strengthening seller’s market in defiance of the headlines.

Russell & Wendy

(Mostly Wendy)

Seller's Market - but for how long?

The current market has shifted to the seller’s favor once again.  But this is not your mama’s market (i.e. the 2022 unbeatable spring market). Last spring we were in an overheated seller’s market – fueled by demand, low supply and low interest rates – it looked unstoppable.  Yet with interest rates more than doubling, by fourth quarter both supply and demand were in a deep freeze. We ended 2022 in a buyer’s market.  

Fast forward to February 2023 – and the market is now a gentle seller’s market.  What?!  In what was literally the shortest buyer market ever, we have shifted once again.  Supply has remained stubbornly low.  Interest rates have drifted down a bit – and buyers have had time to acclimate to interest rate sticker shock.  Hence, demand has risen.  

To summarize the recent rise of listings under contract compared to last year, no one is better than Michael Orr of the Cromford Report: “We remain 27% below the count on February 13, 2022, so we are really back to normal rather than the wild and crazy market we had 12 months ago.”

It’s not a time for buyers or sellers to take market conditions for granted. If the last year proved anything it is that markets can change quickly.  For an analysis in your particular area, contact us.  This is a market to watch closely.

Russell & Wendy Shaw

(Mostly Wendy)

Why a Balanced Market feels so Unbalanced

 Most buyers and sellers would be surprised to hear that the greater Phoenix real estate market is “a balanced market” at the moment.  But it’s true.  Why doesn’t it feel that way?  We think it feels unbalanced primarily for 3 reasons:

1.   Appreciation has been strong since 2015 making the 2022 price correction feel awful to sellers by comparison.

2.   The number of transactions (market shrink) are much lower than normal as   buyers and sellers headed to the sidelines.  Sellers feared equity loss, buyer’s feared increasing rates.

3.   Human emotion – it’s not what’s true but what feels true. Skepticism is the   current market emotion.

Message to sellers:  Now is a good time to sell if you have owned your home for 2 years or more.  The Cromford report gives these appreciation numbers for those sellers : “ The long-term appreciation rates for homes in Greater Phoenix are as follows using January sales to date:  25% for 2yrs., 50% for 3yrs., 63% for 4yrs., 70% for 5yrs., and 86%+ for 6yrs or more.”  Balanced markets mean little to no downward pressure on pricing.  If interest rates rise, we could see a shift back to the buyer’s market that puts pressure on pricing again.

Message to buyers:  The buyer’s market lasted for 4 weeks – November/December of 2022.  Interest rates have now settled back to below historic numbers.  In a balanced market, competition amongst buyers is minimal (i.e. no bidding wars).  Prices declined around 15% in 2022 – providing buyers a better value.  Don’t be caught waiting for further price drops when the market numbers don’t support that happening. As we mentioned above, balanced markets mean little to no downward pressure on pricing.   Also, interest rates are still subject to change.  They go up fast, and down slowly. Take advantage of the relative (and perhaps temporary) interest rate stability.

None of us can predict the future.  But at the moment – this market is a green light for both sides.

Russell & Wendy Shaw

 (Mostly Wendy)

Silent Night

The real estate market is eerily quiet as 2022 comes to a close.  After years of record setting numbers, which culminated in the 1^st quarter of 2022, the shift came swiftly and sharply in the 2^nd quarter.  Demand dropped precipitously after interest rates spiked – reaching its lowest level since April of 2008.  Smart sellers responded quickly to the plummeting demand by lowering prices and increasing seller concessions to pay for the buyer’s interest rate buy-downs.  While the news publicized the large decrease in demand, the equally weakening supply garnered far less attention.  Now supply and demand are locked in a seeming battle of the weakest.  All of this has resulted in sales dropping a “massive 45% from a year ago” to quote Michael Orr.  He continues, “After so many years with strong demand this feels very unusual and a little unnerving. This lack of demand is far worse for re-sale homes than it is for brand new homes, which are experiencing relatively brisk closings and little downward pressure in gross contract prices.”

What will the 2023 market look like?  As both buyers and sellers avoid uncertain markets where possible – neither can stay sidelined forever.  Demand is more elastic than supply and heavily relies on affordability (i.e. interest rates, pricing, income).  A meaningful drop in interest rates could stimulate demand.  Sufficient demand will likely bring sellers out of hiding.   In short, the spring buying season will tell the tale.  When it does, we will be the first to report it to you.

 In the meantime, we wish to thank all of our loyal and cherished friends and clients for your support.  We wish you all a very happy holiday season and New Year.

 Russell & Wendy Shaw

(Mostly Wendy)

By now most are aware that the greater Phoenix market began the year as a seller’s market, then balanced market, and now has slipped to a buyer’s market.  As we often repeat,  real estate markets are local (meaning national statistics are not reflective of what is happening locally) and truth be told, real estate markets are actually hyper-local.  That means different areas and price points may not act in unison even in the same locality.  The Cromford Report shares:

“Buckeye, Maricopa and Queen Creek entered a buyers’ market in July. Surprise, Chandler, Gilbert and Tempe followed in August. Goodyear, Peoria and Avondale joined in September with Mesa and Goodyear falling in line by October. Phoenix is expected to succumb this month within a matter of days. The only holdouts remain in the Northeast Valley cities of Paradise Valley, Fountain Hills, Cave Creek and Scottsdale”.  Why is the Northeast holding on at the moment?  Because they are the luxury areas of the valley – and luxury is not greatly impacted by rising interest rates.

The Report further explains:  “The 2022 peak of price was achieved in May, which was the result of contracts accepted in late March and April. Starting in June, sales prices revealed their decline in response to mortgage rate increases. At the end of October, the decline in average sales price per square foot since May was recorded at -9.1%...The largest declines happened between June and July at -4.5% and between August and September at –3.6%.”

Where does that leave us?  We have a shrunken marketplace with less sellers and less buyers choosing to enter the marketplace.  Sellers cannot replace the low interest rates on their homes if they change houses, and buyers are sidelined either because they cannot afford the interest rate hikes or hope to buy at bottom of the market.  This shrinkage has resulted in a softer landing for the housing market.

Wise words for sellers:  if you are selling and you have owned your home for at least 2 years you have made money.  Cromford reports “Appreciation rates based on sales price per square foot through the MLS are:  2 years: +33.6%, 3 years: +59.9%, 4 years: +68.1%, 5 years: +84.8%.” Wise words for buyers: timing a market is hard.  We typically cannot tell when bottom has been reached until 3- 4 months after the fact. When rates drop, we expect the market to respond quickly. Sidelined markets never remain so forever.

Russell and Wendy Shaw

(Mostly Wendy)