We hope you all had a wonderful holiday season.
As our year begins it is appropriate to take a quick look at where we have been and where we may be headed for 2022. 2021 saw one of the strongest seller real estate markets ever. What began as an accelerating sellers’ market in the 3rd quarter of 2020, went hyperbolic in the first half of 2021. Multiple offers and contracts 10-20% over list price led to price appreciation in the 28-30% range for the year. If you owned a home in the valley during 2021, you should celebrate your staggering new home value.
Supply
The cause of this extended seller’s market has been the ridiculously low supply. We ended the year with supply 67% below normal and dropping as of this writing. Hard to believe that 67% below normal is an improvement from where we were in March/April when we had only about 4100 properties for sale in the entire MLS. To make matters worse 10% of those properties weren’t in the valley but listings from outer areas (Prescott, Sedona, etc.) leaving the true number somewhere around 3600. Builders, the source of new housing – struggled with supply chain issues, spiraling commodity costs, in addition to inadequate staff to build those new homes. Hence, new housing has trickled on to the market rather than arriving in the torrent needed.
Demand
Demand has remained strong and stable (and is currently 23% above normal). However, a good portion of this demand is from institutional buyers rather than owner occupants. This gives us some measure of concern for the future when the institutional buyers eventually leave the market. Large hedge funds (landlord model) and the iBuyers (cash buyers that quickly resell) have been a significant factor in our marketplace. Stable markets produce owner occupant demand – which wane under rising prices. We have seen some softening due to price rises from this sector, a good sign. But demand has not dropped from the institutional buyers. Even with Zillow’s high profile exit from the iBuying arena, we believe iBuying will be a part of our marketplace for a long time. However, we do expect institutional landlords to cease buying at some point when they have enough in their portfolio. With rental rates in Phoenix rising the fastest in the country (up 14 % in 2021 vs the US average of 6%) you don’t have to ask why they are buying here.
Until demand drops and supply jumps, there is no chance on pricing doing anything but going up. That brings us to the future and how it may compare with 2021.
The future
Our real estate market has been in a seller’s market for so long (since 2015) that an unbalanced market has become our new normal.
To put that in perspective, here are some fascinating numbers from Tina Tamboer of the Cromford Report: “Over the past 21 years, Greater Phoenix has been in a buyer market for a combined total of 43 months (3.6 years), a balanced market for 55 months (4.6 years) and a seller market for 155 months (12.9 years). This is important to discuss because the longer seller markets last, the more human beings change their definition of what “normal” looks and feels like. “Normal” for Greater Phoenix is not a balanced market, it’s a seller market.
So when national analysts suggest the housing market will cool off in 2022, many (if not most) local housing analysts believe it will remain a seller market, but a weaker one. Prices don’t decline in seller markets, but listings may stay active for a few more days before accepting a contract. A full price offer may be enough to win a home. Buyers may have less pressure to waive appraisal and repairs.
However, after the last 18 months of extreme seller market conditions, anything less than sheer lunacy could feel like the sky is falling.”
We fully concur with Tina’s evaluation. We do not expect pricing to drop in 2022, but to continue to rise. Great news if you are seller, and a cause for further depression if you are a buyer. However, we do not see pricing making the same level of gains as in 2021. To further quote Tina:
“Even if demand were to decline tomorrow, sale price measures are the last to change in a shifting market. The first thing to go up would be the cost of the sale for the seller. For example, days on market will increase, list price reductions will increase and then eventually seller concessions will increase before anything is reflected in the final sales price. The pattern goes like this; homes are on the market longer than expected as sellers push the boundaries on price. If the market resists in the form of zero offers, a price reduction is recorded in response. If demand dwindles to where only one offer is received instead of multiple offers, more pressure is placed on sellers to offer home warranties, do repairs, or consent to closing cost assistance in order to secure closing at their desired price. None of these indicators appear to be shifting at the moment, but that could change. The key for sellers in 2022 is to stay on top of current market trends, listen to your REALTOR®, and be the first to shift expectations if buyer demand drops.”
We close with a thank you to you, our friends and clients. We look forward to helping you with your real estate needs in 2022.
Russell & Wendy
(mostly Wendy)