The Market Signals a Shift

“The bad news is nothing lasts forever. The good news is nothing lasts forever.”

― J. Cole

In our last article, we speculated that the market may have peaked.   More and more signals of a shifting market seem to reaffirm our suspicions. But, as we try to remind both buyers and sellers, the real estate is not the stock market. Housing moves slowly. Shifts in demand are quicker than shifts in housing supply. So while the scarcity in supply has been the controlling factor in the housing market for a number of years, demand is now the impedance behind this subtle shift.

Demand is dropping

What is driving this drop in demand?  Not surprisingly – reduced affordability. The combination of rising prices and rising interest rates are doing exactly what they are supposed to do, reduce demand.  At least in the case of the owner occupied buyer.  However, supply and demand are still strongly unbalanced in favor of sellers.  This makes the change imperceptible to most.  From the Buyers perspective, selection is sparse and prices steep.  On the Seller’s side, they have gone from receiving the once typical 20+ offers in the first 2 days, to now typically only 3-4 in the first week.  But sellers are still selling at above asking prices to exhausted buyers.

Tina Tamboer of the Cromford Report confirms what we are seeing:

The market continues to heavily favor sellers. Supply is still 76% below normal for this time of year and demand is 6% above normal. However, demand is declining in response to recent increases in interest rates. Just 30 days ago, demand was 12% above normal, and 30 days prior to that it was 21% above normal… However, in just a few short months, the average interest rate increased from 3.1% in December to 4.7% by April. This resulted in a $500 increase in the estimated payment on a 1,500-2,000 sq. ft. home, pushing the cost to buy significantly higher than the cost to rent in Greater Phoenix.

This does not mean the market is at its peak, or at the precipice of a price decline. The only response we are seeing at this time is a sharp increase in supply between $500K-$1M over the past 2 weeks, a price range that happens to have less interest from investors and 2nd home owners and a higher market share of owner-occupants.

Rental rates are dropping

Most people think that the rental market and the resale market are two very distinct markets with little connection.  Not exactly.  Any increase in net migration to the valley must be met with the near equivalent in housing –either in the form of ownership or rental.   When rentals become more plentiful than tenants, rental rates decline.  When rental rates decline below the cost of a house payment, first time home buyers rent rather than buy.  This further reduces demand for resale homes and interrupts the chain of buying (i.e. the first time homebuyer does not buy the entry home which allows that seller to buy their next home, and so on up the chain about 7homes deep).  Losing thefirst time home buyer to the rental market has a serious impact on the resale market.  Further, when rental rates decline, investors with a rent and hold business model leave the home purchasing market for better returns on their dollar– further weakening demand.  As the Cromford Report confirms:

“Over the past 4 weeks we have seen a 34% increase in the number of new rental listings added to ARMLS compared with the same 4 weeks in 2021. There has also been a 20% increase in the number of rental homes available in Phoenix on the Progress Residential web site over the past 4 weeks.

Renters of single-family detached homes are seeing far more choice than they did last year and we are starting to see homes advertised with “the first month’s rent is free”. Rental supply is particularly strong in Gilbert.

This appears to be a significant turnaround in the rental market and it does not seem to have been recognized by the media outlets, who are mostly still referring to rising rents. That is so 2021.”

Supply is slowly rising

When demand drops, it allows for supply to increase.   As of the writing of this article, the active properties for sale on MLS sits at a meager 5,487. To achieve a normal level of supply, we still need about 20,000 more properties for sale than are currently on the market.  As we mentioned, increases in supply take time.  How quickly that supply builds will determine the alacrity with which the market rebalances.

Pricing

Does this mean prices are posed to plunge? In the short term, no. Price is a trailing indicator in housing, not a leading indicator.    In order for prices to level out or drop, supply needs to exceed demand. Pricing can trail a shift in the market by as much as a year or more.  Therefore, we expect pricing to continue to rise this year.  As the Cromford Report points out: “While it’s reasonable to expect price appreciation to slow down at some point, there is little evidence at this stage to show prices declining in the near future.”

Selling your home

This market has allowed for all methods of selling to appear successful – as a strong market can cover up mistakes.  As this market shifts, it will be increasingly important that sellers hire the right agent to sell their home.  Whether seeking a no commission cash offer or professional marketing program to maximize your net – the right agent can give you all the choices that protect your selling power.  We certainly know that we can.

Have more questions or are curious about your home and when is the best time to sell?  Contact us we are always here to help.

Russell & Wendy Shaw

(mostly Wendy)

Keep, Rent, or Sell: How Seniors Can Decide What to Do With Their Phoenix Home When Downsizing

Deciding what to do with your Phoenix home once it’s time to downsize is tricky. You have three main options – keeping it, renting it out, and selling – and each one comes with pros and cons.

While it seems straightforward, downsizing usually comes with a slew of other decisions. For example, if you now require 24/7 medical care and can no longer live safely in your current house, you’ll need to figure out where to move to might feel overwhelming. While you can look online for detailed facility reports, pricing info, payment options, and reviews from other families for nursing homes in Phoenix, it’s a lot to handle.

Seizing opportunities to make any decision easier is essential. That way, you can choose a path quickly, allowing you to move forward. If you’re debating between keeping, renting, or selling your current home in Phoenix as you prepare to downsize, here are points to consider.

What to Do With Your Home: Keep vs. Rent vs. Sell

The Pros and Cons of Keeping the Home

Usually, the main benefit of keeping the home is the ability to pass it down to a family member. That’s especially true if the house is paid off (or nearly so) and in good repair. In that case, it can provide a family member with a substantial amount of value without many of the financial hassles that come with the ownership transfer. However, it’s still possible to inherit property with a mortgage, so keep that in mind.

When it comes to drawbacks, ongoing costs and maintenance are a big part of the equation. Even if the house is paid off, you’ll have to deal with property taxes and insurance. Plus, maintaining the structure and systems is essential to keep the house in good shape, which isn’t always cheap.

If you’re on a tight budget and can’t transfer ownership immediately, then merely keeping the house might not be a great option. But if that doesn’t apply and you want to pass it down, it’s worth considering.

The Pros and Cons of Renting the Home

Renting the home can be the right choice if you want to generate long-term income and are open to navigating ongoing expenses. While you’ll still owe property taxes and have to cover maintenance costs, you’ll typically get a set sum from your tenant each month the house is occupied.

As for the drawbacks, operating as a landlord can be a lot of work. Landlords have specific obligations, and they can be a lot to manage. While you can choose to hire a property manager instead, you’ll have to direct some of your rental income to cover that cost. Depending on what the property manager charges, that could significantly limit your earning potential.

There can also be some tax complexities you’ll need to navigate. Additionally, if the property is occupied when you pass, it can lead to difficulties for the heir.

The Pros and Cons of Selling the Home

Generally speaking, selling your home has a few drawbacks. The main one is that you can’t pass that property down to an heir.

Otherwise, most of what you’ll experience is benefits. The Phoenix housing market is hot, with prices rising 31.3 percent year-over-year (as of February 2022). Plus, the demand for housing is expected to remain high throughout 2022. While mortgage rates are rising, concern that they’ll keep going up could keep buyers in the market.

By selling, you also eliminate any ongoing responsibilities relating to the property. After the sale, maintenance, property taxes, and insurance for the home are no longer your responsibility. You can also use the proceeds as a nest egg, giving you extra cash to fund your golden years.

Ultimately, selling is the right choice for many seniors. If it’s the right move for you, contact Russell Shaw to learn more about what your home is worth and how you can get it on the market.

April Market 2022

Market signaling a shift

The early warning signs of a shifting market continue to appear. But, as we try to remind both buyers and sellers, the real estate is not the stock market. Housing moves slowly. Shifts in demand are quicker than shifts in housing supply. So while the scarcity in supply has been the controlling factor in the housing market for a number of years, demand is the impedance behind the shift. Not surprisingly this drop in demand is being driven by affordability. The combination of rising pricing and rising interest rates is doing exactly what it is supposed to do, reduce demand. With rentals becoming more plentiful and rental rates declining, and investors with a rent and hold business model will at some point also begin to leave the market – weakening demand further. Does this mean prices are posed to plunge? In the short term, no. Here are some supporting comments from Tina Tamboer of the Cromford Report.

The market continues to heavily favor sellers. Supply is still 76% below normal for this time of year and demand is 6% above normal. However, demand is declining in response to recent increases in interest rates. Just 30 days ago, demand was 12% above normal, and 30 days prior to that it was 21% above normal… However, in just a few short months, the average interest rate increased from 3.1% in December to 4.7% by April. This resulted in a $500 increase in the estimated payment on a 1,500-2,000 sq. ft. home, pushing the cost to buy significantly higher than the cost to rent in Greater Phoenix.

This does not mean the market is at its peak, or at the precipice of a price decline. The only response we are seeing at this time is a sharp increase in supply between $500K-$1M over the past 2 weeks, a price range that happens to have less interest from investors and 2nd home owners and a higher market share of owner-occupants…While it’s reasonable to expect price appreciation to slow down at some point, there is little evidence at this stage to show prices declining in the near future.

Call us for advice on your particular home sale or purchase.  We are here to inform.

Russell & Wendy Shaw