After such a wonderful start to the valley’s real estate market in the first quarter of 2022, by contrast the 4th quarter has started in the doldrums. It is easy to place the blame – interest rates hitting 7% – therefore reducing both buying power and demand. For those of us who have been in the business for longer than we should confess, we well remember rates hitting 19% and further know that the historical average mortgage rate is 8%. To us, 7% is not alarming. However, that is not true for most.
Beyond the psychological impact, what have these higher rates actually wrought? For buyers – affordability concerns, more property selection, lower asking prices, increased contract-negotiating powers, and seller assistance to buy down the rates. For sellers – longer marketing times, lower asking/contract prices, and higher costs of selling.
While many buyers have moved to the sidelines because of affordability issues, so have sellers. Many sellers cannot replace the low interest rates on their current home when moving to another. Therefore, sellers have gone to the sidelines just as buyers have. In fact, the Cromford Report is showing new listings coming to market at the rate of just over 2000 per week (normal for this time of year would be 2400-2700) one of the lowest counts since 2001. For the moment, we have a fragile market balance.
What has happened is what we affectionately refer to as “market shrink”. The volume of transactions (sales) has shrunk. With fewer homes selling, the number of homes for sale will likely slowly climb. Additionally, more homes will fail to sell during their listing period. In April, 92% of the homes on the market sold. Currently, that number is now at 67% – meaning a third of the homes listed are not selling.
So is there any good news? Yes. The truth is this is what a delicately balanced market looks like. It is just market sentiment making it feel so bad. The shift in the market happened rapidly and the previous hyper-extended market frenzy made recognizing normal difficult. That makes it feel worse than it actually is. To quote Michael Orr of the Cromford Report “The Greater Phoenix market has experienced long periods where the listing success rate was below 50%, so although market sentiment is poor, the listing success rate is not a reason to feel bad.” For buyers, this is a chance to buy a home with little competition giving you better choices and pricing. For sellers, anyone who has owned their home since January of this year is likely still at a break-even on value. Even better, if you bought 2 years ago, the average price per square foot is 40.3% higher and the median sales price is $112,000 greater than 2 years ago. This is why we agents say, a good piece of real estate is always a smart long-term strategy.
Russell & Wendy Shaw