We are only 60+ days into 2024 and we are studying every market indicator looking for clues as to what this year is likely to bring. The problem is that trends require sufficient time and strong signals. We have neither to date.
The fact that this is an election year leads most people to assume that the election will be an outsized influence on housing, specifically mortgage rates and pricing. We love hearing the theories, but it is not true. To quote the Cromford Report “the main influence on the housing market comes from policies, not the elections themselves”. Now there is a market that responds to elections – the stock market. The last four elections saw the stock market respond positively afterwards. That in turn can affect a portion of the housing market. Both the luxury market as well as the 55+ market rely more heavily on cash purchases. Positive changes in portfolios can benefit demand. Could we see the election affect the stock market again this year? Likely.
But if housing fundamentals are not directly affected by elections then it leads us right back to the basics – supply and demand.
𝗗𝗲𝗺𝗮𝗻𝗱
It comes as no shock that demand was tepid at best in 2023 (we are in search of a better description – abysmal?) The good news is it appears demand hit bottom in 2023. The bad news? Demand is still fairly anemic. The Cromford Report expounds further:
“Although demand has improved a little since late 2023, it remains very subdued and is having difficulty catching up to last year, which was pretty poor in the first place. With typical 30-year fixed mortgage rates over 7% again, we are not seeing much enthusiasm among buyers, who were clearly hoping rates would fall below 6.5% at least. Last year the market caught a second wind in April but ran out of puff 2 months later. It is by no means clear what it will do in 2024, but so far it is merely ticking over, providing very little to get excited about.”
𝗦𝘂𝗽𝗽𝗹𝘆
While low demand was grabbing the headlines in 2023, most missed that the supply of homes for sale was actually lower and exerted a greater influence on the market than demand. Sellers hung on to their low interest rate homes and stepped to the sidelines at the same time demand was dropping due to soaring interest rates. The result was a very low volume of homes sold. The annual rate of homes sold (sales rate) has stopped falling – but the bad news is it hasn’t risen significantly. The Cromford Report shares this:
Listing under contract counts continue to be underwhelming, only reaching 8,182 after 7 weeks of the year. The same time last year we had 8,877 and 12,131 the year before…
We appear to be stuck at the very low rate of between 72,100 and 72,600 closed listings per year across all areas & types. Just 2 years ago we were at 110,000, so we are missing some 38,000 deals compared with then. Mortgage interest rates have been rising again for the last 3 weeks, so a volume breakout is looking unlikely in the short term. If we were sailors we would call this the doldrums.
𝗠𝗮𝗿𝗸𝗲𝘁 𝘀𝗲𝗴𝗺𝗲𝗻𝘁𝘀
Real estate markets can perform differently based on geography as well as price points. Currently, 10 of the 17 largest areas are favoring sellers. They are in descending strength: Chandler, Gilbert, Glendale, Fountain Hills, Phoenix, Mesa, Tempe, Avondale, Scottsdale, & Peoria. 3 Cities are balanced: Cave Creek, Paradise Valley, & Surprise 4 are buyer markets: Goodyear, Queen Creek, Buckeye and Maricopa.
Price point also seems to be dictating the experience for buyers and sellers. The healthiest price segment is the mid-range homes closer to the center of Phoenix. Mid-range homes in the more distant areas are getting too much supply to perform as in town properties. Luxury which performed strongly in 2023 is now experiencing surging supply. As the Cromford Report shares: “We still see weakness in the top end of the market. Demand remains relatively healthy but supply is much stronger than in 2023, especially for homes over $2 million. Cave Creek is doing better, but is recovering from very weak 4Q of 2023.”
𝗦𝘂𝗺𝗺𝗮𝗿𝘆
Having read this far, you may rightfully ask for clarity. What does this information bode for the 2024 market? Exactly – not much – a rather mixed bag with no significant changes yet. As the Cromford Report sagely states:
“Messages from the data are giving us mixed signals. The signals are weak too. Demand is improving but so is supply. Normally this would lead to greater volume but any growth in sales is so slow that it is almost imperceptible, when seasonality is taken into account.
Last year we saw 60.6% growth in listings under contract on February 11 compared with the start of the year. This year the growth is 59.9%, very slightly worse and starting at a lower base point.
Altogether there is not much to get excited about if you are longing for positive movement. On the other hand, there is also not much to get excited about if you are hoping for the market to crash. I have nothing to satisfy either of these positions. Arizona is famous for its boom and bust real estate cycles, but at this moment it is very much stuck in neutral.
2024 so far looks likely to be a version of 2023 but with stability in home appreciation and maybe even improved affordability as incomes rise. Interest rates remain the wildcard. As always we will continue to track 2024 trends and report it here first.
Russell & Wendy
Mostly Wendy