Market Update July 2024

Market Erosion

The trickling erosion of the market continues although the rate of erosion appears to now be slowing.  While supply is up, in fact up a whopping 57% from this time last year, it is still below normal.  Demand is more problematic and continues to be anemic at best.  It seems likely to stay that way unless a drop in interest rates changes buyers’ appetites.  So although we are overall in a balanced market –  for most sellers it doesn’t feel that way.  In fact, areas and price points are behaving differently.  In the center of the valley, supply is more constrained as builders have no land to create new product and thereby more competition.  It is the outer areas where builders are active that sellers are at a marked disadvantage.  Price, a trailing indicator, is being affected currently in part due to the luxury market going flat in summer and in part by seller needed price reductions.    As the Cromford Report shares “seasonal patterns are being emphasized by the weakness in demand”.  So the real two-word problem is – anemic demand.

 The Report further summarizes:

We are firmly into the quiet season and closed sales for June 2024 were already down 15% compared to June 2023. We anticipate low volumes to continue during July and we have 2 to 3 months of seasonal price weakness to endure before the market is likely to pick up steam again in October. This could be jump-started early by a drop in interest rates, but we are not holding our breath.  There is no need for panic, but patience is definitely being tested.

Buyers should take advantage of the lull as they have a chance to negotiate in their favor with more choices to consider.  Sellers need to brace for less showings and offers and try to hang on to the buyers they attract.  Patience seems to be the byword.

Wonder what your specific neighborhood is doing as far as supply/demand and pricing?  Contact us we are always here to give you facts, not headlines.

Russell & Wendy Shaw

(Mostly Wendy)

Temperatures Heat Up, While the Market Cools

Most people falsely believe that election years somehow benefit the real estate market.  Elections can affect the stock market (which can affect the luxury market) but the basic underpinning of real estate remains supply and demand.   Real estate agents had hoped 2024 would see an improvement over 2023, but instead a very slow motion chill has been taking place all year creating an even more anemic market than the last.  Slow moving change can prove challenging to interpret given that it is harder to perceive minute, but persistent, changes than seismic shifts.  Not surprisingly interest rates appear to be the major culprit.  Buyers are unenthused by current rates.  The only reason we are not in a decidedly buyer’s market is that sellers have been equally unenthused to sell and give up their mortgages that linger in the 3% range.  With both sellers and buyers in retreat, the result is a low volume (low number of transactions) market. 

Supply

Even though supply has climbed slowly due to decreased demand – that steady creep has resulted in a 54% increase in the number of homes for sale compared to last year.  Additionally, the new build market is faring better than the resale market, which creates further competition for the resale market.  Sellers (along with their agents) are just starting to get the message.  Sellers have begun to recognize that buyers need help with closing costs and buying down rates – as the monthly payment impacts buyers more than sales price does. In the midrange price points, sellers are giving concessions to buyers in more than half the cases.   In the million+ category, rates are not typically a factor and pricing is therefore the target.  The average seller in that category is giving up $51,000 in price, up from last year when the average was $36,000.    The Cromford Report confirms:

“Supply continues to climb, which is unusual for the time of year and we notice that the rate of climb has increased since last month. Buyers have 54% more homes to choose from than they had last year but still face 30-year mortgage rates over 7% which is limiting demand. Sellers are starting to face serious competition from each other and their agents are having to work hard to get their homes sold.”

Sales

Climbing supply and subdued demand results in a cool market.  If we compare the active listings to the number under contract (the contract ratio), we statistically confirm the clear cooling trend.  Again we turn to the Cromford Report for these statistics:

“Most of the slightly positive signs we saw last month have disappeared. We have far fewer pending listings than last month and under contract listings are down 7.8% from this time last year…. For all areas & types, the contract ratio has dropped 15% from 54.5 to 46.1 over the last month. This compares poorly with 77.0 on June 1 last year. The current 46.1 reading represents a balanced market with buyers finding plenty of supply to choose from and sellers experiencing more competition from each other than they have for most of the last decade.

The number of listings under contract (8,238) at week 23 is the lowest we have recorded for that time of the year since 2007. At no point so far in 2024 has the count managed to claw its way above the miserable totals for 2023.

Now 2007 was an awful year with the market stalled by the certain knowledge that house prices were about to collapse. We are not in that situation in 2024, but buyer enthusiasm for re-sale homes is still very low indeed. To put 8,238 into perspective, the total for week 23 of 2011 was well over 21,000.”

Price

Shifts in supply and demand eventually impact pricing.  But as we have mentioned before, price is a trailing indicator.  The valley’s median price tends to flatten in the summer due to the luxury segment of the market going quiet as those with a choice seek cooler climates.  To avoid seasonal impact, we simply look back a year where we see that pricing has been fairly stable with only gentle appreciation.  The Cromford Report adds specific clarity:

“Pricing was unexpectedly strong in April, but May has seen this trend reverse and the average price per sq. ft. is now up only 3.5% for the last year. The median sale price was unchanged, as it is far less affected by the luxury home market. It is up just under 6% compared to a year ago.

We are entering the weakest time of the year, between June and September when luxury home buyers are thin on the ground. They tend to find cooler places to hang out than face the heat of a Phoenix summer house hunting expedition. Investors are busy during the summer as bargains are easier to find and gross margins on fix-and-flips are looking very healthy these days. Investors tend to pay less than market value, so this also drives the average $/SF lower between June and September. We expect pricing to be flat to lower over the next 3 months, after a strong rise between January and May…In other words we are expecting stability in pricing with a slight tendency towards weakness.”

Summary

We are not yet in an overall buyer’s market but the weakening market trends, unless interrupted, say we are slowly arriving there. Many of the greater Phoenix perimeter areas are already there.

Buyers While interest rates are not currently motivating buyers, sluggish demand and supply that is up 54% from last year is providing buyers an opportunity to buy that has been missing for years.  Flat pricing, more choices, and less competition from other buyers is a buying opportunity.  Interest rates can be refinanced in the future when more favorable.  Getting the right house at the right price is key.  If interest rates drop enough (sub 7%) we likely will see a rapid rebound in demand.  Demand moves much more swiftly than supply and supply can dry up rapidly.

Sellers With supply slowly and steadily rising all year, sellers are coming to grips that they need to work harder to attract a buyer.  Sellers haven’t seen a supply/demand ratio as anemic since 2014/2015. As in any market, buyers are rewarding the attractive, well-priced and well-marketed homes.  The less desirable homes with deferred maintenance, need to price more aggressively.  Both categories of sellers need to get pricing right and manage their expectations.    Agent choice matters – good marketing, good market knowledge, and proper pricing are the seller’s best friend.

Russell & Wendy Shaw

(Mostly Wendy)