The valley’s real estate market has been stuck in neutral for a while. Both buyers and sellers have largely been staying on the sidelines and often for the same reason – interest rates. Sellers wanting to move, swallow hard when considering giving up their 3% mortgage for a 7+% replacement rate. Buyers look at their decreased buying power when rates are elevated. This results in a low volume market (i.e. fewer transactions). Finally, August 5th, the long awaited drop in interest rates happened when rates fell to the 6.5% range. While that won’t impress sellers holding 3% mortgages – it is a full percent below April’s rates of 7.5%. Buyers may be surprised that a 1% drop in rates affects their payment comparable to a 10% drop in the home price. That is a dramatic shift in buying power. But the psychology of money is a funny thing – this drop in rates increased the number of mortgage applications only by a measly 1%. Why? When rates drop, buyers don’t always act immediately – in hopes they will fall further as the pundits keep predicting.
For sellers trying to sell in this market, this balanced market of low supply and low demand, feels decidedly unbalanced. A low volume market equates in to lower showings, thereby fewer offers, longer marketing times and often more buyer demands in concessions and repairs. How can that be a balanced market? Because balance and normal are two different things. The fact is that our market spends far more time in a seller’s market than a buyer’s market. As the Cromford Market Report explains: “Over the past 24 years, we have tended to be mostly in a seller’s market and when we are not, we often have a buyer’s market. In buyer’s markets DOM (days on market) values get very high, even well into the hundreds of days. Since we are rarely in a balanced market, sellers experiencing them tend to think they are worse than balanced, because they feel “worse than normal”. They ARE worse than normal because a normal market is unbalanced in favor of sellers. Balance and normal are not the same thing.”
On the bright side, it does appear that the market has hit bottom with signs that micro improvements are now favoring sellers. But these changes are small enough to be nearly undiscernible. To further quote the Cromford Report : “The change is still painfully slow but it is real. The trend has reversed but is yet to gather any significant momentum….
The market is starting to improve for sellers overall and I hope buyers took good advantage of their opportunity to negotiate harder over the last 3 months.
Cave Creek, Paradise Valley, Buckeye and Fountain Hills are showing the largest percentage gains. In addition, Scottsdale, Gilbert, Maricopa, Goodyear and Peoria are all up over the last month. The largest declines are still concentrated in the Southeast Valley (Tempe, Chandler and Mesa), but Avondale has weakened substantially too…
9 out of 17 cities remain seller’s markets… We have 3 cities that are balanced, while the remaining 5 are buyer’s markets. “
Prices are a trailing indicator of the market, and overall the average appreciation in the last year has been an anemic 1.9%.
For sellers, until our market comes out of the stalemate, expect longer marketing times with fewer offers. Prepare to pay concessions as over 55% of sellers are currently doing. For buyers, waiting for lower rates may not be your best strategy. When and if rates drop, competition for homes will rapidly jump and likely without a corresponding jump in supply. With buyers currently thin on the ground, you have better bargaining power. This is when agents can prove their value in good negotiation and expert market analysis. Even these subtle tea leaves can be read by experienced eyes.
Russell & Wendy Shaw
(mostly Wendy)