It’s a Buyer’s Market – Are Prices Dropping?
Buyer’s markets are rare in the valley – we have been in a buyer’s market only 4 times in the last 25 years. By definition, a buyer’s market happens when supply exceeds demand. This causes prices to move downward which at some point stimulates demand. Increased demand consumes excess supply and rebalances the market. So if we are currently in a buyer’s market – why are prices not plummeting?
The Cromford Report explains:
“Phoenix has been in a buyer’s market for 3 out of the last 4 months, and it’s continuing into March as of this writing. Some buyers may be surprised to see price measures aren’t showing a decline yet, in fact the median is up 4.3% over last year. Price measures take at least 3-6 months to crack after a shift in the market, and that shift needs to be in effect for at least a season before it starts to hit the price line.
Why does it take so long? For a number of reasons, but one is the length of the sale. When selling a home, first the seller needs to list it on the open market and possibly wait 30 days before accepting a contract. Then after another 30-45 days in escrow, the price finally records. Then in order to establish a trend, two more months need to be established to show a measurable decline in price. Stocks, in contrast, can be sold and recorded at the push of a button, so volatility and price responses are instantaneous, and crashes are common.
This is only the 4th buyer’s market for Greater Phoenix over the past 25 years, and the one from 2006 -2008 was a doozy that ignites PTSD for those who suffered through it. Because the housing crash coincided with the Great Recession of 2008, there are some who believe home values are set to crash if another recession should occur in the near future. Historically, this theory is not supported. Typically home values go flat and boring during recessions, or barely rise. Ironically, buyer demand for homes increases during recessions because mortgage rates typically decline. Measures today suggest prices could decline in the coming months if supply continues to rise, but more like a coast or glide, not a crash.”
Will prices decline? If so, the first sign arrives in decreased list prices, followed by lower pending home prices, and then in the closed prices. The unknown variable in all of this is interest rates. If mortgage rates land in the 6.1% range, demand likely will quickly respond. But, if rates maintain their current range, pricing will respond by moving downwards to get rid of the excess supply. Which scenario is most likely? Only time will tell.
Questions about your neighborhood or price range? Contact us for answers. While we are not fortunetellers, we are students of the market.
Russell & Wendy Shaw
(Mostly Wendy)