Housing Crisis – Real or Imagined?
“The report of my death was an exaggeration” ~ Mark Twain
Chaos begets chaos. The tariff uncertainty and the volatility of the stock market led to some dire predictions in the housing market. Newsweek ran an article suggesting home values in greater Phoenix could drop by 20%. Gulp. Others echoed similar sentiments. Let’s take a deep breath.
Has economic uncertainty impacted the valley housing market? Yes. But factually the drop in accepted contracts was 18% in the 3 weeks following the tariff announcement. Since then, we have seen the first few weeks of May show a small recovery in the number of contracts. So, while admittedly the marketplace is favoring buyers, the odds of a 20% drop in values are slim. The Cromford Report shares this:
“While Greater Phoenix is slipping farther into a buyer’s market, it’s not extreme enough for a collapse of that magnitude. Buyer’s markets over the past 25 years, excluding the 2008 sub-prime mortgage collapse, saw prices drop between 5% and 11% year-over-year, and those price declines were enough to pull the market back into a seller’s market each time…. Either way, the current buyer’s market supports declining prices over the next 3 months; 20% is extreme, but 3% is more reasonable. If mortgage rates move closer to 6.5% or lower, all projections will change again.”
Once again – supply/demand controls pricing. When supply exceeds demand, prices decline. But, for a seismic drop in values – supply must move upwards dramatically or demand must collapse. Instead of dramatic movements, we are seeing gradual erosion of demand with a continuing increase of supply. That results in downward pressure on pricing. But it is wise to remember that unlike supply, demand is elastic and can bounce quickly – especially in response to lower mortgage rates. The report of the housing market death appears to be an exaggeration.
Russell & Wendy Shaw
(mostly Wendy)