As the Year Comes to a Close
As we close out the year in real estate – the numbers are much like where we began, albeit with minor variances. For those who prefer that we not bury the lead – the Greater Phoenix market ends the year predominately a buyer’s market. But as usual, the devil is in the details.
The Cromford Report shares this: “While Greater Phoenix remains in a buyer’s market overall, the Northeast Valley including Fountain Hills, Paradise Valley, and Scottsdale are top seller’s markets, reflecting a drop in supply and sustained demand in these cities. Also seller’s markets: Anthem, El Mirage, Avondale, Chandler, Gilbert, Apache Junction, and Sun Lakes. Balanced markets include Phoenix, Glendale, Sun City West, Tolleson, Mesa, and Tempe. Buyer’s markets are mostly on the edges and outskirts where there is more new home development. They include Peoria (barely), Sun City, Surprise, Goodyear, Litchfield Park, Laveen, Buckeye, Gold Canyon, San Tan Valley, Queen Creek, Maricopa, Arizona City, and Casa Grande.”
But sub-markets are not just geographic in nature, they also segment by price. The luxury market and the sub-luxury market often to do not move in tandem. This was certainly the case this year when we saw the luxury market over-perform while the sub-luxury continued you to struggle. It’s not shocking given that the health of the luxury market typically relies on the strength of the stock market and crypto, while the average homebuyer market relies on mortgage rates.
Demand
Weaker than normal demand (20% below normal) is not consuming the current supply – hence a market that favors buyers. While the stock market and interest rates are primary drivers of demand, other factors are at play as well. Employment/income levels, consumer sentiment, inflation, net migration, household changes, and prices all play a role. As the Cromford Report points out: “It is harder to predict demand as it tends to be driven by a lot of different factors, some of which are emotional rather than financial. At the moment overall demand is about 20% below normal but it could easily move in either direction from here.” The point is well taken – demand is elastic and can rapidly improve or worsen depending on the multitude of factors at play. If mortgage rates for instance plunged, demand would spike in the sub-luxury market. But the effect can be unevenly distributed as the Report documents a September example: “Lower mortgage rates and lower prices have stimulated demand in unexpected places. While homebuyer demand between $300K-$500K has been anemic, homes between $500K-$1.5M saw a boost of sales in September, up 19% year-over-year, which increased the market share from 36% to 38% of sales, and increased both the median price and average price per square foot measures for the Valley. The reason could be linked to jumbo mortgage rates dropping below 30-year conventional rates for the first time in 2 years, but also the popularity among high-wage buyers of adjustable-rate mortgages, which are currently averaging 5.8%.”
Supply
As we compare the see-saw of supply and demand, one of the two usually dominates. Currently, supply is the dominant factor and it is moving higher. Unlike demand, supply is much slower moving and less elastic. As of this writing, the increase in new listings has surpassed month over month for the last 2 years– with the only exception being August. The typical seasonal pattern is that supply tends to build until mid-November and then declines as we approach the end of the year. Sellers then enter (or re-enter) the marketplace in larger numbers January thru March. As the Cromford Report shared new supply of listings in one week rose 1.85% in a 7-day period and now active listings exceed 25,000. While this may not sound like too many homes for a metro of our size, with demand 20% below normal this amount of supply swings the market in favor of buyers. The Report further explains:
“Across most market segments, sellers would be in a much better place if they had fewer competitors. At the low-end of the market, supply significantly exceeds demand and this suggests that first-time buyers are thin on the ground. Those that are still in the market are well positioned as far as negotiation is concerned, but as they are probably inexperienced, they could do with a lot of support from a buyer’s agent who understands how the land lies. At the top of the market, demand remains much stronger, thanks to profits in stocks, cryptocurrency, precious metals and other financial assets. Some who have been fortunate in these markets are diversifying into high-end real estate as a hedge against any sudden weakness developing in those financial areas. If this weakness actually occurs, we should expect a swift drop in luxury home demand and a corresponding increase in supply.”
Price
“We are currently reporting positive appreciation for the overall market, but without the luxury market, that appreciation turns negative.”
The luxury market performance when combined with the rest of the marketplace can hide a multitude of sins. That’s because luxury’s large numbers have an outsized effect on averages. This is why examining both the location and price points of the marketplace is the only way to accurately evaluate the housing market.
Let’s not trade accuracy for simplicity. If you are wondering about your specific area or property- let us do the research. Put our years to work for you at no obligation.
And our closing thought – we wish you and your family a wonderful Holiday Season. We are so grateful for the honor of serving you.
Russell & Wendy Shaw
(mostly Wendy)