Author: Russell Shaw

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)

Our apologies to Charles Dickens, as we co-opt his famous title.  Rather we should say “tale of two markets” as greater Phoenix is currently operating as two very distinct marketplaces.  Depending on which you fall in, your experience will differ greatly from the other segment.  One segment, the luxury market, is flourishing.  Why?  We can attribute that to the stock market having had three years of impressive growth.  2024 was, by most any measure, a fantastic year for domestic stock markets. The S&P 500 hit 57 new all-time highs during the year and closed with a gain of 25% (including dividends).  When the stock market flourishes, so do luxury sales, as they typically aren’t dependent upon and therefore not sensitive to mortgage rate fluctuations. A word of caution to those in this market segment:  the luxury market is cyclical and good times do not last forever.  As to the general marketplace where the bulk of the housing sales occur, interest rates are having an outsized impact. The low and mid-range market is experiencing low demand and its result of drastically restricted number of sales.  As a point of comparison, in 2021 when mortgage rates were low, the greater Phoenix market has 108,998 sales.  Fast forward to now, and that number is only 71,858 ( a drop of 34%).  While demand remains stubbornly stalled in this market segment, supply continues to creep upwards.  Hence, buyers are experiencing newfound strength in negotiations over sellers.  The Cromford Report further explains the trend:

“Since the beginning of this year we have seen an increase of 2,324 in the active listing count (excluding those with a contract). This a 11.9% rise, which is much higher than the 8.1% increase we saw this time last year, and it is added to a base of 19,460 rather than 14,593. So it is safe to conclude that supply is both higher and growing more quickly than a year ago.

Listings under contract have also shown some growth – up 13.3% from 5,387 to 6,103. This time last year they grew 23.8% over the same period. We have gained only 716 listings under contract instead of 1,257 last year and the growth percentage is down 44%.

We are therefore seeing demand grow, as is normal for the season but at a significantly slower rate than in January 2024.

So if supply is growing faster than a year ago, but demand is growing more slowly, the comparison with 2024 looks discouraging for sellers. Many readings confirm this picture…

This situation will result in more difficulty for sellers in resisting negotiation demands from potential buyers. New competition from other sellers is appearing quickly and asking prices will need to be set to be competitive and attractive rather than complacent. A price which is initially set higher than the market can bear will result in a long marketing period and eventually deeper price cuts than if the price had been set properly in the first place. This is particularly true at the low and mid-range price points. ‘

Pricing – As we oft times mention, pricing is a trailing indicator.  The S&P / Case-Shiller® Home Price Index® just reported year over year appreciation of 2.1% for greater Phoenix.  The fact that pricing is not keeping up with inflation shows the market weakness.  It is important to remember, supply and demand ultimately control pricing. With demand weak, sellers are forced to respond with price reductions to compete.  As the Cromford Report confirms:  “Price changes are very much in vogue – they recently peaked at 3,820 per week, 52% higher than this time last year. This is not too surprising as we do have 40% more listings now. Price cuts outnumber price increases by about 14 to 1.”

New Builds – New builds – once the shining star of the marketplace – are losing some luster. The Cromford Report shows a drop in market share of new builds from December of 2023 vs. December 2024 of 28% down to 24%.  Builders have also begun to scale back on their production plans as evidenced by a drop in permits.  As the report shares, this is likely due to two reasons:

“This decline may be partly responding to a perceived lack of demand, but may also be influenced by home builders’ reaction to 2 key elements of government policy which could make life for the developers a little more tricky in 2025 and beyond.

• higher tariffs on materials imported from countries such as Canada, Mexico and China – either option will increase building costs – either paying tariffs on foreign sourced materials or buying American-made products will both be more expensive for builders than the current situation and will put pressure on their gross margins
• a clamp down on undocumented employees engaged in the construction trade could make some skills hard to find and lengthen build times

By far the largest area of employment for undocumented labor in Arizona is the construction trade. It is estimated that about 34,000 such undocumented immigrants are currently working in construction in Arizona, and roughly 80% of them were born in Mexico. These are unlikely to be working directly for the big homebuilders, but they make up a significant percentage of the skilled workers in their subcontractors. It is not yet clear whether or when these people might be deported, especially if they have no criminal record apart from staying and working in the USA without authorization. Less than 4% of undocumented immigrants are believed to have a criminal record. However, if the numbers of construction workers were to be significantly reduced through deportation, the rate of construction of new homes would likely fall. “

This is not a commentary on the current administration and its policies, but rather a housing discussion.  If the number of new builds continues to decline due to the limited labor pool or an increase in expense from inflation or tariffs on goods (lumber, aluminum, etc.), this could benefit the resale market. With reduced competition (i.e. less supply  being created) or increased affordability comparative to new builds, the resale market would benefit. Conversely, if large volumes of undocumented immigrants are deported – already weak demand for housing will drop further, resulting in price erosion.  These uncertain factors in the housing markets bear watching.

Whatever the housing market brings, we will report it here.  If you have questions you would like answered in a future article or in person, please contact us.  As always, we are here to serve and inform our wonderful clients and friends.

Russell & Wendy Shaw

(mostly Wendy)

Housing Myths

For all the talk of national housing shortages, what the housing market has no shortage of is housing prognosticators.  While sensationalism grabs attention, it is often more fiction than fact.  Let’s bust a few myths with the help of Tina Tambour of the Cromford Report.  While she lists seven popular myths, we begin with myth #6 believing it the most important myth to shake:

“Myth #6 – Housing is in a bubble and home prices are on the precipice of a crash.

One could argue that Greater Phoenix already had a bubble and price crash in 2022 when prices rose to their peak by May and declined a whopping 12.3% from May to December that year, with short-term flip investors taking the brunt of the pain. Since then, prices bounced and stabilized with most price ranges seeing less than 2% appreciation year over year today. That is less than the current rate of inflation, and what is expected after nearly a year in a buyer-leaning market. While Greater Phoenix is officially in a buyer’s market, it’s very mild. Under these conditions, sale price measures are showing most non-luxury buyer negotiations at approximately 1.9% below the last list price. That’s a huge improvement over 2022 where sales prices were averaging 2.4% OVER list price. Prices are declining in some areas, but not all, and not by leaps and bounds. Current supply and demand indexes do not support massive declines in sales prices, but shaving 1-2% off lower list prices during negotiations is not out of the question. Sellers are not pushing the market with outrageous list prices. In fact, most are in line or even below last year in some price ranges.”

Note to buyers, now is the time to hire an experienced negotiator as your sales agent. “Shaving off lower list prices” requires some skill.  Sellers, get your house in the best condition you can and be ready to flex in negotiations.  Again, your best friend in this market is a skilled negotiator working for you.

Interested in all 7 myths?  Email or contact us and we will send them to you.  Otherwise, hang tight and we will explore them all in future articles.

Russell & Wendy Shaw

(Mostly Wendy)

2025 Begins Quietly

Trying to read market signals with only two weeks under our belt is difficult at best.  It is simply too short a time to detect meaningful trends.  With that said, it is never a bad idea to look at where supply and demand stand currently and get a sense of where we begin this year.

When looking at demand, two very different markets are at play at the same time.  The luxury market, which is not interest rate sensitive but responsive to gains in the stock market and crypto market, has performed well.  Not so for the average buyer. Rising mortgage rates hitting the 7.25% range (this time last year they were in the 6.69% range), are limiting the pool of buyers.  As the Cromford Report shares:

“Where is demand? Closed listings stand around 5,000 per month and year to date closings are down 12% from this time last year. We have 5,750 listings under contract. We started the year with 5,496 under contract, so the rise since the beginning of the year is pretty feeble at only 4.6%. On Jan 13 last year we had seen a growth of 13.2% in listings under contract by now. You would be right to conclude that 2025 is starting distinctly slower than 2024 did.”

As far as supply goes, we ended the year with a 12% drop in listings through the holidays (Thanksgiving thru New Year’s) which is the expected seasonal pattern.  However, according to the Cromford Report, supply is now climbing by about 4% per week.  In fact new listings for January are the strongest Greater Phoenix has seen since 2020. That should put us back in the 22,000 range of active listings soon. The Cromford Reports states:

It is not clear where supply will head beyond this, but 22,000 plus listings is going to be more than we need with demand still subdued. New listings are arriving in 2025 at almost the same rate as 2020, which is significantly faster than the intervening 4 years….These conditions suggest home price projections should remain flat, either at or slightly lower than the rate of inflation annually.

At the moment, the market appears to be similar to the last quarter of 2024 – with the overall supply exceeding demand.  But, it is early.  Whatever 2025 brings, we will report it here as it unfolds. 

Russell & Wendy Shaw

(mostly Wendy)

As we begin the year, uncertainty seems to capture the tone of the real estate market.  Uncertainty doesn’t mean bad or good – it just means we simply need data and time to see and understand what trends are emerging.  Another factor is that many listings expire the end of December, thereby beginning January with an “improved market” for sellers.  That is a seasonal effect – and bears little significance as it happens every year.  As the Cromford Report confirms “Let us not get over-excited. With many sellers taking their homes off the market for the holidays, it would be unusual if the market had not improved for the remaining sellers during the 50th week of the year. Something around 5% improvement between November and December is just par for the course”.  Add to that a very long and heated election period– and despite our statement that elections themselves have little effect on the real estate market –psychologically people believe that post-election 2025 is bound for a shift.  And they are right in that mortgage rates react to the effects of inflation, economic growth, and fiscal policy (just not the election itself).  Candidly, our crystal ball is not working as to what will be the effects of this new administration.

Back to our market, the greater Phoenix real estate market spends far more time as a seller’s market than as a buyer’s market (which most consumers are unaware of).  Point in fact, in the last few weeks of November we entered a buyer’s market for only the 4^th time in the last 25 years.  However, as usual, God is in the details. 

The luxury market and the mainstream market are fueled by different economic engines and therefore do not always act in unison.  This is the case currently.  Luxury is experiencing rising pricing and activity courtesy of the robust stock and crypto markets.  Contrast that to the mid- market, and you see demand and pricing struggling due to  mortgage rates in the high 6%+ range.

When we look at supply and demand, we see the fundamentals behind the buyer’s market.  While demand hit a low in September and has improved if only a smidge, supply has risen during that same period.  To quote the Cromford Report “…Buyers have benefited from more choice and sellers are suffering increased competition.” Further the report states : “It continues to be a frigid market for most zip codes in Greater Phoenix with the lowest contract ratio* (listings under contract divided by active listings) we’ve seen since January 2015, 10 years ago.”

As to pricing, we are seeing the luxury market increasing while the mainstream market is vulnerable to erosion.  Given the low purchase activity – there is little to suggest upward pricing and in the outer fringes of the valley there is unquestionably downward pressure on price.  It is important to remember that pricing is a trailing indicator, not a leading one.  It can take months for pricing to respond to shifts in the market.  So really it is a question of how long this buyer’s market will last?  If interest rates decline to the 6% range – we will see demand respond and respond more rapidly than supply can.  At which point, buyer advantage will cease.  If they remain stubbornly above 6.5% then likely we will see further downward pressure on pricing.

There is a final point that we wish to make, while we can and do dissect the market and scan the horizon for trends and shifts, one thing remains unchanged.  Whatever the market – we sell homes.  What changes for us is the marketing strategy.  After over 45 years of selling homes in the valley in every type of market, we know that we can sell YOUR home.  Markets do not scare us.  Therefore, they should not scare you.  You can count on us.  Whatever 2025 brings, when we know – our clients will too. 

Russell & Wendy Shaw

(Mostly Wendy)

The 4^th Buyer’s Market in 25 Years Arrives in Time for the Holidays

Most consumers are unaware that the greater Phoenix real estate market spends far more time as a seller’s market than as a buyer’s market.  Point in fact, in the last 5 weeks we have entered a buyer’s market for only the 4^th time in the last 25 years.  But as usual, God is in the details. 

The luxury market and the mainstream market are fueled by different economic engines and therefore do not always act in unison.  This is the case currently.  Luxury is experiencing rising pricing and activity courtesy of the robust stock and crypto markets.  Contrast that to the mid- market, and you see demand and pricing struggling due to  mortgage rates in the high 6%+ range.

When we look at supply and demand, we see the fundamentals behind the buyer’s market.  While demand hit a low in September and has improved if only a smidge, supply has risen during that same period.  To quote the Cromford Report “…Buyers have benefited from more choice and sellers are suffering increased competition.” Further the report states : “It continues to be a frigid market for most zip codes in Greater Phoenix with the lowest contract ratio* (listings under contract divided by active listings) we’ve seen since January 2015, 10 years ago.”

As to pricing, we are seeing the luxury market increasing while the mainstream market is vulnerable to erosion.  Given the low purchase activity – there is little to suggest upward pricing and in the outer fringes of the valley there is unquestionably downward pressure on price.  It is important to remember that pricing is a trailing indicator, not a leading one.  It can take months for pricing to respond to shifts in the market.  So really it is a question of how long this buyer’s market will last?  If interest rates decline to the 6% range – we will see demand respond and respond more rapidly than supply can.  At which point, buyer advantage will cease.  If they remain stubbornly above 6.5% then likely we will see further downward pressure on pricing.

Whatever 2025 brings, when we know – our clients will know.  Wishing you a joyous holiday season.

Russell & Wendy Shaw

(Mostly Wendy)

Buyer’s Market Arrives for the Holidays

Slowly but surely the market has eroded for most sellers in the last eight months.  The overall market is now a “buyers market”.  While there are pockets that still decidedly favor sellers (Fountain Hills, Chandler) most of the valley is balanced or favoring buyers.  While sellers rightfully blame low demand (courtesy of rates hovering at 7% or higher) the truth is supply is more to blame.  As the Cromford Report shares, “The overall number of active listings (excluding UCB and CCBS) has grown 34.7% over the past year. This increases to 36.9% if we eliminate out-of-area listings…The number of active listings without a contract has climbed from 15,574 at the beginning of February to 21,368 today. That is an increase of 37% and it means buyers have far more homes to choose from and are therefore less likely to choose the one you are selling. Sellers have to compete with each other and this is leading to frequent and substantial cuts in their list prices. They are also competing with a good supply of new built homes, which are only lightly represented in the 21,368 count. New homes are getting an unusually large share of the contracts signed in 2024”.

Why are new builds currently providing so much competition for the resale market?  Again, interest rates (along with newer styles and features).  Builders are offering bundled loans at lower rates (i.e. they buy loans in bulk to provide more competitive rates) The resale buyer is buying at market rates, not so with new builds.  This is putting pressure on resale sellers to price correctly from the start and present the home in its best condition to compete.

How long will this buyer’s market last?  Who can say?  Factually, buyer markets are rare in Greater Phoenix.  As the Cromford Report further points out: “While the last one was in 2022, it only lasted 4 weeks. Before that, 2014 fell just short of reaching a buyer’s market, but maintained a slight buyer’s advantage for 4 months. Before that, the last buyer’s market was in 2010, which also lasted 4 months. This time around, it depends on whether mortgage rates stagnate or decline once again.”

Therefore, the answer to how long this will last is: it depends.  Whatever the market brings, we will be here to advise you on the strategies that work in the market we find ourselves.

Russell & Wendy Shaw

(Mostly Wendy)

Sellers vs. Buyers – who is winning the real estate battle?

The real estate market rarely moves fast enough to garner headlines – despite what YouTube or internet clickbait would have you believe.  Instead, trends tend to be slow moving and yet discernable with time.  This year saw a steady erosion of seller’s strength ending with a market that now favors buyers in most segments.  That slow moving erosion seemed to undergo a temporary shift in September, when rates dropped and both buyers and sellers responded.  Demand was up approximately 14% compared to the same time last year.  Given that it was over 3 years since we had seen any improvement in year over year numbers, this was good news indeed.  The caveat?  Supply also was up – 52% over last year.  Further, even though most people incorrectly thought mortgage rates would drop after the Federal Reserve cut their base rate – a stronger than expected economy and jobs report delivered the opposite with higher rates.  Therefore, what seemed to be a fast moving demand trend in favor of the sellers quickly reverted to buyers when rates jumped back up.  Add to that the fact that supply tends to rise seasonally, rising throughout October and November – only to decrease as sellers come off the market in December for the holidays.  Likely we will enter the new year at a bit of a stalemate with buyers largely in control – waiting to see where interest rates will take the market.

Prices

Pricing is a key concern whether buyer or seller.  There is a little known statistic that is a very reliable pricing indicator which we pay close attention to called the “listing success rate”.  That is the percentage of homes on the market selling.  When that rate is over 90% (meaning that 90% of all listings on MLS are selling, 10% are not) we have a very hot seller market with prices rising.  Conversely, when that number is low, prices fall.  As of the writing of this article, the listing success rate is 70.7%.   That means that almost a third of homes are not selling.  This is just slightly above the normal rate of 68%.  But normal does not mean it feels balanced. For a historical perspective of why, the Cromford Report shares the following:

“Our month-to-date listing success rate is 71% which is nothing special, but at least it is above the long-term average of 68%. But It is also below last year at this time when we measured 75%. This tells us that the market is close to normal and not improving much. However we may not feel like it as close to normal, because between 2011 and 2022 the market stayed above normal for almost the entire period. Normal feels much worse than 2011-2022. Also we have not had much experience of normal in the last 24 years. It has mostly been better or worse than normal.

Those who were active between 2006 and 2011 will realize how much worse it was back then, when the listing success rate stayed below 61% and often fell below 40%. Far more listings failed than succeeded for a full 5 year period.

We can also see how unusually strong the market was from 2020 to 2022 when the listing success rate exceeded 90% for long periods.”

So what does all this mean for pricing? We have not seen prices decline when the success rates are above 65%.  However different market segments may have lower than average success rates. To get significantly lower prices you need excess supply and desperate sellers.  Is that what is on the near horizon?

“Prediction is very difficult – especially about the future.”  Niels Bohr

Predication of interest rates and the market beyond a month or two are difficult, speculative, and mostly wrong. Demand will largely be determined by interest rates – and who knows where those will land.  At the moment the Cromford Report points out:  “Buyers are still gaining negotiation power as supply rises… The general picture is of low volumes but stable pricing. The outlook is for volume to improve a bit and for prices to remain stable with a slight downward tendency due to the slight excess of supply over demand… Unless the trend changes direction we are headed toward a buyer’s market.”

Buyer markets typically result in downward pressure on prices. That is what we have seen in the later part of 2024 – sellers adjusting their numbers and pricing expectations as the market has moved to a buyer’s advantage.  But again, “slight downward tendency” is not a pricing implosion.

Strategy

The best strategy for sellers is hire well (choose the right agent) and get pricing and marketing right from the beginning.  For buyers, recognize you have a window of opportunity to buy with more negotiation strength and choices.  If rates drop, expect demand to jump quickly and that window can close. Both sides need to know their strengths and weaknesses and act accordingly.

Gratitude

As 2024 comes to a close we want to thank our clients for their loyalty and trust.  We truly are grateful and it is an honor to serve you.  We look forward to helping you in 2025. 

With our thanks ~

Russell & Wendy Shaw

(Mostly Wendy)

Rates Rise, Demand Falters

Generally, the real estate market is like a large ship taking a long time to turn.  Since the beginning of the year, the market has slowly shifted in favor of buyers and away from sellers.  That slow moving erosion seemed to undergo a shift in September, when rates dropped and both buyers and sellers responded.  Demand was up approximately 14% compared to this time last year.  Given that it has been over 3 years since we’ve seen any improved year over year numbers, this was good news indeed.  The caveat?  Supply is also up – 52% over last year and up 3.7% in just the past week.  Further, even though most people incorrectly thought mortgage rates would drop after the Federal Reserve cut their base rate – a stronger than expected economy and jobs report delivered the opposite.  We now have the highest mortgage rates in 2 months.

Therefore, what seemed to be a fast moving demand trend in favor of the sellers quickly reverted to buyers being favored in most market segments thanks to the rising rates. Also, seasonally, supply grows this time of year throughout October and November – only to decrease as sellers come off the market in December.  As the Cromford Report points out:  “Buyers are still gaining negotiation power as supply rises… The general picture is of low volumes but stable pricing. The outlook is for volume to improve a bit and for prices to remain stable with a slight downward tendency due to the slight excess of supply over demand… Unless the trend changes direction we are headed toward a buyer’s market.”

The best strategy for sellers is hire well and get pricing and marketing right from the beginning.  For buyers, recognize you have a window of opportunity to buy with stable pricing and choices.  Both sides need to know their strengths and weaknesses.

Russell & Wendy Shaw

(Mostly Wendy)

The Long and the Short of it

Despite interest rates falling to their lowest number since February 2023 the market remains tepid.  The buyers’ response to lower rates while positive, is still minor.  According to the Cromford Report, the number of properties under contract is up 1.5% from this time last month, and yet still down 1.2% from a year ago.  Of course this could all change (perhaps rapidly) if rates drop further.

With the elections looming, many wonder if that will act as a catalyst to the market.  We have commented before that elections do not greatly impact the real estate market.  But no one makes this case better than the Cromford Report:

“Every election year people ask if the presidential election has a significant effect on the housing market. The short answer is no.

There are always a few buyers who loudly claim they are deferring any home purchase decision until they find out the result of the election. These people are a tiny proportion of the total, insignificant in the overall context. In fact if we examine the volume of sales in the 5 months leading up to a November election we find that:

in 2004 and 2020 home sales were stronger than normal non-election years

in 2012 and 2016 home sales were in line with normal

in 2000 and 2008 home sales were weaker than normal non-election years

Notice that each line includes one win for the Republican nominee and one win for the Democratic candidate, so sales volume does not even seem to correlate to who wins.

The weaker years (2000 and 2008) correspond to recessions which are more likely to cause weaker home sales than elections.

The housing market is affected by life decisions and events like couples deciding to live together, have children, separate, job moves and a death in the family. Politics has much less impact than politicians would have you believe. The state of the economy and taxation rules will have a significant impact on the market. But predicting how the economy will behave and what taxation changes might come into effect after a president’s election proposals have been heavily modified by congress is fraught with risk. Pundits will predict, but no-one is good at this forecasting and results rarely match what is predicted. Unexpected events like epidemics have a more dramatic effect on the housing market.

So the long answer is also no.”

Russell & Wendy Shaw

(Mostly Wendy)