no hassle listing blog

𝗧𝗵𝗲 𝗨𝗻𝗽𝗿𝗲𝗰𝗲𝗱𝗲𝗻𝘁𝗲𝗱 𝗦𝘂𝗽𝗽𝗹𝘆 𝗗𝗶𝗹𝗲𝗺𝗺𝗮

It can be difficult to write about a slow moving train such as our Greater Phoenix housing market.  The market is remarkably quiet right now making poor fodder for attention grabbing headlines.  Both buyers and sellers seem content to sit on the sidelines waiting.  For what?  For a reason to act.  The most obvious motivator would be lower interest rates.

Demand is currently 22% below normal. In fact, it dropped below normal in June of 2022 where it has remained ever since.  Not shockingly, that shift was a response to the jump in interest rates.   But the real story is not lack of demand, but rather lack of supply.  Supply currently is at 52% below normal and is 40% below last year.  In fact, supply hasn’t been at normal levels since 2011 (although we briefly approached normal in 2014).  It is not an overstatement to say the valley is chronically undersupplied, despite a healthy new build market creating new supply.  

As the Cromford Report explains: “So far in the third quarter of 2023 we have seen 7,447 new listings. The equivalent number last year was 12,439 and in 2021 it was 11,712. We are down 40% from last year and down 36% from 2021. This annual drop in new supply is unprecedented and is having a far bigger impact on the market than the affordability issues caused by the high interest rates.” (Emphasis added)

What is going on with supply?  There is a simple answer.  Roughly 4 in 5 homeowners with mortgages have an interest rate below 5%, and nearly one-quarter have a rate below 3% according to Redfin.  Low interest rates are handcuffing sellers to their current home – as very few want to or are able to double their interest rate to change homes.

Neither buyers nor sellers seem anxious to act, creating a very low transaction market. But there is some movement in this stillness: prices.  Let us explain. Lack of supply has kept our market gently favoring sellers.  When demand – even tepid demand – is higher than supply, prices rise.  Admittedly, this is a slow rise in pricing compared to the last 3 years.  But by the end of the year we likely will see our annual appreciation come in between 5-8% on average.

The Cromford Report further confirms this:

Some badly informed observers still think there is a bubble popping situation ahead, but they completely misunderstand the situation. For prices to fall, we have to have an excess supply compared to demand. Even though demand is very weak, supply actually got 2.6% smaller over the last month. There is very low delinquency in residential real estate lending right now, so it takes a ridiculous leap of great imagination to believe that foreclosures are going to have any significant effect on supply in the foreseeable future.

… we have a seller’s market where overall pressure on prices is up not down, despite the lack of enthusiasm on both sides of the negotiation. Once we get to the end of September and it starts to cool down, the luxury market will be fully contributing to the price numbers…

When will the market heat up again? That depends on demand rising – dropping interest rates alone are likely to spark demand.  Typically, demand reacts far more quickly to change than supply.  But supply is soon to follow.  If nothing else, time will overcome static conditions.  For a market that favors sellers – it is a good time to sell.  Buyers as well should be buying in low volume marketplace.  When the volume shifts, they will find the competition makes for a much more stressful buying experience.

Russell & Wendy

(Mostly Wendy)

𝗠𝗮𝗿𝗸𝗲𝘁 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀

Supply is down 52% below normal

4 out of 5 homeowners have an interest rate below 5% handcuffing them to their loan

Demand is down 22% below normal

Prices are gently rising in market that favors sellers

Low activity from sellers and buyers primarily due to interest rates

The Valley Real Estate Market – It’s a Dry Heat

The market in the last few weeks is in the midst of a slight cooling trend (a phrase that sounds like an oxymoron given the record heat the valley is enduring). This is evidenced by the slowly increasing inventory.  The seller advantage in most areas and price points continues to hold – even if at a rather subdued level.  Additionally, the luxury market goes quiet in the summer, as those with a choice flee the valley. 

According to the Cromford Report, the active supply of homes for sale is down 27% compared to this time last year and down a whopping 38% from the peak of October 2022.  Despite the slight cooling trend – these numbers confirm that prices will continue their gentle rise over the next 3-5 months.

Some interesting numbers to consider courtesy of the Cromford Report:

Once luxury sales over $1M are removed from the trend line, price appreciation from December through June goes from +7.7% to +4.9%. This means the average property has gone up in value 4.9% Dec-June.

Over 57% of resale sellers in Greater Phoenix have owned their homes for more than 3 years, property values have appreciated 40% or more over that time and are maintaining.  This makes the point that real estate is typically a sound investment long term – if one even considers 3 years “long term”.

The whole of 2021 and the first 4 months of 2022 witnessed inventory levels of less than 1 month. This is extremely low and is what led to the rapidly increasing prices over this time-frame. The fast decline in demand during 2Q and 3Q 2022 led to inventory levels around 3.5 months by November. This is not a high level. In fact it would be considered normal. However prices dropped during the second half of 2022 because of panic among investors and iBuyers. Both feared a declining market and by being in a rush to sell, caused their concern to materialize as a self-fulfilling prophecy…

Over the last several weeks, supply has started to edge upward again, meaning that the market is slowly cooling down. This is obviously due to poor affordability brought about by interest rates going over 7% again. However inventory would need to double from its current level for us to get back to a normal balanced situation at 3.5 months. No reason for panic in 2023.

What a perfect ending.  No reason for panic in 2023.

Russell & Wendy Shaw

(mostly Wendy)

𝗦𝘂𝗽𝗽𝗹𝘆: Supply has been slowly dwindling all year as sellers have elected to stay put given their current low interest rate mortgages.  We have already dropped below last year in supply. As of today, the current supply of properties for sale is 11,609.  For perspective, a balanced market typically occurs with active listings at around 25,000.  As the Cromford Report shares:   New listings continue to be insufficient in replacing properties that have gone under contract, resulting in overall supply dropping an average of 151 listings per week within the last month.  All areas in the valley favor sellers with the exception of two – Buckeye and Maricopa which are currently balanced.  Further afield, Casa Grande remains in a buyer’s market.

𝗗𝗲𝗺𝗮𝗻𝗱: Just like supply, demand remains below normal although stronger than supply.  Hence the dropping number of homes for sale.  Investor purchases are back to normal levels finally allowing for FHA buyers to compete for homes.  Per the Cromford Report:  FHA increased the amount of money they’re willing to loan to $530K. They also lowered their Mortgage insurance premiums by $100s on monthly payments annually. These changes have resulted in the market share of closings in Greater Phoenix funded by FHA to go from just 9% in April 2022 to 22% in April 2023 on sales under $600K.

Even with the market favoring sellers – over 50% of the sales between 200K-500K involve the sellers contributing towards buyer’s closing costs and interest rate buydowns.  Additionally, in May many lenders began to offer new down payment assistance programs with just 1% down focused on first time home buyers (defined as anyone not owning a home in the last 3 years!) Both of these encourage buyers get in to homes regardless of the rates.  

𝗣𝗿𝗶𝗰𝗲𝘀: When demand outpaces supply (as it does currently) prices rise. While we are not yet back to 2022 pricing, the median sales price has recovered 5% since December and looks likely to meet 2022 pricing by the 4th quarter.

𝗔 𝘄𝗼𝗿𝗱 𝘁𝗼 𝘁𝗵𝗲 𝘄𝗶𝘀𝗲:

Demand can change far more rapidly than supply.  Especially demand that is artificially suppressed by interest rates.  If rates drop, we could see this market quickly tilt strongly in favor of sellers.  In any case, the marketplace is showing no signs of improving for buyers.  If you’re a buyer, it would seem wise to act now.

Russell & Wendy Shaw

(mostly Wendy)

Most are now aware that the low supply of housing inventory is currently the driving force in the valley’s real estate marketplace.  According to the Cromford Index, supply is down a whopping 42% from the peak of October 2022. Where have all the sellers gone?  Answer: they are staying home and hanging on to their low interest rates.  When will that all change?  Either when market conditions (interest rates, economy, shifts in pricing) prompt change or with life changes (divorce, marriage, illness, job loss/change, relocation).  Moves can only be put off for so long – whether buyer or seller.

To that point, we saw a sudden drop in demand as interest rates spiked in 2022. Yet even with rates currently only moderately lower than their peak – demand has picked up.  Buyers needed time to adapt to the change in rates.  Eventually, time wins over inertia and the need to move forces action.  This rise in demand is continuing to put pressure on prices to rise, albeit more gently than in years past.  

While demand tends to be volatile – supply is generally not.  Large jumps in supply typically only come from market manipulation or catastrophe.  Nearly everyone shivers at the mention of the 2008 market – a shining example of catastrophe if ever there was one.  The valley currently has the lowest number of delinquency rates and foreclosures in history.  No catastrophe lurking around the corner for now.

The point is this – supply is scarce at the moment and getting scarcer.  The supply needed is not on the immediate horizon.  That means prices are rising as they must when demand outpaces supply.  But as usual, this is more nuanced as explained by Michael Orr of the Cromford Report:

Those who predict more drops in sales prices will have to explain where a vast new supply is going to come from. Prices only drop when there is a glut of homes coming to market and not enough buyers. In the current circumstances, this is looking very unlikely.

Prices remain far higher than they were before 2022, and have rising [sic] from below $267 in early January to above $281 in mid-May. The rate of increase over the past 4 months could be described as modest, but that would be a little unfair. A 6.6% rise between week 2 and week 20 is equivalent to an annual appreciation rate of 18%.

Do we expect this more-than-modest rate to continue? No. From May through September the weather in Central Arizona gets a little toasty but the housing market usually gets cooler, at least where average $/SF is concerned… the average $/SF tends to go flat or even decline during this period in most years. The main exception was 2020, which was due to the sharp rebound after the initial COVID panic during the spring.

In most years with a healthy CMI, like 2023, we expect the majority of the upward price movements to occur between January and May and between October and December. Our tentative expectation is that prices will remain roughly flat (or dip slightly) from now until October and then rise again during the fourth quarter, as long as nothing dramatic occurs to change our assumptions.

This projection means that we expect to overtake the 2022 price line during September or October and finish the year well ahead of December 2022. It is unlikely that in 2023 we will exceed the peak of May/June 2022, which was fueled by over-excitement among the institutional buyers and iBuyers…

All this assumes conditions remain largely similar to today. The further out we look, the less we can rely on this assumption. Anything more than 2 months into the future should be taken as conjecture rather than a forecast.

𝗠𝗮𝗿𝗸𝗲𝘁 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀:

– Delinquencies are at all time lows.  Therefore foreclosures are at all time lows

– Prices are not going down

– Builders are not building in sufficient quantity to fix supply shortage

If you are a buyer – it is time to buy.  Ignore the doom and gloom of the media and pundits – we have a supply problem that cannot be solved this year.  If you are a seller, remember that eventually supply will show up.  Take advantage of an empty cupboard.

Russell & Wendy Shaw

(mostly Wendy)

𝗜𝘀 𝗢𝘂𝗿 𝗥𝗲𝗮𝗹 𝗘𝘀𝘁𝗮𝘁𝗲 𝗠𝗮𝗿𝗸𝗲𝘁 𝗕𝗲𝗰𝗼𝗺𝗶𝗻𝗴 “𝗢𝗹𝗱 𝗠𝗼𝘁𝗵𝗲𝗿 𝗛𝘂𝗯𝗯𝗮𝗿𝗱”?

The cupboard full of active listings for sale is starting to dwindle and trending towards bare.  According to the Cromford Index, supply is down a whopping 42% from the peak of October 2022.  Where have all the sellers gone?  Answer: they are staying home and hanging on to their low interest rates.  When will that all change?  Either when market conditions (interest rates, economy, shifts in pricing) prompt change or with time.  Moves can only be put off for so long – whether buyer or seller.

To that point, we saw a drop in demand as interest rates spiked in 2022. Yet even with rates currently only moderately lower than their peak – demand has picked up.  Buyers needed time to adapt to the change in rates.  Eventually, time wins over inertia and the need to move forces action.  This rise in demand is continuing to put pressure on prices to rise, albeit more gently than in years past.  

While demand tends to be volatile – supply is generally not.  Large jumps in supply typically only come from market manipulation or catastrophe.  Nearly everyone shivers at the mention of the 2008 market – a shining example of catastrophe if ever there was one.  The valley currently has the lowest number of delinquency rates and foreclosures in history.  No catastrophe lurking around the corner for now.

The point is this – supply is scarce at the moment and getting scarcer.  The supply needed is not on the immediate horizon.  That means prices are rising.  If you are a buyer – it is time to buy.  Ignore the doom and gloom of the media and pundits – we have a supply problem that cannot be solved this year.  If you are a seller, remember that eventually supply will show up.  Take advantage of an empty cupboard.

Russell & Wendy Shaw

(mostly Wendy)

𝗦𝗸𝗲𝗽𝘁𝗶𝗰𝗶𝘀𝗺 𝗟𝗶𝗻𝗴𝗲𝗿𝘀 𝗗𝗲𝘀𝗽𝗶𝘁𝗲 𝗮 𝗦𝘁𝗿𝗲𝗻𝗴𝘁𝗵𝗲𝗻𝗶𝗻𝗴 𝗛𝗼𝘂𝘀𝗶𝗻𝗴 𝗠𝗮𝗿𝗸𝗲𝘁

“I’m skeptical that the world is round

What keeps it up and what keeps me down?”

~Kim Carnes, from the song “Skeptical Shuffle”~

The average person could be forgiven for being skeptical of this real estate market.  After all, it was just over a year ago that sellers were dancing on the tables in euphoria as they achieved record pricing for their homes. By May the music had stopped and June ended the party for the rest of the year.  2022 closed in the doldrums.

But this is 2023.   Valley homebuyers might be in for a surprise as they enter the market. Two more cities, Surprise and Goodyear, have entered seller’s markets this month, bringing the total to 14 out of the 17 biggest cities now in favor of sellers. Only 3 cities remain in a buyer’s market:  Queen Creek, Maricopa, and Buckeye.  Queen creek will soon be a balanced market, and conditions in Maricopa and Buckeye continue to improve and they may well join in.

This shift in the market is not unexpected, as leading indicators have been pointing in this direction since January.  Despite bank failures, fed funds rate hikes, and the most volatile mortgage rates we have seen in a long time – sale prices have rising for 4 straight months.  The average sales price per square foot has recovered by 5.7% since December according to the Cromford Report.  All while demand hovers around 18% below normal.

How can this be?  It is the same answer we have been giving for months: supply.  Supply is a shocking 40% below normal and shows no signs of increasing.  New listings being added to MLS are not even close to replacing the homes going under contract.  Since April 1st the deficit has been running on average 54 listings a day (meaning 54 more a day are removed vs. new additions) Gulp.

Where can the new supply of homes come from?  Builders, the main source of new supply, are not the answer as single family permits have dropped by 74% between March and December of 2022.  Foreclosures are at record lows.  There is some faint hope that short term rental properties may come to market as restrictive regulations begin to be implemented. Or increasing pricing may induce sellers to sell to “not miss out this round of price increases”.  It is very uncertain that any significant supply is the offing.  Until it shows up, prices will continue to push up.  Buyers who are on the fence should act quickly.  As agents like to say “date the rate, marry the house”.  

Russell & Wendy Shaw

(Mostly Wendy)

The media continues to push the narrative that interest rates are killing the spring home buying season and that danger lurks everywhere. News of failed banks SVB and Credit Suisse creates fear that the banking crisis of 2007 is repeating.  YouTube “experts” claim that foreclosures are on the rise.  Yet the facts do not support any of these theories in the greater Phoenix area.  What is good for headlines (alarming or controversial news) is not good for reality.  What is true is that uncertain times create jitters in the financial sector which can have an impact on housing.  Let’s look at what we do know.

𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗿𝗮𝘁𝗲𝘀

As they say, bad news is good for mortgage rates.  That has proven to be true – mortgage rates have dropped.  In fact, the rates have been unusually unstable. The Cromford Report makes this very point on mortgage rates: “They have been extraordinarily volatile recently with the 30 year FHA rate dropping from 6.20% to 5.75% in just a single day. The VA rate has declined 50 basis points in 2 days, but the 5/1 ARM has risen from 6.14% to 6.55% during the last 3 days. I can’t remember a time when interest rates jumped up and down so fast and frequently. However, FHA and VA loans look particularly attractive right now which will favor the low to mid-range market below $900,000”.

As a note, when you hear on the news “the feds are raising rates” it is referring to the short term interest rates between banks which has little to do with mortgage rates.  Mortgage interest rates are inversely tied to Treasury bond rates.

𝗗𝗲𝗺𝗮𝗻𝗱

With interest rates down, that should spur demand, right? After all, if headlines say interest rates are killing the market then shouldn’t lower rates should be jet fuel for the market?  Unfortunately, it is not that simple. Multiple factors control demand such as:  interest rates, appreciation/depreciation, inbound relocation, population growth, lending practices and consumer sentiment.     Right now consumer sentiment is likely playing an outsized, even if temporary, role.

The Cromford Report shares these numbers on listings under contract in mid-March:  “At 9,001, contracts are at their 4th lowest count since 2005, the lowest counts were in 2006-2008 and normal range is 11,000-13,000. “  

While that sounds alarming, the fact is that demand has been below normal for quite some time.  Phoenix demand has been below normal since February 2021.  If that is true, then why were prices still dramatically rising until the beginning of first quarter 2022?  The answer is low supply.

Supply While interest rates may be keeping some buyers out of the market – the impact of higher rates seems to be the greatest on would-be sellers.  When sellers cannot comparably replace their current interest rates if they buy – they stay put.  So although listings are far more abundant than last year, they are still roughly 40% below the normal range of 20,000-24,000.  Here are some interesting facts reported by Tina Tamboer of the Cromford Report:

New listings added to the Arizona Regional MLS are the lowest ever recorded going back at least 23 years. This may be shocking to some as there has been a 200% increase in supply year-over-year, but last year at this time supply was merely 4,820 active listings.

We repeat, the lowest supply of new listings ever recorded in the last 23 years.  Gulp.  That is the buried headline.  When you combine low demand with even lower supply what do you get? The report states:

“Low-level demand combined with even lower-level supply equals a seller’s market for Greater Phoenix. Not a crazy one like the last 2 years, but since coming out of a buyer’s market last December sale price measures have stopped dropping and have risen a modest 3.5% so far.”

To summarize – we are in a gentle sellers’ market.  Demand is below normal (as indicated by the contract rate) but supply is even more constrained.  At the moment, only 3 exceptions in the valley which fall into a buyer’s market: Queen Creek, Maricopa, Buckeye. Predictably, the outer areas of the valley tend to be the first to tip to a buyer’s market and the last to recover.

Supply is a slow moving number and nothing on the immediate horizon seems likely to increase it. Further, new builds of single family homes which add to the supply, are not being created in sufficient numbers to improve things.   For good or bad, demand is far more mercurial. Recent changes in FHA loans (loan limits increased to $530,150 while also lowering buyer expenses) and sellers’ current willingness to help buy down buyer’s interest rates may encourage first time homebuyers to buy.  If demand takes off as it is threatening to do, we may once again find ourselves in the midst of a strengthening seller’s market in defiance of the headlines.  Time will tell.  As always, we are here to answer your questions about your specific neighborhood.

Russell & Wendy

(Mostly Wendy)

𝗧𝗵𝗲 𝗛𝗲𝗮𝗱𝗹𝗶𝗻𝗲𝘀 𝘃𝘀. 𝗥𝗲𝗮𝗹𝗶𝘁𝘆

The media continues to push the narrative that interest rates are killing the spring home buying season. Yet the facts do not support this theory in the greater Phoenix area.  While interest rates may be keeping some buyers out of the market – the impact seems to be the greatest on sellers.  When sellers cannot comparably replace their current interest rates if they buy – they stay put.  So although listings are far more abundant than last year, they are still roughly 40% below the normal range of 20,000-24,000.  Here are some interesting facts reported by Tina Tamboer of the Cromford Report:

New listings added to the Arizona Regional MLS are the lowest ever recorded going back at least 23 years. This may be shocking to some as there has been a 200% increase in supply year-over-year, but last year at this time supply was merely 4,820 active listings.

At 9,001, contracts are at their 4th lowest count since 2005, the lowest counts were in 2006-2008 and normal range is 11,000-13,000.

Low-level demand combined with even lower-level supply equals a seller’s market for Greater Phoenix. Not a crazy one like the last 2 years, but since coming out of a buyer’s market last December sale price measures have stopped dropping and have risen a modest 3.5% so far.

To summarize – we are in a gentle sellers’ market.  Demand is below normal (as indicated by the contract rate) but supply is even more constrained.  At the moment, only 5 cities are in a buyer’s market: Queen Creek, Maricopa, Buckeye, Casa Grande, and Sun City West. This is to be expected as the outer areas of the valley tend to be the first to tip to a buyer’s market and the last to recover. Supply is a slow moving number and does not appear to be on the rise.  Recent changes in FHA loans (increased loan limits of  $530,150 combined with reduced expenses) and sellers’ current willingness to help buy down buyer’s interest rates may encourage first time homebuyers to buy.  If demand takes off as it is threatening to do, we may once again find ourselves in the midst of a strengthening seller’s market in defiance of the headlines.

Russell & Wendy

(Mostly Wendy)

Seller’s Market – but for how long?

The current market has shifted to the seller’s favor once again.  But this is not your mama’s market (i.e. the 2022 unbeatable spring market). Last spring we were in an overheated seller’s market – fueled by demand, low supply and low interest rates – it looked unstoppable.  Yet with interest rates more than doubling, by fourth quarter both supply and demand were in a deep freeze. We ended 2022 in a buyer’s market.  

Fast forward to February 2023 – and the market is now a gentle seller’s market.  What?!  In what was literally the shortest buyer market ever, we have shifted once again.  Supply has remained stubbornly low.  Interest rates have drifted down a bit – and buyers have had time to acclimate to interest rate sticker shock.  Hence, demand has risen.  

To summarize the recent rise of listings under contract compared to last year, no one is better than Michael Orr of the Cromford Report: “We remain 27% below the count on February 13, 2022, so we are really back to normal rather than the wild and crazy market we had 12 months ago.”

It’s not a time for buyers or sellers to take market conditions for granted. If the last year proved anything it is that markets can change quickly.  For an analysis in your particular area, contact us.  This is a market to watch closely.

Russell & Wendy Shaw

(Mostly Wendy)