Small Correction or Huge Dip for Phoenix and Scottsdale?
No one can deny that we have now seen price corrections in the Phoenix metro market. On the street level I myself have seen weaker demand affect our listings. We have three different listings which we’ve now got under contract, that I am confident we could have got at least $20,000 to $50,000 more for if we had listed two or three months earlier.
While this is good news for buyers, there is also some good news for sellers, though it might be underwhelming.
What’s the good news?
It’s getting worse much more slowly! “Well Jonathan, that doesn’t seem very exciting…” Hear me out. Over the last two or three months, we have had weekly deluges of new listings hitting the market. At the same time, demand dropped big time.
Over the last two or three weeks however, new listings have begun hitting the market at a much slower pace, easing the rapid inventory increase. In fact, when I checked the MLS this morning for single family listings, the amount was almost the same as last week. I should note that when factoring in all the other housing types, the total amount rose. This may suggest that the situation for single family homes is healthier than other sectors of the market.
In addition to this, while demand is still dropping, it looks like it may be balancing out. In some zip codes, we have seen a slight increase in demand over last week and the week before. One example is Cave Creek, which is in a better place market wise than it was a few weeks ago.
To my view, it looks like we may be nearing the bottom of a curve in terms of the overall supply and demand issue.
But this is just one potential. There are many variables that can tip this either way. What are some of those variables?
As far as we can tell, overall affordability is the largest factor in the current demand reduction.
- Interest Rates: They’ve been fluctuating up and down pretty erratically over the last few weeks, and we don’t really know where they will be going. If they spike higher again, that may cure me of my delusions all too quickly. If they edge lower we believe a new wave of buying could be opened up.
- Price drops: The recent price drops we’ve been experiencing, as well as seller’s willingness to now help out with a buyer’s closing costs is helping out with affordability for buyers. There is a returning trend right now of sellers helping buyers to buy down their interest rates, which can help lower payments significantly.
The overall supply is still a little below what we would say is average for the phoenix market, but it’s not far from that.
- Homeowner Panic: Will sellers panic and rush to sell, trying to cash out while prices remain high? Maybe, but my big question is, where would they go? Renting isn’t a very attractive option right now either, and if they just go buy another home, unless it’s out of state, the market here won’t be much affected.
- Institutional investor panic: While they’ve slowed down and not paying top dollar anymore, the ibuyers, as we call them, are still buying. We haven’t yet seen a mass selloff. Rents have come down, but overall still much higher than they were a few short years ago. Phoenix real estate seems to remain a valid choice for investors.
- Small investors. If there is a big sell-off, we think it would most likely come from ordinary folks that have one or two investment properties, trying to offload them.
The reality is we are still in a chapter of change for Phoenix Area Real Estate. It seems to me the chapter is about to end, but there is another chapter coming. I’m hopeful it will be a boring chapter unlike the last one, but stay tuned to find out!