They’re saying that July 2023 was the worst (hottest) on record, but it’s August in the Valley of the Sun, that is the pinnacle of misery. September, though still hot, brings cooler mornings and is a reminder that soon, our chamber of commerce weather will return.
Our Phoenix metro residential real estate market is resembling our August weather slog. Low supply, low demand, and high mortgage rates (7+%), yet still, a seller’s market. Still not much of a break for buyers.
August 1st Market Report
Arizona Regional MLS numbers for August 1, 2023, vs with August 1, 2022 – areas & types:
Active Listings 11,241 vs 17,957 last year – down 37% – and down 2.6% from 11,545 last month
Under Contract Listings: 7,546 vs 8,058 last year – down 6.4% – and down 4.0% from 7,858 last month
Monthly Sales: 5,906 vs 6,190 last year – down 4.6% – and down 21% from 7,452 last month
Monthly Average Sales Price per Sq. Ft: $282 versus $286 last year – down 1.3% – and down 1.9% from $287.78 last month
Monthly Median Sales Price: $434,900 vs $452,500 last year – down 3.9% – and down 1.8% from $443,000 last month
On a different note, the new home market is doing much better than resales:
New home closings totaled 1,352 with a median sales price of $533,592, an all-time record high price
The new home closed sales count was up 7.6% from July 2022 but down 18.4% from June 2023.
The new home median sales price is up 3.2% from a year ago, and up 2.8% from last month
One of the reasons why new home sales are fairing better than resales is that builders are providing mortgage rate buy-downs. Resale sellers can do the same, and those sellers that are providing incentives for buyers are more successful in getting to – CLOSED!
In a perfect world, a local real estate market would be a balance of buyer and seller supply and demand, with reasonable annual appreciation. The Phoenix and Scottsdale area has had a consistent six-year run of just such a market between May 2014 and June 2020.
Then, in early 2020, we had a global pandemic and predictably, per all of us experts anyway, real estate values declined – for all of 2-3 months. I’m not just talking about Phoenix, Arizona, but nationwide as well.
At that point, the market decided to release its foot off the breaks and apply the pedal to the metal, sort of like popping a wheelie, and laying rubber simultaneously to hit new pricing records within two years. It went from a reasonably healthy and consistent market to one that’s out of control. It had also become unaffordable.
Brakes Applied Again!
Over the past few months since spring, the breaks have once again been applied. A slowing market has returned, and we have now entered a balanced market. But not everywhere. Per the Cromford Report, Surprise, Gilbert, Tempe, Maricopa, Litchfield Park, Buckeye, Queen Creek & San Tan Valley are buyer’s markets, while Fountain Hills, Paradise Valley, Scottsdale and Cave Creek are seller’s markets.
If you check out our weekly Cromford Market Index today, which takes into account our entire Phoenix Metro area, you’ll see that we have fallen just below 110. A rating of 90-110 is a balanced market.
The question now is where we’ll go from here? Can this be a sustained slower growth market, or a quick touch and go back to a rabid seller’s market as we did 30 months ago? It’s also very possible that we continue slowing into a full-fledged buyer’s market. This is a possible scenario, although there are some indications that the slowing is slowing. Either way, the rate of downward pricing will still be felt for a while, especially in the trailing sales price numbers.
The current talk of course, is all about the Phoenix (as well as the country’s) real estate market dropping in value – and it is. See article out today here.
Question? If you’re a renter, should you renew your lease (continue to rent) or opt into the more buyer friendly market happening now?
At some point, you’re going to buy a house, that much you know. You tried this past year and got turned off by the mega-competition offering on homes for sale, so you signed a lease on a home or apartment, because trying to rent a house, was just as competitively bad as buying.
It’s tempting to wait and renew that lease for another year. After all, your wise landlord should be done raising your rates for now, seeing that the rental market is softening as well. And home sales prices continue to trend downward in pricing. On the one hand you would not be faulted to sign a year’s lease and stay where you are, unless of course, the Geico renters upstairs are forever dance clogging LoL:
But things have changed, radically and quickly. (See Numbers Below) Now what should you do as your lease comes up for renewal?
All that said, or danced to, there’s a strong case for house shopping sooner than later. Remember, with over 45 years in the residential real estate market, I’ve been to a few real estate market rodeos. One thing about Phoenix residential real estate, predictable it’s not. There’s no smart money to bet on here.
There are however some things to think about:
Due to inherently strong Phoenix demand, demand will return
When demand returns, and it could be soon, competitive bidding returns
When competitive bidding returns, you’re back to square one.
With over 100 homes coming on the market each day – You have choices
Currently, unless a deal comes up that’s a real deal, you may (probably) are the only one ready to make an offer.
Sellers are much more open to lower than asking prices and terms
Contingencies, such as selling a home first, are also considered, especially if your home is already under contract.
What would it take to flip the script back to a seller’s market? Not much. For one, an interest rate dropping to 4% would, in my opinion re-open the flood gates. Just as sellers are now bemoaning missing the top of the price market, buyers will likewise become very disappointed for not taking advantage of this window of opportunity now. But will that happen in a few months or a few years, or ever? The Lord knows!
There is however, a really strong case for getting back into the buyer market now: If you actually find the home of your dreams that you can see yourself enjoying for many years to come, and you’re able to secure that home and begin that enjoyment now, what is the value of that?
The “Dog Days of August” are upon us. With that delightful news, let’s take a look at the Phoenix Metro “Dog Days of Data,” which, if you’re in the Buyer’s camp, the trending good news continues. If you’re in the Seller’s camp, well, compared with one year ago, your home’s value has risen over 10%. This is over twice the annual average appreciation of the last 25 years!
The not-so-great news is that the top of the market has peaked. It’s in the rear-view-mirror. Put that out of your mind. Adios!
When did it peak? Back in May. (The Cromford Report) On May 22nd, the average sales price per square foot (See Chart below) topped out at $306 per square foot (PSF). Last week according the to the chart, we were at $290 PSF – a 5% drop in two months. Actually, the market peaked 30 days before that (mid-April), due to typical 30 day closing lag time.
Now there’s a caveat to what I just expressed. You’ve heard us say for years, that ‘all real estate is local.’ The data we generally use is the ‘Phoenix Metro’ single family residential real estate market. Every zip code is different. Every community within a zip code is different. And finally, every residence within a community is different.
Interestingly, some higher end markets are currently the slowest to be dropping, including Paradise Valley, Fountain Hills and Cave Creek. Along with those cities, Scottsdale, Avondale, Goodyear, and Mesa are still technically in a Seller’s Market, but are heading towards balance shortly. Currently in balance are Phoenix, Glendale, Peoria, Chandler, Surprise, Tempe, and Gilbert. Most of these in balance will be in a buyer’s market next week at the current rate of price drops. This is how quickly the market is adjusting.
Communities that are now in a firm Buyer’s Market are Buckeye, Queen Creek and the town of Maricopa.
So, to end with a positive spin, buyers, your time to get back into the market is soon, if not now. Let’s get you set up with a daily automated list of homes to view online – available supply of homes are increasing daily. Mortgage rates have actually dropped as well. We’ve also seen a large drop for the price of gas at the pump, which may mean lower inflation, which could mean even lower rates ahead.
The Cromford Report reports that on March 16th, of this year, the Greater Phoenix Metro cities totaled 4,367 listings. Just over 4 months later, we now total 16,235 current listings and growing. The following housing styles and their listing supply increase:
Single-family Detached – up 344%
Townhouse – up 370%
Apartment-style – up 288%
Gemini / Twin – up 130%
Loft-style – up 240%
Patio Home – up 257%
Mobile Home – up 65%
Modular / Manufactured – up 20%
Many of our cities are now in the “Balanced Market Zone” and some, including Buckeye and Queen Creek are now in a “Buyer’s Market.” This incredible speed from Seller to Buyer’s market is historic.