It’s happening folks, right before our eyes. The market is changing, umm, cooling. But before we go there, we’ll report on April’s sales numbers:
- Active Listings: 6,688 versus 5,080 last year – up 31.7% – and up 32.4% from 5,051 last month
- Under Contract Listings: 10,889 versus 12,187 last year – down 10.7% – and down 6.3% from 11,620 last month
- Monthly Sales: 9,270 versus 10,200 last year – down 9.1% – and down 8.6% from 10,144 last month
- Monthly Average Sales Price per Sq. Ft.: $302.64 versus $243.36 last year – up 24.4% – and up 4.1% from $290.75 last month
- Monthly Median Sales Price: $466,000 vs $373,000 last year – up 24.9% – and up 2.3% from $456,000 last month
As you can see, the numbers continue to change favoring buyers. Listings are up over 32% in just the last month. Under contract listings are down compared to last year AND last month. Sales are down 9% from last year, and almost 9% since last month. And in one of the few owner bright spots, sales prices, the lagging indicators, are up 24% versus last year, and, get this, over 4% from just last month.
For a few more months perhaps, we will continue to read of increasing sales prices, as sales are closing higher due to existing pending sales in the past weeks. But soon enough, if the current trend continues (and it will), inventory will continue to increase providing buyers with many more choices and less competition. Alas, we could well be on our way to a more normal market – a novel Phoenician thought, for sure.
But soon enough, if the current trend continues (and it will), inventory will continue to increase providing buyers with many more choices and less competition.
But then there are the investors. What’s up their sleeves?
Real estate investors can be pretty savvy. The successful ones understand market dynamics. They know “when to hold em, and when to fold em.” Today’s large scale investors, like the huge behemoths in the stock market, can often determine (manipulate?) direction for an entire market.
Since mortgage rates have escalated to over 5.5% recently, the regular mom and pop market, including first time homebuyers and move-up homebuyers, is slowing.
So, how are investors reacting to the market? Or asked another way, what should a shrewd investor be looking to do?
The current Phoenician investor, in my opinion, unlike stock market sellers, will be pulling back on purchases, but not liquidation. If buyers aren’t buying, they’re renting. The rental market will not be slowing until (if and when) new home construction, apartments, etc catches up to the demand. This could then further slow the sales market. Investors will wait and only look for the best buys that are out there – and they could have plenty to choose from.
We knew it was bound to happen, the question was when? It’s looking like the when is now! The rental market is showing signs of slow-down. If we compare our rental market with 2021 at this time, we see the following supply changes occurring as reported by the Cromford Report:
- single-family detached actives have increased by 99%
- apartment actives have increased by 69%
- townhouse actives have increased by 15%
Single-family detached (SFD) rentals are in much greater supply in 2022 and are currently 71% of all rental listings in the Arizona Regional MLS (ARMLS). At the same point in 2021 they were only 51% of rental listings. (Caveat: The ARMLS numbers represented here are not the entire market, however they do provide a fairly accurate picture of the whole market)
Cromford is also seeing the average asking price for single family detached rentals drop in the last year where the SFD is now averaging $1.61 per square foot (PSF). It was $1.97 this time last year having peaked at $2.09 per month previously.
Apartment average rents are currently at $2.16 PSF per month. For all types of condos, townhomes, and apartments (attached), the average asking price is currently $2.02 PSF per month. It was $1.90 this time last year.
Interestingly, the drop in rental prices is NOT happening to townhomes. In fact they have been increasing. They also remain in short supply. Apartment rents have also increased but supply is much better than a year ago. The appeal of townhomes for renters and investors is due to a at least a few factors:
- Townhomes are attached like condos and apartments, but often with just 2-4 units being attached providing better privacy – more or less.
- Many townhomes provide garages. Condos and apartments not so much.
- Town home communities are more often gated
The big changes are in single-family rentals where supply has doubled over twelve months and the average rent asked has declined by 18%. SFD’s are actually less expensive to rent PSF, so if a prospective renter needs more space, they will get more for the money with an SFD.
Currently there is a large number of attached homes being built in Phoenix Metro. There is always a danger of overbuilding and we’ve certainly seen that in our past. Developers are no doubt seriously eyeing our market to discern future expansion (or not).
So today, while it’s still called today, there is market movement favoring renters. Now if the same thing could only be said for our first time home-buyers.
March numbers are showing continued huge strength in appreciation, but also possible trends that could slow the market. First, the stats:
- Active Listings: 5,051 vs 4,088 last year – up 23.6% – and up 10.1% from 4,588 last month
- Under Contract Listings: 11,620 vs 12,575 last year – down 7.6% – and down 3.6% vs 12,050 last month
- Monthly Sales: 10,123 vs 10,398 last year – down 2.6% – but up 26.6% from 7,998 last month
- Monthly Average Sales Price per Sq. Ft.: $291 versus $232 last year – up 25% – and up 2.3% from $285 last month
- Monthly Median Sales Price: $456,000 versus $358,250 last year – up 27.3% – and up 2.5% from $445,000 last month
First, let’s look at our still hugely deficient listing inventory. Active (current) listings are up 24% (all numbers rounded) from one year ago and up 10% from last month – positive news for buyers! I’m not sure, however, how much help at this point this will be for our buyers, since mortgage rates are near 5%. Click here to read a great NPR article about it.
As expected, sales are slowing – somewhat. Under contract listings are down near 8% from last year, and down 3.6% from last month.
Sales spiked last month versus February, up near 27%, but have decreased versus last year by nearly 3%.
Crazy price increases continue. The monthly average sales price per square foot (PSF) is now at $291, compared with $232 just one year ago – a 25% rise. Of particular note is that the PSF is up from $285 just last month – a 2.3% rise. The Monthly Median has risen to $456,000 – a 27% increase from last year and up 2.5% from last month.
The huge bounce in mortgage rates these past few months (now near 5%) is combining with the higher priced inventory is eliminating MANY buyers from the market, especially the newbies. In fact, with all the purchases and owner refi’s over the past three years, there will be little incentive for homeowners to sell. There’s not much upside financially for them.
In fact, with all the purchases and owner refi’s over the past three years, there will be little incentive for homeowners to sell. There’s not much upside financially for them.
There also seems to be a possible turn in rentals. Rent prices are now decreasing, though not significantly. Average asking lease prices have fallen also, which is a leading indicator of closed rental prices.
Personally, I don’t see any major changes in pricing, either for sales or rentals. This was foreseen when we projected ahead of what the sales year has in store. We’re on the money regarding market slowing, but prices are still high. Is this a result of continued cash-buying investor groups?
Another story for another Monday!
Pray for Ukraine!
I love our chamber of commerce 85-degree temps. In April of 1994, my wife and I were asked to visit friends from the Truckee/Tahoe California area who had bought a home in Scottsdale. It also coincided with our 10-year wedding anniversary. We weighed the options: 25 degrees and snowing in Truckee, vs 80 degrees and sunny in Scottsdale. And they said, “Oh, and bring your swimsuit.” SOLD! We moved to Scottsdale later that same year.
Swapna Venugopal Ramaswamy, a USA Today writer, wrote an s an article in the Arizona Republic yesterday. This article’s title was “Lock in Mortgage Rate Now.” In the article the writer mentioned that rates were 4.2%, week ending March 17th. In just over two weeks, the rate jumped to almost 5%.
FYI: Today’s Mortgage Rates from NextAdvisor
Our advice? Even though the rates are near 5%, if you’re buying a home, yes, you should lock in the rate. Rates move according to long term risk. If you believe in the next few weeks/months that inflation will persist, then rates will probably not back down, and would continue higher. If the price of oil steadily drops, that would help lower inflation which would help lower rates.
The article mentions that now would be a good time to refinance. That would of course depend on what your current rate is. There’s a large cost to refi. I would be pretty surprised that someone’s rate would be at 5% or more and they had not already refinanced.
I went to the Suns game yesterday (vs Philly) with my buddy Walter. He has owned Suns season tickets since the Steve Nash era, the last time the local team was a championship caliber team, besides last year. I usually drive to these games, and they’re most always at night, but yesterday Walter graciously drove and it was an afternoon game. Now, why does this matter, and what’s it got to do with real estate?
Glad you asked.
Not driving, and being able to be an observer, I was blown away with the upward growth (literally) of downtown Phoenix. Numerous high-rise cranes were building modern commercial and residential structures. Former run-down neighborhoods (not all) were sprouting economic vitality. The arena (Footprint Center) was like no other arena event I’ve ever attended. It was a sellout (and it’s not even the playoffs) and the fan/arena noise was an amazingly fun assault on the senses. Of course, it does help to have the best pro team in the nation😉
“…the Phoenix Metro community as a whole, saw more population growth than any other metro community…”
According to Census data, Arizona’s population gained almost 100,000 this past year. And 99% of our resident growth is attributed to migration, rather than the “natural change” of births and deaths. Of the 98,330 new residents, only 832 were attributable to natural change. Check out this article from the Business Journal:
Maricopa County alone, added more residents (58,246) than any other County in the country. Further, the Phoenix Metro community as a whole, saw more population growth than any other metro community, behind only Dallas-Fort Worth-Arlington area. Arizona ranks, per the Census, as the 3rd fastest growing state in the U.S.
What was just a few years ago never really discussed, but is now the most oft question of the day for The Bodeen Team:
When will this (price escalation) end? Based on the above local and statewide story, not real soon. Seemingly, our demand for a limited supply of housing will continue unabated for the foreseeable future. This will further increase values locally, and statewide.
Caveat: Having said that, in 46 years of residential real estate experience, I’m no stranger to market changes. And when they happen, they can happen quickly.