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.
Good news continues for prospective Scottsdale and Phoenix renters who haven’t gotten much of a break over the last few years. The long-term rental supply is growing… QUICKLY! There are over 2,900 active rental listings (on our local MLS). This is an 18% increase in just one month, up from 2,463 rental listings last month.
This means that renters will have more choice with less competitive bidding. And if you’re looking for single family detached (SFD) homes to rent, those numbers are increasing the fastest. 2,088 of the 2900 total rentals listed, per the Cromford Report, are in the SFD category.
And what about rental pricing? Pricing is on the downward slide as well. The average rental asking price in the MLS is down to $1.57 per square foot (PSF), compared with $1.63 PSF last month and $1.94 one year ago.
It’s really important to get the word out to folks about the changing rental market. Many may believe that the market is what it was 6 months ago. Not so. This is a radical change occurring as we speak .
The “short-term” outlook for our Phoenix Metro residential real estate market seems determined to continue a steep drop in sales and a downward adjustment of pricing. This is due to the meteoric rise in listing inventory caused in large part by the doubling of mortgage rates in less than a year along with the huge rise in home values. As usual, most of our data supplied is with much thanks to The Cromford Report.
First, we must look at the supply of unsold listings. We have 15,500 active listings currently unsold. The inventory market peaked, or in this case, shall we say, bottomed out, in March which had about 4500 listings. This translates to an increase of nearly 250%. While we are still lower than the long term average in terms of total active listings, that could change soon at the current rate of change.
The number of downward weekly price changes is astounding. Historic. At the beginning of the year, the number of weekly price changes were under 400. For the week ending January 30th, for example, there were 374 price changes. Less than 6 months later, this last week, has seen 3703 listing price reductions. That is a 900% increase! (See Chart below)
And what about pricing? Though it’s still early before we can really get a firm grip on this, we can nonetheless already see downward pricing movement. Remember, final sales price, or final sales price per square foot (PSF) is a lagging indicator. The monthly average PSF peaked at $306 on May 22, 2022. Within two months, it’s dropped to $290 PSF, or 5%. With the record number of price reductions happening, we can count on a additional downward pressure on values.
Well Mike, what’s the “mixed” part of the message? Looks like a seller’s downer to me. Glad you asked, I think.
Based on current listings that are in a “pending” status, which means they are under contract, in escrow, Cromford is predicting a short-term bump in values to $295 PSF, due to current higher priced of the homes under contract. But this is short term.
In a rising and heated sales market, almost any agent can look like a genius sales guru. You may mess up inputting your data into the MLS, you could take house photos with a 10-year-old cell phone, you could fail to follow up with phone calls to your client, fellow agents, and the buying public, and not even get a “for sale sign” on the property for 5 days, and still, you’ll be deluged with a dozen or more offers on the property, with many of them over asking price. Agent is hero. And sadly, many of these “agents” believe their own self-imagined press releases.
It’s been a market where gimmicky sales approaches will thrive, then dive. 5 Star agent google ratings will plummet from the skyscraper to the basement – assuming they are ever shown to the public. If you thought you weren’t hearing from your agent very often before, you ain’t seen nuthin yet.
Advantage of Experience and the Longview
One advantage of having been an active and productive real estate sales professional for over 45 years is that I’ve seen it all – that is until the next thing that I’ve never seen before comes along. These days, that could be yesterday. 😉
But now the market is changing. Supply (listings) are rising quickly, (see chart below). Demand is diminishing. Pending sales, closed sales and listing prices are dropping.
“And as a sure sign of the Apocalypse, builders are cuddling up to Realtors to get us to bring our buyers back to them.”
We’re now seeing layoffs happening. Re/Max, one of the largest franchises in the country is laying off 17% of their support staff. (https://www.marketwatch.com/story/remax-to-cut-17-of-its-workforce-2022-07-07) The mortgage industry has now laid off hundreds of thousands of jobs nationwide. Title companies are shedding thousands of jobs. And as a sure sign of the Apocalypse, builders are cuddling up to Realtors to get us to bring our buyers back to them.
