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!
It’s in our nature. We want to buy low and sell high. “Timing the Market” is certainly on the lips of lots of stock market pundits these days – and is now a part of the residential real estate discussion, both locally here in Scottsdale and Phoenix, and nationally.
Questions abound: Has our market peaked? If not, when will it? If I’m buying, should I buy now or wait for more supply and lower prices? Will mortgage rates continue rising or will they decrease, or at least stabilize? Open the envelope, please. (Just kidding😉)
What we do know, is that sales prices are continuing to rise (market lag) and will do so for a number of (unknown) months until homes take longer to sell (now happening), and asking prices begin to drop (now happening).
The good news for buyers, is that supply is increasing – rabidly and rapidly. Active supply has increased 71% over the same time last year (as of May 21st). And per the Cromford report, it has increased 45% in just the past 30 days, though still historically low
What is most interesting is that, again, per Cromford, it’s “not coming from a massive flood of new listings hitting the market. New listings are at normal levels, and not excessive, but fast rising mortgage rates and fewer sales have reduced the number of accepted contracts.” If sellers want to hit the peak of the market, now may be the time to sell, but as has been questioned by Mike’s Market Snapshot ad nauseum in the past months, “THEN what are you gonna do?”
“If you can afford it, be on the lookout to find the right home that you will enjoyliving in day after day. And if you find it, go for it. After all, isn’t a home’s enjoyment the right investment strategy?”
With massive untold millions of homeowners having sub-3% mortgage rates, why would they want to sell and step up to 5.5% current rates, unless their existing situation mandates they sell, such as relocation out of the Valley, or regular ole life issues of births and deaths. This could include us aging boomers going into assisted living, and/or investors wanting to sell at the top of the market. The latter would not appear to be much in play however, as right now, investors are reaping the whirlwind of the highest rental returns ever.
And to buyers, my advice remains: If you can afford it, be on the lookout to find the right home that you will enjoyliving in day after day. And if you find it, go for it. After all, isn’t a home’s enjoyment the right investment strategy?
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?
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.
Well today is the near Ultimate Twosday, 2-22-22. I suppose the ultimate, ultimate Twosday would be 2-22-2222. But, hey, this is close enough.
So here’s your Bodeen chuckle for the week. Let’s go back to 1969, with that one hit wonder from Zager and Evans: “In the Year 2525.”
Now I’m not implying that our market will reach “normal” in 200 or 503 years, but it won’t be anytime soon, either. We’re showing two charts today with converse directions: The Greater Phoenix Metro current market “median sales price,” and “Days of Inventory.”
First we’ll look at our current median sales price:
According to the Cromford Report, our Median Sales Price continues to rise to a present day $445,500, which is up from $350,000 one year ago – a 27% increase. Will this change? Yes, it will, but the change will look like 2001 to 2004, where there was a 21% change – over three years — or, 7% per year. And it could take a while to commence that line. 6 months? A year? Longer, before that modest annual increase sets in?
Can we begin to see when the market will change? Yes. “Days of Inventory” is probably the best leading indicator we have of a changing market.
Our market will change in favor of buyers as the days of inventory increase. As listings stay on the market longer, this will work in tandem with increased listings on the market, bringing greater supply. Supply must increase! Supply can of course increase due to a number of factors, such as pricing and mortgage rates getting too high. Affordability, or lack of it will bring more listings.
Also, having worked in this industry since the creation of dirt, I’ve seen a few things. Historically, when prospective home sellers believe that that market has hit it’s peak, they will put their home on the market to try and catch the top. This is truer of investors which currently own over 200,000 rentals in Phoenix. If major corporate rental owners liquidated their holdings, we’d see a mass market shift. That will not happen. Investors (landlords) saw rents rise in the 20% plus range. And the rental market is as tight as the buying market. They’ve got a hugely good gig going. Investors are still buying.