Softness Beginning in the Phoenix and Scottsdale Rental Market?
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.
Better Days Ahead for Scottsdale and Phoenix 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!
Scottsdale Real Estate Trends
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
- 30-year mortgage rate: 4.91%
- The average 20-year fixed-rate mortgage currently sits at 4.88%
- Today’s 15-year fixed mortgage rate is 4.07%
- 10-year fixed mortgage rates are averaging 3.99%
- Today’s average 5/1 adjustable-mortgage rate is 3.34%
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.
99% of Arizona’s Growth from Migration, Per Census Maricopa County Fastest Growing U.S. County
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😉
Segue.
“…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.
Global Pandemic? World War? Soaring Inflation? Result? Phoenix and Scottsdale Home Prices Continue to Spike!
I haven’t seen any other articles about this yet, but the counter-intuitive conclusive message, at least now, seems to be getting clear: Global and national bad news, at least in Phoenix, Arizona, means home values continue spiking upward.
Some history:
Pricewise, in August of 2011, based on the Monthly Average Sales Price Per Square Foot, (PSF) the Phoenix Metro residential real estate market hit rock bottom – $79.00 PSF. This was a time which local veteran real state agents would just as soon forget. Foreclosures, Short Sales, abandoned homes, many displaced families, it was a nightmare.
But then, the market turned. Investors began buying homes traditionally and the through the foreclosure market, fixing and flipping, or fixing and renting. Gradually, neighborhoods began to change – for the better. Between that August 2011 bottom and February of 2020, the PSF rose to $185. This was a $106 PSF rise in 9 years, or $12.00 PSF per year average. If you had a 2000 SqFt home, your home appreciated $24,000 per year. Wow, a great time to own a home.
In February of 2020, the Covid 19 reality began hitting home. The local market screeched to a halt. In two months, the PSF dropped $7.00. Listing inventory rose by over 30% in one month! At this rate we would be soon seeing a return to a huge inventory of homes for sale. The pandemic increased intensity and hundreds of thousands of Americans were dying, not to mention the millions world-wide. The great and healthy 9-year real estate ride we homeowners were enjoying, was ending – at least that’s what we “experts” thought.
The great and healthy 9-year real estate ride we were all enjoying, was ending – at least that’s what we “experts” thought.
But then, inexplicably, unexplainably, incredulously, the market changed – again. We went from $180 PSF in May of 2020 to $296 in March of 2022 – in less than two years! That’s $116 PSF, or more than $58 PSF per year! That 2,000 SqFt home has now increased over $116,000 each of the last two years.
That was Covid-19. As this terrible pandemic has been winding down, we have a new war in the world with Russia and Ukraine spiraling up. It has World War potential. Oil, the still major global currency, has spiked, bringing with it inflation not seen in our country since the 80’s. Mortgage rates are also rising, now over 4%.
Are these new geo-political events halting the rise of local real estate values? No! Incredibly, prices are continuing to rise at a greater rate as is now being reported by the Cromford Report, the most accurate source of real estate statistical reporting in Arizona.
So here’s the scoop:
Per Cromford, last month, on February 15th, the closed sales PSF for the Phoenix Metro area for all types, namely single family detached, condo/townhome, etc., was $277. On March 15th, the closed sales PSF was $290 – an increase of 4.5% – in one month. That used to be Phoenix’s annual long term appreciation rate!
I’m not through. As of March 15th, the current average Pending Sales PSF is at $296. Based on current Pending PSF, Cromford is projecting a 4.4% rise for April 15th. If this happens, prices will have risen 9% in just 2 months, or an annual rate of 54%!
My conclusion? It seems simple enough. In the storms of life, people gravitate to what is solid and real. And recently at least, it seems like folks aren’t letting go.
