For Buyers: Not a lot of changes are happening in the housing market right now. It’s as if both buyers and sellers are in a holding pattern awaiting a sign before making a move. Conventional mortgage rates have held steady in the high 6% and low 7% range for nearly 3 months now with little signs of a decline yet, keeping contract activity restricted since the 4th of July and overall demand 22% below normal for this time of year. The continuous drop in supply we’ve been experiencing since October has slowed and flattened out over the past 6 weeks as well, but still 52% below normal for the past month and 39% below last year’s supply count. The ratio between supply and demand is keeping Greater Phoenix in a seller’s market, but it’s mild compared to the last 3 years. This indicates an upward pressure on price, but more subdued. Between September and December, the annual appreciation rate is expected to turn positive and may return to a pre-pandemic level similar to 2018 and 2019, which had annual appreciation rates between 5-8% on average. This is good news for buyers for two reasons. First, the latter half of the year is typically the best time to be a buyer in Greater Phoenix as the highest months for closings are March through June. After June, buyer competition declines until the end of the year and gives buyers a little breathing room to tour homes and make decisions. Second, most buyers like to see their home’s value sustain or increase after they purchase. There is also an expectation that the uncertainty surrounding mortgage rates may be lifted towards the end of the year and hopefully after the Federal Reserve concludes their meeting on September 20th. While mortgage rate predictions continue to be all over the board, and mostly wrong, if they do indeed decline over the next 3 months then we expect both buyers and sellers to break their holding patterns and housing may begin to move once again.
For Sellers: While the Greater Phoenix market is experiencing its typical “summer slowdown”, marketing times prior to contract have held steady for the past 2 months at a reasonable 21 days. Also holding steady, 41% of closings involving seller- assisted closing costs, with the median cost to the seller at $8,000. Offsetting this statistic is a growing number of sales closing over asking price. June saw 21%, July 22%, and August is pushing 23% so far. In a normal seller’s market, this statistic doesn’t exceed 18% and typically peaks in June or July. The median amount over asking price for July closings was $6,000, and the majority of sales last month with both seller concessions and a prices over list occurred on properties listed below $600,000. New home construction is roughly a third of available inventory in the Arizona Regional MLS. While permit activity dropped significantly last year, this year it has bounced back, but not to the same level as 2022. Instead, new single family permits year-to-date are at a level Greater Phoenix hasn’t seen since 2017. For existing homeowners, this means the value of their single family home will be sustained as fewer new homes will be added to competing supply. Multi- family permits have outpaced single family and continues to hit new highs. The majority of these units are intended to be rentals, however, and will be adding little competition for existing owners of townhouses and condominiums. The latest employment report for Arizona showed our state’s labor force continued to grow 2.5% year-over-year, faster than the U.S. growth rate of 1.8%. Non-farm employment grew by nearly 72,000 jobs and private sector earnings are up 2.4%. The unemployment rate is just 3.5%, well below the pre-pandemic measure of 4.9% and the lowest unemployment rate for Arizona since 2007. Economic measures for Greater Phoenix continue to support a good housing market for buyers and sellers through this period of restricted demand, and increased activity for the housing industry as a whole if mortgage rates should decline at any time in the near future.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report ©2023 Cromford Associates LLC and Tamboer Consulting LLC
Misha’s commentary:
Speaking to colleagues and friends in other markets within Arizona, we are all experiencing the same thing- we have buyers, we have potential sellers, but it seems every situation is a bit complicated and/or not urgent, therefore lots of sidelined sales. As mentioned in the commentary above, if rates drop, I think we will have a frenzy on our hands and as agents need to be prepared, however, buyers should buckle up too.
For Buyers: Start looking now if you are thinking of buying in the next 6 months. It’s always amazing how quickly time passes and another lease needs to be signed. Not only for time sake, but for your long term finances- start looking and buy sooner rather than later. Rates may be higher than any of us would like, but they are not expected to drop significantly in the foreseeable future and neither are prices. Unfortunately for first time buyers, you may be looking at condos and townhomes vs. single family homes- but it’s a start and most likely temporary. Two years and time to evaluate your finances and potentially cash in on some equity. In a nutshell, it’s still a good time to buy- you need to have some major patience and make smart decisions.
For Sellers: It is still possible to get over asking, multiple offers, and potentially lease backs if necessary- but you have to have an AMAZING house. If you are selling a unique, historic, architecturally significant home- you can typically command the sale- because there are so few of these types of homes on the market. If you are selling a nice, average home, you may be waiting patiently for a few weeks to get your contract- but if you are priced right and maintained well, you should still have a great sale. With new homes being built, I don’t believe this is competition for the special homes that exist- this is a totally different clientele. My advice for would be sellers- make your home special in some way, make sure it shows extremely well and is very desirable- and you can command your sale.