Market Update- September 2022

32% of New Home Sales Had Concessions to Buyers

Mortgage Rate Hikes Cause Drop in Contracts Again For Buyers:

The percentage of closings with seller-paid closing costs continues to grow as August and September to date range be- tween 12-13% of total sales in Greater Phoenix, inching closer to the normal range of 25-28%. Areas on the outskirts, such as Casa Grande, Maricopa, Coolidge and San Tan Valley in Pinal County and Wittmann, Tolleson and Buckeye in western Maricopa County all have 20-30% of sales closing with concessions. These areas have more than their fair share of new home subdivisions that contribute to this measure as 32% of new homes that closed in the MLS in the last 6 weeks involved concessions, compared to only 11% of resale homes.

As mortgage rates remain volatile and difficult to predict, it’s important for buyers to get educated on the lending tools designed to ease the impact of dramatic rate swings. Tools such as the “Lock and Shop” option, offered by some lenders to allow buyers to lock at an acceptable rate for up to 90 days, and seller-paid permanent and temporary rate buydown incentives designed to dull the sting of payment increases.

Buyers who are less affected by mortgage rates, but are looking for the best time to pounce on a home, should know that the 4th quarter of the year tends to be the best time for buyers seasonally. There is often a boost in supply around September and October with sellers eager to close before the end of the year. Once 2023 gets started, contract activity is expected to rise sharply from January through May. The upcoming Super Bowl, Phoenix Open and Spring Training events are expected to generate more open house traffic and exposure for active listings.

For Sellers:

The last 3 weeks saw more hikes in mortgage rates, rising from recent low weekly averages of 4.99%, 5.22% and 5.13% in early August to 5.55%, 5.66% and 5.89% in late August and early September. A similar spike happened last June when rates spiked from an average of 5.09% to 5.81%, also within 3 weeks. The result was a 28% drop in weekly accepted contracts over the course of 4 weeks and the worst July for closings since 2007. Then rates got better, dropping to an aver- age of 4.99% by August 4th. The buyer response was near immediate with a 25% boost in accepted contracts within a 4 week period. The latest spike has unfortunately resulted in another dramatic drop in buyer contract activity, down 14% in 2 weeks.

For now, the housing market is not for the faint of heart, only serious sellers need apply. Gone are the days of buyers waiving appraisals and inspections, Wall Street cash buyers offering more than asking price, and multiple offers. Over the last 6 months, the housing market has shifted away from an intense seller market to a delicate balance, the predictability of which relies on the behavior of interest rates. Until rates move below 5%, demand in the coming months will most likely remain weak, thus putting more pressure on sellers to reduce their price, offer permanent rate buydowns, and pay for their buyer’s closing costs. Many sellers are sitting on significant equity in their homes and while the cost to sell has increased significantly, a great majority of those who have owned their property for at least 2 years can bear that extra cost without distress and still close with a significant profit.

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MeasureMarch 2022September To-DateChange since MarchSeasonally Normal Range (Established 2014-2019)
Average # of Weekly Price Reductions4803,690+669%1,800-2,300
Median Price Reduction$10,000$10,000$5,000-$6.000
Median # of Days Active Prior to Contract731+24 Days21-42 Days
% of Sales with Seller-Paid Closing Costs4%13%+9%25-28%
% of Sales Over Asking Price54%17%-37%12-15%
Sale Price to List Price Ratio101.5%97.6%-3.9%97-98%

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report ©2022 Cromford Associates LLC and Tamboer Consulting LLC

Misha’s Commentary:

Not for the faint of heart is right on! Buyer’s are enjoying more inventory but coming to grips with higher interest rates- and probably another hike coming soon! If you are a serious buyer looking to purchase in the next 3 months, lock your rate ASAP with your lender. Know that you are “dating” this rate- it might be a few years, but you can always make a change if and when rates dip. Discuss your options with your agent and your lender and make sure you have a game plan whether buying the rate down is an option, ARM, etc- there are programs and options for you. I will continue to say it, the house is the most important (of course within budget)- don’t let the right house pass you by for rates, they can change.

For sellers, let me get real-real with you…the party is over…it’s back to real life! Market balance, and even dipping into buyer’s market territory in some areas and with some homes. The good news is, you still have A LOT of equity and prices haven’t changed all that much. What has changed is the amount of buyers. Interest rates have driven would-be buyers out of the market all together, and caused those that have stayed to look in completely different price points. Activity levels are low, contracts are fewer, and you have to compete with more listings. It almost feels impossible to not, “chase the market,” right now because comps say one thing, buyers say another. Be prepared to lower your expectations in terms of price and activity. It will take longer to sell, you will have to give in to some repairs, etc. Consider that you will make it out of the sale with equity towards your next purchase or investment and are still enjoying the gains made over the last two years.

I think the most difficult thing right now is the sudden change and recency of the market being “on fire.” What I always tell my clients that are disappointed is that you cannot time the markets, especially with investments like your personal residence. You can only do what is right for you when the time is right.

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