Market Conditions for Buyers
It has been an eventful four weeks! Conventional rates dropped but are still volatile. Buyers entering the Phoenix real estate market may be unexpectedly shocked when expecting desperate sellers and bargain prices. Two more cities moved into seller’s markets this month, Surprise and Goodyear. Currently, 14 out of the 17 largest cities favor sellers, and days-on-market in some zip codes in Chandler and the West Valley are just 2-3 weeks before going under contract, reduced from 9-11 weeks. During January and February, skepticism dominated the marketplace due to leading indicators (reflecting future performance) not aligning with lagging indicators (reflecting past performance). Today, we finally see the lagging indicators showing what the leading indicators told us back in January. The sales price has risen for four months straight, and while still down year-over-year, the average sale price per square foot has recovered 5.7% since the end of 2022. Despite extreme mortgage rate volatility, another Fed funds rate hike, and two bank failures, you may ask, “How can it be?”
Trends in home prices are not dependent on demand alone. Supply plays a significant role and is decreasing alarmingly. Not enough new listings are coming into the MLS to replace those going under contract. Data from the MLS has shown an average shortage of 54 listings per day since April 1st. While demand is approximately 18% below what is considered “normal” for this time of year, supply is 40% below.
Where will the relief come from? Builders are not adding further to the supply, with new single-family home permits dropping 74% between March and December last year. Inventory from iBuyers OpenDoor and OfferPad has dwindled from 12% last August to just 3-4% of active supply at the end of April and continues to decline. Foreclosures remain at record low levels with little evidence to support a significant rise. Looming regulations and lower occupancy rates may spur short-term rental owners to sell after the peak season. However, only time will tell if the additional supply will relieve the overall shortage.
The leading indicators point to more upward pressure on prices for Greater Phoenix. However, time is of the essence for those buyers on the fence. As supply continues to decline, the percentage of sales where sellers contribute to closing costs or mortgage rate buy-downs has also declined, down from 52% in January to just 39% at the end of April.
Market Conditions for Sellers
Seller positions are improving, but the current environment differs significantly from 2021 or 2022. Only three large cities, Queen Creek, Maricopa, and Buckeye, remain in buyer’s markets. The city of Queen Creek is in a mild buyer’s market, moving towards balance. The city of Maricopa is fast-improving as well. Prices have stopped dropping in Buckeye, the city of Maricopa, and San Tan Valley. Note that the Greater Phoenix area would not currently be in a seller’s market without seller-paid buyer incentives. Price points between $250K-$800K show 40-57% of sales include seller-paid closing costs, and West Valley zip codes close to I-17 and Avondale are seeing 70-80% with similar concessions. The median cost to sellers is an additional $9,000, typically allocated to temporarily buy down a buyer’s mortgage rate by 2-3%. While sellers may lament helping the buyer reduce their mortgage rate, they may utilize that same benefit when they decide to buy, which dulls the sting somewhat.
Wild fluctuations in mortgage rates are still causing weak demand. The volatility in rates is worse than the rates themselves. A little stability will go a long way in improving demand; however, the lack of supply will continue to push prices up for now.
The market statistics are for Maricopa and Pinal Counties. Please let me know if you’d like similar statistics for a specific city or neighborhood within the Phoenix Metro area.
Contact me today at 602-527-1922 to schedule a free consultation.