For Buyers:

• Last year from July to October rates rose from 7% to 8%, increasing payments by hundreds of dollars and knocking many buyers out of the market. June’s inflation report came down more than expected to 3.0% and the response from mortgage rates was immediate, dropping sharply to 6.82%.

• Price reductions are up 88% over last year, and 51% of sales involved seller-paid incentives to the buyer, the highest percentage this year so far. In June, the median concession paid to the buyer was $9,900, up $500 from May.

• As the market has shifted out of a seller’s market and into balance, it has become a friendlier space for not-so-perfect buyers, especially first-time homebuyers.

For Sellers:

• The Greater Phoenix market has been in a balanced state for two months. Over the last 30 days, there were two cities that shifted from a seller’s market into balance: Peoria and Paradise Valley.

• There were 3 cities that shifted from a balanced market into a buyer’s market: Surprise, Goodyear, and Cave Creek. In the meantime, 14 out of the largest 17 cities in the Valley showed a weakening in their market measures in favor of buyers.

• These areas have significant levels of new construction. These growing communities increase competing supply as builders create shiny new inventory for buyers to consider.

• The median sales price has only increased 1.9% from last year and the average sales price per square foot is up 2.6% annually for the month of June.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report

©2024 Cromford Associates LLC and Tamboer Consulting LLC

2024 PHOENIX METRO MARKET REPORTS

For Buyers:

Inflation is a hot topic today. Talk to any investor about hedging inflation and they may bring up strategies that include gold, commodities, rentals, or even cryptocurrency. For young adults, however, the first step towards hedging inflation is typically moving out of a rental and into homeownership. Let’s discuss why.

The Consumer Price Index (CPI) is arguably the most quoted inflation measure in mainstream media. Most readers assume the main driving forces of the CPI are food and energy. They make up 20% of the weight, so that’s a fair assumption. However, it’s shelter costs that are weighted the heaviest of all the categories at 36%, specifically the cost to rent. Nowhere in the CPI does the cost to purchase a home come into the equation because there is no rent to pay if it’s purchased with cash, or the cost is fixed for 30yrs if there’s a mortgage.

So, while the Consumer Price Index has increased 12% since June 2022, once shelter is removed the increase is only 2.1%. One could argue that this is the 2-year inflation rate for those who own their primary residence versus rent, which accounts for roughly 64% of all households in Maricopa County.

For Sellers:

It’s the peak Spring buying season in Greater Phoenix, although it may not feel like it for some sellers. The housing market has begun to drift towards another balanced state over the past 4 weeks, which is the result of an accumulation of supply as demand remains weak. Listings under contract are only down 6% compared to last year, but active listings are up 26%. Days prior to an accepted contract would be 3 weeks at this time of year normally, but current conditions are adding an extra week for sellers.

Word on the street is resale homes needing to be remodeled or updated are sitting a bit longer as builders are ramping up permits for new homes. In fact, single family permit activity is up 125% year over year for January and February and sales are up 16%, surpassing 2021 (the previous 10-year high mark). The competition isn’t just for the sub $500K market either. Luxury new home sales over $3M are up 79% so far this year and up 28% between $1M-$3M.

The struggle for resale listings that need paint, carpet, or significant changes is fewer traditional buyers have the capacity to finance a remodeling project with current rates, or they may not be able to visualize the space any other way, or they may think the cost and time for basic renovations is greater than it is. As far as investor purchases go, wholesale offers are due to get uglier with increased holding costs, stagnate monthly appreciation, and smaller returns. Flip sales are down 74% from 2 years ago and at a level comparable to 2015.

Whether it’s getting quotes for work, renditions to help with visualization, or advising the seller on the most important updates to make prior to listing, it’s markets like this where professional representation and feedback make a difference for both sellers and buyers. Despite current challenges, sellers are averaging 97.8% of their last list price at close of escrow so far this month. Seller-paid closing-cost assistance is down 2% to 44% of sales, and the median sales price increased to $444,900, up 6% from last year.

 Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2024 Cromford Associates LLC and Tamboer Consulting LLC

For Buyers:

• According to RealData the median cost of a 3-bedroom apartment at a 50+ unit complex in Q2 2023 was $2,100 per month in Maricopa County.

• The past 30 days of sales show the median sale price of a 1,200-1,500 square foot, 3+ bedroom single family starter home to be $370,000 in Greater Phoenix.

• Many first-time home buyers put down 3.5% on an FHA loan ($13,000 on $370K), and last month nearly 70% in this price range had a seller or builder agree to contribute to closing costs with a rate buydown, a median contribution of $10,000 from the sellers.

• On February 1st, the average FHA rate was 6.0% according to Mortgage News Daily. With a 2/1 buydown from the seller, the first year estimated payment would be $2,159 per month, including taxes, insurance, and PMI. A permanent 1% buydown would equate to $2,375 per month.

For Sellers:

• It’s an election year! The main influence on the housing market comes from policies, not the elections themselves.

• There is one market that can be affected by an election, and that’s the stock market. After the last 4 elections, the stock market has responded positively afterwards, which affects both luxury buyers and retirees with a high percentage of cash purchases.

• If a cash buyer expects their investment portfolio to be worth more after an election, they may simply put off their home purchase until the Spring. This can cause contract activity to stagnate for a couple months, but not enough to affect prices, and this mild affect can be offset by other mitigating factors, like seasonality, that would make the impact unnoticeable.

• So far in 2024, listings under contract over $1M are higher than 2022, which is the #1 record year for this price range.

• Active listings over $1M are also at record highs, which is offsetting the increased demand and keeping price appreciation stable.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2024 Cromford Associates LLC and Tamboer Consulting LLC

• For Buyers:
  Well, the balanced market didn’t last long, 7 weeks to be exact. Last month the Federal Reserve gave the housing industry a much-needed gift. Not only did they not raise the Federal Funds Rate, they also announced their intention to drop it three times in 2024. Conventional mortgage rates responded by dropping from 7.1% to 6.62% within 2 days. Mortgage rates have now dropped 1.4% since they peaked at 8% in October 2023, saving a borrower nearly $380 per month on a $400,000 loan, a payment decline of 13%. For perspective, each time the rate drops by 1%, the mortgage payment can drop between 9-10% depending on where it started, in many cases saving at least $200/month*. This rate drop was enough to give December’s mortgage applications a boost, which could be a precursor to January’s accepted contract counts.

• 
  In addition to the savings from declining mortgage rates, December ended with 49% of sales involving a seller-paid concession to the buyer at close of escrow, at a median cost to the seller of $10,000. Coolidge had the highest percentage of sales with concessions at 81%, followed by Laveen at 79%. Coolidge has a median sales price of $305,000 with the majority of sales being new construction. Laveen has a median sales price of $436,000, also with a majority of new construction. You’ve probably already picked up on the trend here. Over 76% of all newly constructed home sales that closed through the Arizona Regional MLS noted some form of builder-paid concession. If they were sold for under $500,000, that percentage rises to 82%. The majority of concessions go towards further buying down the buyers’ mortgage rate, temporarily or permanently.
  
  So, what can Greater Phoenix expect for 2024? It’s reasonable to expect some relief, not in the form of declining prices but in declining mortgage payments. Combine this with rising family incomes and we can expect affordability measures to improve along with demand. It’s not reasonable to expect another insane market with skyrocketing prices like 2020-2021, or another 12.5% drop in values like 2022. It could be quite boring in terms of price for the first quarter but uplifting with more traditional home buyers getting back in the game. Things could get more exciting after the Federal Reserve meets again at the end of January and further reveals their plan for the Federal Funds rate in 2024. Stay tuned.
  
  For Sellers:
  While Greater Phoenix is out of a balanced market and continually improving, the seller’s market is still very weak, so a combination of good condition and price remains key to facilitating an offer within a reasonable time frame, along with an open mind regarding concessions to the buyer. New listings so far in the first week of January are higher than last year, but not high, and while inventory is beginning to rise moderately it’s still 37% below normal for this time of year.
  
  Not all cities are in a seller’s market, the distribution is as follows from strongest-to-weakest:
  
  Seller’s Markets: Tolleson, Apache Junction, Fountain Hills, Chandler, Gilbert, Laveen, El Mirage, Anthem, Glendale, Sun Lakes, Phoenix, Scottsdale, Mesa, Avondale
  
  Balanced Markets: Tempe, Litchfield Park, Sun City West, Peoria, Goodyear, Surprise, Paradise Valley, Arizona City
  
  Buyer’s Markets: Cave Creek, Gold Canyon, Queen Creek, Sun City, Casa Grande, Buckeye, Maricopa
  
  Most cities are either gradually improving or holding steady in their market measures. Sale price measures in January will reflect December negotiations, but with this turn in the market fueled by lower mortgage rates and seller concessions we can expect sales price measures to be sustained in the first quarter. The second quarter could get exciting if rates continue down.
  
  *Talk to a qualified lender to determine your specific circumstance
  
  Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
  ©2024 Cromford Associates LLC and Tamboer Consulting LLC

For Buyers:

• The mortgage interest tax deduction hasn’t been a selling point for many years because prices and mortgage rates had previously been so low that mortgage interest payments rarely surpassed the annual standard deduction for most households.

• For those households with few deductible expenses and high incomes, purchasing a home could make a notable impact on one’s tax bill compared to renting.

For Sellers:

• Homes are now officially –27% below what they were this time last year and -38% below the peak of October 2022. Market indicators tell us that prices will continue to rise over the next 3-5 months, but not at an alarming rate.

• Average price per square foot measures have been elevated this year due to the 3rd best season for luxury sales over $1M, and especially over $3M.

• The first half of 2023 has proven much better than the last half of 2022 for home values by far. A normal rate of appreciation established between 2015 and 2019, prior to the COVID-19 pandemic, is between 6-8% annually.

• There has been significant reporting of the “locked-in” effect across the nation; homeowners with 30-year fixed mortgages at or below 3% who have little incentive to move up or down due to higher mortgage rates.

• Over 57% of resale sellers in Greater Phoenix have owned their homes for more than 3 years, property values have appreciated 40% or more over that time and are maintaining. The level of buyer demand continues to be fueled by our sellers’ ability and willingness to contribute to rate buydowns and closing costs.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report

©2023 Cromford Associates LLC and Tamboer Consulting LLC

FEBRUARY 2023 PHOENIX METRO MARKET REPORT

For Buyers:

­The Spring season is upon Greater Phoenix. February hosts the Waste Management Open and Super Bowl LVII this year, putting the metro area in the national spotlight more than usual during our peak season for weather, tourism, and buyer activity. This, combined with mortgage rates briefly stabilizing between 6.0-6.2% in January, contributed to an 86% increase in accepted contracts since the beginning of the year. Six major cities moved out of balanced markets into seller’s markets over the last 4 weeks: Phoenix, Avondale, Glendale, Tempe, Mesa, and Gilbert. Two cities came out of buyer’s markets into balance: Peoria and Surprise. Only Goodyear, Queen Creek, Maricopa, and Buckeye remain in buyer’s markets at this stage. Now 11 out of the 17 major cities are in seller’s markets, but much weaker ones compared to the last 2.5 years.

The shift is in its early stage and fragile, however, and could fall back to balance if mortgage rates become too volatile. Rates remain unpredictable, but that doesn’t stop the industry from trying to predict them. Multiple outlets, such as the National Association of Realtors, Mortgage Bankers Association, Freddie Mac, Fannie Mae, and CoreLogic, released expectations in January that mortgage rates will either stabilize or trend down in the first quarter of 2023. Very few are predicting rates to increase this year overall, but we may see them bounce around as the bond market flinches with every report on inflation and employment. This may cause buyer demand to ebb and flow over the next few months, too.

Speaking of employment, the latest report for Arizona showed an increase of 93,700 jobs for the state over the course of 2022. In Maricopa County, the unemployment rate dropped from 3.1% in January to 2.7% by the end of December, continuing to outperform national measures. Even as the labor force grew by nearly 58,000 people, even as layoffs swept the real estate and tech industries, people claiming unemployment declined by 9,500 over the course of 2022. Private sector earnings also grew by 4.1% year-over-year, a positive indicator for housing affordability to improve in Greater Phoenix.

For Sellers:

Don’t be fooled by this seller’s market, it is nothing like the seller’s market of early 2022. Sellers may notice there is less pressure for a price reduction as there are few new listings entering the market. There were only 9,664 new listings added to the Arizona Regional MLS since the beginning of 2023, the lowest number of new listings measured in at least 23 years. The median is 14,000 listings, and the highest measured was over 21,000 in 2006 over the same 5-week time frame. Less competition is good for price stability.

Sellers may notice fewer days on market prior to contract. Half of owners who accepted contracts last week were on the market for 40 days or less (listed after January 4th) compared to the peak of 56 days in December. In a weak seller’s market like this, as we shift into the Spring season, days on market prior to contract may settle in at 25-30 days: a far cry from the 5-7 days in early 2022.

Sellers will notice little change in negotiations or concessions at this stage. Last month, 51% of sales involved seller concessions to the buyer with a median cost of $9,700. So far in February, 47% have involved concessions at a cost of $9,800. The average negotiation is 2.8% below the last list price, down from 3.5% last month. Sales measures rolling in now are reflecting contracts written in late December and early January, which was a mixed bag of cities in balance and cities in buyer’s markets at the time. The effects of the current seller’s market will not be seen in sales price measures until March, at which point we expect to see the rate of decline in sales price measures either slow down or stabilize. Mortgage rates could change the game quickly, however. It’s not a time for buyers or sellers to take market conditions for granted.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2023 Cromford Associates LLC and Tamboer Consulting LLC

JANUARY 2023 PHOENIX METRO MARKET REPORT

For Buyers:

Last year, traditional buyers took a back seat to an influx of cash investors and speculators who outbid them. Then, mortgage rates increased and suppressed their power even more. This was especially prominent in the market under $500K where owner occupant buyers made up just 56.8% of sales in June (normally 70-75%), and investors took 31% (normally 11-17%). As of November, traditional buyers have once again returned to 71% market share under $500K, and investors have retreated under 20%. Investors make up the majority of losses associated with recent price declines.

This is great news, especially for first-time home buyers, as prices have come down significantly for starter homes. The median sales price for a 1,400-1,600sqft single family home has declined from $435K in May to $370K so far in January; a decline of $65,000, or 15%. At today’s mortgage rate of 6%, that’s a savings of at least $352 per month in payment. This is in line to the overall median sales price, which also declined $65,000 from $475K to $410K.

To sweeten the pot, both FHA and conventional loan limits increased for 2023. FHA increased from $441,600 to $530,150, and many lenders began honoring the 2023 loan limit before 2022 ended. As a result, the market share of sales with FHA financing under $500K increased from a low of 11% in March to 20% by November. Many first-time home buyers take advantage of FHA financing as they have softer requirements for approval and their rates are typically lower than conventional loans.

Some buyers believe that prices will continue to drop dramatically in 2023 and continue to wait. However, after a brief 4-week Buyer Market from November to December, the ratios of supply to demand are showing Greater Phoenix moving back into a Balanced Market. This means less downward pressure on price going forward and, if inflation and mortgage rates continue to decline, the worst may be behind us.
 
For Sellers:

Happening right now is a shift out of the shortest Buyer Market ever recorded by the Cromford Report. The shift is a direct result of the fewest number of listings added to supply in the 4th quarter of the year going back to 2000. Fewer listings mean fewer competitors for sellers. Demand is still very low, but when it’s met with low supply there is less downward pressure on price.

In November, every region in Greater Phoenix was in a Buyer Market except for the Northeast Valley. By mid-January, Phoenix, Glendale, Mesa, Tempe, Avondale, Gilbert, and Chandler had all come out of Buyer Markets and into Balance, except for Chandler which leapt into a Seller Market. Not far behind are Peoria and Surprise.  The only large cities left in strong Buyer Markets are Goodyear, Queen Creek (including San Tan Valley), Maricopa and Buckeye.

This does not mean that sellers can expect 2021 and 2022 scenarios to come back. Price drops, negotiations, concessions, and rate buydowns will continue to be the key to keeping buyers in the game this quarter. Currently, 51% of all January sales have involved some form of concession from the seller, with a median cost of $9,854; in line with the cost of a temporary rate buydown. While Avondale is in a balanced market, 85392 over the last 30 days showed 14 out of 15 sales with concessions and a median of $12,000 to buyers.

In addition to concessions, final sale prices are showing sellers getting an average of 96.7% of their last list price. This is not unusual for a Balanced Market. The luxury market over $1.5M sees fewer concessions, but more price negotiation. January sales so far show sellers closing at an average of 94.5% of their last list price in this segment. Under $500K, sellers are closing at 97.4% of list price.

All in all, the majority of sellers are coming out ahead at closing. 65% of active resale listings have been owned for at least 2 years. The long-term appreciation rates for homes in Greater Phoenix are as follows using January sales to date:  25% for 2yrs., 50% for 3yrs., 63% for 4yrs., 70% for 5yrs., and 86%+ for 6yrs or more.
 

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2023 Cromford Associates LLC and Tamboer Consulting LLC

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report

©2024 Cromford Associates LLC and Tamboer Consulting LLC