Arizona Real Estate: Current Market Updates!

[Jared Smith]

All - if you take the time to read this you will be much more informed for investing in Arizona Real Estate!

Best of luck to all and please let me know if you have any questions. 

Thanks! -Jared

Affordability Index

• Affordability is now a concern – only 44% of the people who make the median family income ($88,888) in the greater Phx area could have afforded what sold in Greater Phx in the 1st quarter of 2022
• Economists want this to be in the 60-75% range

Mortgage Rate History chart

• Interest rates do not stay high or low forever
• At the tail end of a recession – it’s not uncommon for interest rates to come down. Historically this is what has happened.
• There have been way more drastic spikes and drops than what we have experienced in the last 6 months (1980-1983, 1994, 2001, 2013)

Long Term Hold Is Still A Great Investment

• Average annual appreciation over last 22 years – 5.7%

Active Supply

• Up 90% in 9 weeks!!! This is why it has felt like the market has changed so quickly.
• Now around 8,647 active listings. Low was 4,500.
• Supply is 86% higher than this time last year
• But still way under 2018, 2019 (last “normal” years)

New Listings

• Total new listings up 3.9% from last year
• Last 2 months, we have been right in line with 2021
• 2006 – 2008 were the highest years (bubble/crash) – highest listings due to new home inventory and then foreclosures

New Listings Weekly

• Higher than last year
• Not following the normal seasonal trend - usually new listings slow down in the summer

Accepted Contracts

• Down 8.6% from 2021 and down more from 2019

Listings under contract

• Down 13.3% from last year
• Lowest ever, below 2014 levels – red flag
• If we are to follow the normal seasonal trend, we can expect these to continue to go down

Active Supply by Price Segment

• In the $300k-$400k price range – Up 71% in 9 weeks; Up 27% over this time last year
  • Listings under contract in the $300k-$400k price range – Down 33% in 15 weeks; Down 44% from last year
• In the $400k-$500k price range – Up 76% in 6 weeks; up 161% over last year
  • Listings Under Contract in the $400k-$500k price point – Down 8% in 6 weeks, but up 35% over 2021
• In the $500k-$800k price range – Up 132% in 8 weeks; up 189% over last year
  • Listings under contract in the $500k-$800k price range – Demand is only down 8% in 9 weeks, but up 39% over 2021
• $800k-$1.5M – Up 169% in 13 weeks, up 125% over last year – getting close to 2018 and 2019 levels (“normal”)
  • Listings under contract in this price range – Up 7% in 14 weeks, up 29% over 2021, way over “normal” levels
• $1.5M – $3M – Up 100% in 9 weeks, up 34% over last year
  • Listings under contract in this price range – Up 1% in 9 weeks, up 12% over last year, way over “normal” levels
• Over $3M – Up 27% in 8 weeks; up 17% over last year
  • Listings under contract in this price range – DOWN 14% in 8 weeks; up 28% over 2021, way over “normal” levels
• Supply is up in every single price segment. The only two price segments where listings under contract have gone DOWN (demand) are $300k-$500k and over $3M, all other price segments listings under contract are UP.

Overall Active Supply

• Under $400k – Up 1.5% over 2021
• Over $400k – Up 137% over 2021
• This makes sense because it’s hard to find anything under $400k in our market now

Price Reductions

• Accepted contracts are still rising and we are seeing a correlating percentage of fallouts
• $300k-$400k – price reductions in this price segment are up 137% in 9 weeks
  • The median price reduction for this price segment is $10,000
  • However, this is still WAY under normal levels (182/week now vs over 600/week in 2019)
• $400k-$1.5M – price reductions are up 272% in 9 weeks
  • The median price reduction for this price segment is $14,000
  • This is OVER normal levels (1,244/week now vs 800/week in 2019)
• Over $1.5M – price reductions are up 200% in 9 weeks
  • The median price reduction for this price segment is $100,000
  • This is similar to normal levels (75/week now vs 80/week in 2019)

Median Days on Market

• 9 days on market currently; up from 7 (whole MLS)
  • $500k-$1M is 10 DOM average; $1M-$2M is 13 DOM average; over $2M is 17 DOM average
• We can expect this to continue to move up if price reductions continue

Active Supply vs. Under Contract

• We are still in a frenzy (more under contract than active) up to the $600k price point
  • Last week we were in a frenzy up to $800k
• Every week we are seeing that frenzy cool off in higher price points
• Overall, we still have more under contract than active though

Contract Ratio

• We are still in a Frenzy – 112 contract ratio (112 under contract for every 100 listings); even though it may not feel like that
• This is down from 2021 (242 contract ratio) but up over “normal” (70-80 in 2018 & 2019)
• “This is not a bad market and not a market where people lose money on their sales price. They only lose money in their head because of the past year and what they could have sold for last year.”
• More expensive areas - PV, Arcadia, Desert Ridge, Downtown Phx have all cooled off
• Every week that someone waits to put their home on the market, it could be a different experience

Cromford Market Index

• CMI is a predictor of future annual price appreciation
• “We can expect this 22% annual appreciation to go down”
• Still will not be a bad rate of return, just more normal than what we’ve experienced the past 2 years; unprecedented
• Demand is 4% below normal
• Supply is 65% below normal
• CMI is now 272.2; balance is 100
• Demand is dropping but not nearly as much as supply is rising; that’s good news for our local housing market!
• *We saw the fastest monthly drop in CMI ever recorded – down 115.4 pts in 1 month; because supply went up drastically and demand went down due to interest rates and consumer sentiment

What’s Normal?

• 2014 was last balanced market
• Prices are projected to continue rising, but slower in the coming months
• “We are heading into a weaker seller market, not a buyer market – coming into a place where buyers may get repairs, concessions, home warranty etc”
• We are coming out of an aggressive seller market where people had to waive inspections and appraisals, offer post close possession. This is a tough market to be a buyer which means less deals get done.
• Avondale, Gilbert, queen creek, peoria, cave creek have the strongest drop in CMI (most weakening markets)
• Market is weakening because supply is finally coming up in those areas
• “We want demand to stay high and supply come up to meet it” = lots of sales, still a strong market
• “We like weaker seller markets”

Closed Sales

• Closed sales are in the past, supply and demand tells us where we are going
• Sales Price vs List Price should come down due to weakening signs
• If you look at closed sales measures, we are still a frenzy (homes are still selling OVER list price)
• Overall 22% annual appreciation rate, 54% closing over list price, still selling at 101.9% of list price

3 things you look for in a changing market:

• Price reductions – started 3 months ago
• Days on Market going up – started 2 weeks ago
• Increase in Concessions – not moved yet

Concessions

• Always spike at end of month (before COE)
• But hasn’t moved yet; should see this rise before market really changes

Appreciation

• Median sale price ($480,000) went up 2.1% over last month (still strong); up 22.3% over May 2021 ($392,500)
• Thus, prices are still rising.
• However, appreciation per s/f has already flattened month over month at $306.11/sf. This is normal as the Luxury market usually chills out in the summer time – causes price per sf to come down seasonally.

This is not a crash, it is a correction. We have low foreclosure risk, low vacancy risk, and new home development that is struggling to keep up with population growth.

Compare the Bubble in 2005-2008 to now and it’s VERY different.

Flips

• Flips are up – high level of successful flips
• Flips are considered acquired and sold in 6 month period
• Opendoor and Offerpad have scaled back on acquisitions and ramped up on unloading their inventory

Pre-Foreclosures and Foreclosures

• Pre-foreclosures (NOTS) are down 33% from April 2019 (last normal April); from 506/month to 337/month
  • But they are up 349% over April 2021 (this was during foreclosure moratorium when banks were not foreclosing on people!) – this is what the media is trying to spin to scare people!
• The truth is there were only 21 actual foreclosures in Maricopa County in April 2022! This is way LOWER than 2018 and 2019 numbers!

SUMMARY

• Market is still a frenzy – for now
• Prices expected to continue rising, but slower over the next few months
• Demand began dropping 15 weeks ago, Supply started rising sharply 9 weeks ago
• Weekly new listings – highest count of new listings since 2010
• Rental MLS supply – still rising, up 24% since January 1, 2022; only up 3% since May 1. Seems to be stabilizing. Rental market shifted last August.

What’s reasonable to expect in the coming weeks/months?

• More list price reductions
• More days on market
• Fewer offers over asking price and lower dollar amounts over asking
• More seller concessions
• We are still at the beginning stages of a shift – still in a seller’s market