Metro Phoenix Market Summary 1/3/23: Small Signs of Improvement

[Melanie Johnston]

We are lucky in Metro Phoenix to have a real estate data resource that slices and dices our MLS data daily to give us a real-time analysis of what's happening in the resale market. This resource is the Cromford Report. (Detailed description at the end of this post.)

Their latest summary of our market, published 1/3/23, has these interesting observations:

Market Summary for the Beginning of 2023

"Here are the basics - the ARMLS numbers for January 1, 2023 compared with January 1, 2022 for all areas & types:

• Active Listings (excluding UCB* & CCBS*): 16,298 versus 5,776 last year - up 182% - but down 14.9% from 19,155 last month
• Active Listings (including UCB & CCBS): 18,097 versus 8,630 last year - up 110% - but down 14.7% compared with 21,206 last month
• Pending Listings: 3,657 versus 6,539 last year - down 44.1% - and down 15.0% from 4,301 last month
• Under Contract Listings (including Pending, UCB & CCBS): 5,456 versus 9,393 last year - down 41.9% - and down 14.1% from 6,352 last month
• Monthly Sales: 5,132 versus 9,265 last year - down 44.6% - but up 4.1% from 4,931 last month
• Monthly Average Sales Price per Sq. Ft.: $265.58 versus $267.92 last year - down 0.9% - and down 2.5% from $272.30 last month
• Monthly Median Sales Price: $410,000 versus $425,000 last year - down 3.5% - and down 2.4% from $420,000 last month

There are lots of small numbers in December's totals. We have very low volumes of closings because both buyers and sellers are discouraged. Monthly sales are down almost 45% from this time last year, and listings under contract are down nearly 42%. The numbers confirm that demand is very weak compared to normal for the time of year, and even weaker compared to the strong demand 12 months ago. However weak demand does not necessarily make a market crash. Excess supply is what really drives prices down hard. This is what we saw in 2006 through 2008. But in 2023 supply is low and getting lower. It is much higher than this time last year, when it was abnormally low, but it is still a long way below normal.

Activity is very low across the board, but the market balance is normal. By that we mean we have equal balance between buyers and sellers. The trend is now moving in favor of sellers, having been favorable to buyers a month ago. So although there is gloom and despondency almost everywhere, amid the murk there are clear signs of improvement. Because sentiment is so poor, there is psychological pressure to lower prices. However there is no such downward pressure coming from the market. If all trading was done by unemotional computers, prices should be stabilizing right now.

In the real world, strongly influenced by human emotions, prices fell sharply last month, losing 3.5% in the monthly median and 2.5% based on the average price per square foot. However sales prices are a trailing indicator and these moves reflect the balance in the market in November, when we experienced a clear advantage for buyers. Leading indicators are looking more positive. This probably stems from interest rates being less horrible than they were six weeks ago. Demand is starting to stabilize and even showing a few signs of a slow recovery. With new supply very weak, we are not witnessing a market crash. This is merely a correction, with prices now just a tad lower than a year ago - the monthly average $/SF is down 0.9%.

We are still dependent on the whims of the Federal Reserve. If they continue to push the Federal Funds Rate higher in an attempt to curb inflation, then mortgage rates could move higher too, putting a quick damper on any recovery in demand. However if the 30 year fixed mortgage rate stays between 6% and 6.75%, then we should have confidence that the housing market can operate normally at this level. Prior to 2009, anything under 7% was considered a low interest rate and rates under 5% were unheard of.

To achieve confidence we need several months of interest rate stability. This is by no means certain to happen, but it is possible. Once the fear is removed, we should see more signs of a recovery in demand and volumes will rise back towards a more normal level.

New supply is still very low, but we will be watching closely for any change in this trend."

From Melanie:

It's easier to visualize these trends by looking at the Cromford Report's latest post of their Cromford Market Index, their proprietary index with a measurement of 90-100 indicating a balanced market.

This is Cromford's text with the chart above:

"Between November 15 and December 11, the CMI was below 90, but during the last three weeks it has shown strong signs of recovery and is almost back over 100 again. This means statistical downward pressure on prices is negligible and the only reason for prices to go down after January are psychological. We are likely to see plenty of skepticism, but gradually people will realize that things are not so bad. Of course, the Federal Reserve can still kick us some more, but we will not try to predict the effect that will have on mortgage rates.

We are back in a very normal market from the point of view of the balance between buyers and sellers. We are still very far from normal in terms of volumes. We have very few buyers and very few sellers, so transaction counts are unusually weak. This will not feel good for those who depend on volume, but once confidence returns, volume will probably start to recover."

From Melanie:

There is still considerable pressure on sellers to lower their prices to compete in this mild-demand market, even knowing the statistics above. Many sellers with properties 30+ days on the market, especially if they are vacant, are reducing prices to attract buyers. A market that is this murky discourages unmotivated sellers, so you can argue that the majority of sellers are still motivated.

It will be interesting to see how long it takes for the improvement in the Cromford Market Index to be felt by existing sellers. At this writing, we have 16,279 active listings. An eye-popping 80% of those have been on the market for at least 30 days.

*UCB means Under Contract/Backups Accepted, the common status for an under contract listing prior to going the more solid status of Pending

*CCBS means Contract Contingent on Buyer Sale

Metro Phoenix refers to 20 cities and towns including Scottsdale, Mesa, Tempe, Chandler, Gilbert, Queen Creek, Fountain Hills, Glendale, Peoria, Surprise, Goodyear and Buckeye.

What's the Cromford® Report?

"The Cromford® Report provides detailed information to track the history and current status of the Greater Phoenix residential resale market and offers unique insight into its future direction.

Updated daily and usually published online within a few hours, this site is intended for anyone interested in the state of the market and how it affects their investments and livelihood. Our goal is to present data that is timely, informative and easy to understand - data not available anywhere else in this level of detail or immediacy."