AZ Housing Market in Downward Trend

A downward trend in the housing market was anticipated, but it wasn’t anticipated to be so dramatic and quick. The softening trend is now very well established, and momentum is strong. We will shortly be entering the third quarter, usually the weakest time of year for the Greater Phoenix housing market. Even in a good year, prices tend to drift lower during the third quarter. This year as we approach this quarter, supply between $400K and $1.5M is up 174% over last year and up 105% in the last 7 weeks. It is important to note, although inventory is increasing, the new inventory is not a result of homes being in distress like in 2008 during the housing crash. Many of the homeowners who are electing to sell in today’s market are doing so to cash in on the equity they have gained from their homes appreciating this past year. Should their homes not sell for the price they wish to get, many will cancel their listings and stay in their homes. Today’s homeowners not only have a significant amount of equity in their homes; they have low interest rates resulting in low mortgage payments; and have other assets. During the housing crash in 2008, a lot of homeowners had little to no equity in their homes (many were upside down); had interest only loan payments which were adjusting to include principal and interest causing payments to go up significantly; and had little to no other assets.

In addition to inventory increasing, demand has weakened; sales values are swiftly declining; more asking prices are being lowered; and listing cancellations and expirations are starting to rise. The last time we saw a similar frenzied market cool down so quickly was in April to November 2005. This is a more striking reversal than we experienced that year.

The weakening demand and rising supply now affects almost every market segment, and all 17 of the largest cities. Paradise Valley saw the smallest decline compared to a month ago. The worst affected are Avondale, Gilbert, Queen Creek and Cave Creek.

Since the market downturn started, we have seen all the early dominoes fall. If we were in a non-serious situation, then there are several middle-ranking dominoes that would not topple, and the early ones would start to stand upright again. But instead, we are starting to see the middle-order start to wobble and fall over. Here is one of them - the number of closed listings per month, measured on a weekly basis. 2022 had been running behind 2021 all year, but not by a large amount. Up until late April, the sales rate was not of concern. Then in May things got worrisome. The 2022 sales rate took a sharp dive and is now 16% below the reading in 2021. This leads to conclude that the market is serious about this change of direction and the new trend is likely to continue for some considerable time.

Last year we saw a sales reduction in July, but this is normally when sales rates start to drop for seasonal reasons (Phoenix gets very hot in May). Thanks to large investors and iBuyers, the closing rates recovered during the rest of 2021. There are two things that are concerning about the sales decline in 2022.

1. It took place in May, which in a healthy market should be one of the busiest months for closing.

2. We saw a very steep drop in a short period of time.

If you are thinking of selling...as the housing market softens, selling a home isn’t going to be as easy as sticking a sign in the front yard. Showings will be fewer in number and offers far less easy to get than they were in March. To get your homes sold, you will need to price our homes appropriately; may need to make repairs; may have to pay concessions; and may need to purchase a home warranty for the buyers of your home. Our team is very experienced in helping sellers navigate the complex selling process; preparing homes to sell with complimentary home staging and editing; and getting homes sold for top dollar. We have never been agents that just put a sign in the front yard...even during the frenzy.

If you are a tired and worn out buyer who has made multiple offers and lost out…it may be time to start looking again. Despite the increase in interest rates…it is a good time to buy as inventory increases along with negotiating power. In addition, lenders we work with have some great strategies to get you a great loan payment despite higher interest rates.

If you have questions about today’s housing market, please feel free to reach out to us. We are dedicated to making sure buyers and sellers feel comfortable in the decisions they are making in regards to buying and selling.