R.O.I. Real State – Residential Newsletter- February 2022
Posted on February 1, 2022
From January to February 2022, the supply-demand index rose 7.7 points, from 464.1 to 471.8, with a 1.7-point drop in supply and 5.8-point decrease in demand. Interest rates have risen to 3.89% as of this week. The median cost of an average-sized home is now $437,000, with an estimated mortgage payment at nearly $2,300/month that requires a family to make roughly $99,000 per year to afford that by general standards. Monthly rent for a similar home is running $105 less at $2,195 through the Arizona Regional MLS, and the median cost for an apartment unit with 3+ bedrooms is $2,041/month according to RealData Inc. Factors such as increasing incomes, employment and loosening lending practices are unable to respond as quickly as the interest rates spiked, which indicates that this month’s decrease in demand can be attributed directly to rising mortgage rates and dwindling affordability.
Interest rate increases will eventually impact the health of our market. They may slow down transaction volume and buyer demand, as properties are becoming less affordable with increased prices and higher interest rates. It’s a double whammy for buyers. If we see inventory start to tick up, that will start to level the playing field.
This is really a supply-driven market at this time. Ongoing lack of supply equates to sellers being able to call their price, but this may change, if property owners get scared that demand may cool.
You can read all the details in the R.O.I. Properties “Real State – Residential” newsletter, with additional statistics, market trends and information, but here’s a quick peek at the highlights:
Active Listings: New listings continue to be weak year-to-date with a total of 14,720 added so far; a normal range based on 2015-2019 would be between 17,000 and 18,000. Accepted contracts dropped sharply when mortgage rates peaked at 3.92%, however, the impact was only enough to cause the supply line to stop dropping for now. While supply levels between $400K-$800K look promisingly high compared to last year, they are still 38% below 2020 levels and continue to drop. New construction continues to lag, with build times running between 12-14 months. Single family permits for January were 2,986 for Maricopa and Pinal counties combined, up 12% from last January. Annually, there have been 34,837 permits submitted. However, with some builders quoting 16-24 months for completion, permit counts will provide little relief for buyers who need a place this year. Multi-family permits continue to grow with an annual count of 16,447 for Maricopa and Pinal, up 18% from the previous year. The median sale prices for new homes closed in December were $420K for single family and $432K for townhomes/condos.
Sales Volume & Price: While affordability is clearly suffering, there is little impact at this stage on price and volume of sales. Year-to-date closings through the Arizona Regional MLS, while down 6% from last year, are still the second-highest count in MLS history with plenty in the pipeline waiting to close. So far in February, appreciation rates are pushing 27% year-over-year and sale prices are averaging 100.9% of list. The market is only slightly weaker compared to the start of 2021, which means most active buyers and sellers will not notice any difference in their experiences. The median number of days before an accepted contract is 7 days, compared to 6 last year, and prices are rising at an average of 2% per month compared to 3%. When a shift occurs in the housing market, whether it’s caused by interest rates, lending practices, new construction or a multitude of other issues, price is the last measure to move. By the time there’s a noticeable change in price, the shift has typically been occurring for months, and sometimes it’s already over. While affordability used to have a significant impact on demand, short-term rental investors and institutional buyers are filling the gap. However, these buyers could be impacted if the stock market fails to perform or tourism wanes for any reason. If affordability, tourism and stocks all fall at the same time, the housing market will respond faster.