R.O.I. Real State – Residential Newsletter- April 2022
Posted on April 1, 2022
From March to April 2022, the supply-demand index dropped a significant 52.8 points. The supply index rose from 24.1 to 25.5, while the demand index dropped 7.1 points, from 110.5 to 103.4. At this rate of decline, the demand index could slip below normal in a matter of weeks. At the beginning of the year, the average mortgage rate was 3.11%, by March it was 3.89%, and by April 21 it was 5.11%. The rapid increase in mortgage rates combined with rising home prices equates to a $500+ increase in the typical mortgage payment for the same home in less than 4 months. This is akin to pulling the emergency brake on demand. This rate of increase is too fast for jobs, incomes, and lending practices to keep up; therefore, it’s no surprise demand is decreasing sharply and causing the seller’s market to weaken. When the overall index is above 110, prices appreciate—but as it declines, the rate of that appreciation is expected to slow in the coming weeks.
You can read all the details in the R.O.I. Properties “Real State – Residential” newsletter (linked above), with additional statistics, market trends and information, but here’s a quick peek at the highlights:
Active Listings: Supply took a sharp turn in the past week as the impact of dwindling demand began to come to the surface. Despite being up 26.2% compared to last year, there is still a long way to go before returning to the pre-pandemic level of 16,000-17,000 active listings in the Arizona Regional MLS. The $500K-$600K price range has seen the highest year-over-year increase in supply at 126%; however, supply has risen dramatically over the past few weeks in all price points from $400K–$2M. The higher price points, especially over $1M, are not seeing an increase in supply because of a decrease in demand related to interest rates. The higher price points still have a significant level of demand. Along with record levels of sales, weekly accepted contracts over $1M are up 17% in week 17 and escrows due to close over the next 4-6 weeks are up 7%. All measures are at record highs for volume; so, the increase in supply between $1M–$2M is a result of a record number of new listings that went active over the past 8 weeks at a pace that outperformed contract activity. While it’s good news for buyers to have more choice in the $1M–$2M price range, the median time frame before these listings go under contract has only increased from 7 days to 11 days.
Sales Volume & Price: The downward trend for listings under contract became clearer over the past 4 weeks. Only 9 weeks ago, the average mortgage rate hit 3.92%. The upward trajectory for listings in escrow came to a halt and hung around 11,500 as the rate dropped a little to 3.76% before moving up again. Those rates seem like a bargain now as rates took off after that and surpassed 5.0% within a matter of weeks. For historical perspective: Over the course of 15 months, from July 1980 to October 1981, the average mortgage rate rose 6.26%, from 12.19% to 18.45%—an average of +0.4% per month. The current rate of increase from December 2021 through April thus far is an average of +0.5% per month. Unfortunately, this increase is impacting the housing market on two fronts. The first impact is in turnover. Under the existing mortgage rates, homeowners with low-interest mortgages are less inclined to move voluntarily if it means a significant increase in payment. Secondly, the estimated payment to purchase a median-sized home in Greater Phoenix is now over $2,700 per month*, while the same type of rental is about $2,250 through the MLS. This $450 monthly difference in the rent vs. buy scenario, plus a 20% increase in available rentals over the past 4 months, is turning would-be home buyers into tenants. Expect sales measures such as closings over list price and appreciation rates to begin weakening over the next couple of months.