R.O.I. Real State – Residential Newsletter- May 2022
Posted on May 1, 2022
We likely saw a market peak in mid-April, when rates hit 5%. The double whammy for the consumer/homebuyers (rate increases and increased pricing) meant that buyers were really priced out of the market and the Greater Phoenix area was no longer affordable. From April to May 2022, however, the supply-demand index dropped from 406.1 to 315.0, with the supply index up 5.7 points and the demand index down 5.1 points. The years in which such major shifts have occurred in the overall index were 2005, 2020, 2021 and now 2022. Each year is unique in their circumstances, rendering long-term predictions difficult. The only similarity between 2005 and 2022 is that interest rates increased—1.38% in 9 months in 2005 and 2.2% in 6 months in 2022—causing affordability measures to drop sharply. Other than that, these years are very different in terms of investor activity, lending practices, new home construction, and economic diversity.
While we are still in a seller’s market, increasing inventory, longer marketing times, and reductions mean that sellers need to be strategic if they want to sell, as buyers have more choices, or they are “out.” Pricing from March-April was historic. While providing guidance, sellers need to carefully examine inventory levels in their submarkets to price appropriately so that they can secure a buyer, and the home needs to be market-ready and lookin’ good.
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: Supply continues to rise sharply and is currently 71% higher than this time last year and up 79% in just 8 weeks. When supply rises dramatically, the first measure to respond is not a sales price, it’s a list price in the form of a price reduction. If the market continues to weaken, price reductions may not be enough for the seller to land an acceptable offer. At that point, marketing times get longer, typically affecting those properties in less-than-perfect condition first. If things continue progressing in this direction, then sellers may eventually find themselves negotiating repairs and closing cost assistance. The volume of weekly price reductions has increased 203% from 493 to 1,496 over the past 8 weeks. In relation to supply, that’s going from 10% of active listings experiencing a reduction to 18%. Listings between $500K-$1M have seen the most dramatic increase. Regarding marketing time, it’s been steady at a median of 7 days prior to an accepted contract until just last week when it popped up to 9 days. This tells us that we are still in the beginning stages of this market shift. Sellers still have a strong advantage, but they’re adjusting their expectations in order to compete.
Sales Volume & Price: As supply takes a dramatic turn up, listings under contract continued their downward trajectory. At 10,009, this measure is the lowest seen for week 21 since 2008 (8,859) and just barely below 2014 (11,006). For perspective, the active supply counts in 2008 and 2014 were 56,000 and 30,000 (rounded) respectively. Since 2022 supply is currently at 8,132 listings, there are still more homes under contract than available for sale, and that classifies Greater Phoenix as still a frenzy, albeit less insane. The lowest weekly count of listings in escrow was 3,680, recorded in the first week of January 2008; at the time there were over 53,000 active listings in the Arizona Regional MLS. Despite worries of a price bubble “pop” in various media headlines, the market of today is not remotely comparable to the scenarios of 2007-2009. Sales measures typically take a few months to respond to a shift. Case in point, sales in May 2022 to date are showing 56% of closings over asking price. The average sale price is 2.3% over the average list price for sales under $1M, and sales with seller concessions are just under 4% of closings. In a weaker seller market, we expect 15% of sales over asking price and 25% with concessions. Of the closings so far, 46% were in escrow for 4 weeks or less and 48% were in escrow for 4-8 weeks prior to close. This means that 94% of May closings were negotiated and closed in the past 8 weeks. Expect the next few weeks and months to show a change.