R.O.I. Real State – Residential Newsletter- February 2023
Posted on February 10, 2023
Residential housing demand is keeping pace with low inventory levels. What’s motivating buyers to get their deals done? At least part of the dynamic is the anticipation for further interest rate increases, since the Federal Reserve hasn’t yet succeeded in tamping down inflation. The market is expecting as much as a 50-basis-point hike when the Fed meets on March 21-22. On the flip side of interest rate uncertainty is inertia: People who would otherwise be sellers are not listing their properties, because where would they go?
With a drop in supply and an increase in demand over the past month, the Greater Phoenix market continues to defy expectations for a sharp decline in price. Instead, prices have stabilized and in some instances, even risen, since December. Rates spiked from a low of 5.99% in the first week of February to 6.88%, which tends to stun new contract activity as buyers regroup and recalculate their budgets. This is reflected in the number of new contracts accepted, which stopped rising and stagnated in the middle of February. The most likely short-term effect over the next 4-6 weeks will be a weaker seller’s market, depending on interest rates.
Non-luxury buyers appear to have adjusted to the reality of a new affordability quotient. They are either willing to pay more, or they’re finding ways of making things more affordable: through seller carrybacks, mortgage rate buydowns, or loan programs that provide some short-term relief in the eventual hope of a refinance.
Meanwhile, rate changes aren’t even a blip on the radar screen in the luxury market. For those who have funds and aren’t dependent on financing, it’s business as usual. This is a market segment that’s at least partly motivated by acquiring tangible assets in inflationary times, when everything else may seem like it’s out of control.
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: In October, supply was up 166% year-over-year. In February, supply is 220% higher than last year. For some online observers, that equates to a recent “surge” in supply. In fact, the surge happened last year between March and October. Now, current supply counts are compared to those from early 2022, which were the lowest counts ever recorded by the Cromford Report in 22 years; and they are declining, not rising. While 2023 supply is trending higher than 2020-2022 levels, historically it is still the fourth lowest recorded for February going back to 2005. A normal count for February would be approximately 22,000 active listings; this week’s count of 14,250 is 35% below normal. As mortgage rates fluctuate, so do the emotions of sellers with less incentive to relinquish their sub-3% mortgage rates. Year-to-date new listing counts, at 13,494, are the lowest recorded since 2001. The highest number of new listings ever added by this time was 29,404 in 2006. A normal range is considered 18,000-20,000. With few new listings to compete with, existing sellers are under little pressure to reduce their prices. As a result, only 13% of active listings issued a price reduction last week compared to 25% in October. Seasonally, we expect weekly price reductions to rise from January to March; instead, they’ve been declining, which is a byproduct of a mild seller’s market and an indicator that many sellers are just not that desperate.
Sales Volume & Price: For the third month in a row, the median sales price through the Arizona Regional MLS has remained at $415,000 so far this month, confirming our previous prediction that there would be less pressure on price. On average, listings under $1M have sold 2.3% below the last list price, 51% with seller-paid concessions. Listings over $1M have sold for 4.2% below list, and only 15% with concessions. The median concession paid by sellers so far this month is $9,300, which indicates that rate buy downs are alive and well in the Phoenix metro market and are continuing to soften the blow of mortgage rate volatility. Closings in March may reflect lower prices in response, or they may see higher costs to sellers as they consent to more expensive permanent rate buy downs, or a temporary 3% buy down for year one instead of 2%. One segment that is not responding to mortgage rate fluctuations is luxury. Weekly contracts in every subset over $1M are still increasing and thriving as Phoenix hosted the Super Bowl, WM Open, and Barrett Jackson, to name a few. In fact, while lower than 2022, they are in line with 2021 for February. Supply counts are 166% higher than last year, but still just below 2019 by comparison. Throughout 2022, cities with high-end real estate in the Northeast Valley have remained seller’s markets, albeit weaker ones. The highest performing price point has been over $2M since prices took a turn in May. Every price point over $200K, however, has either flattened or increased in sales price per square foot since December, a welcome plot twist.