In the past month, the Greater Phoenix residential market had a nice upsurge in activity—further evidence, it appears, that people are getting accustomed to the new normal of low inventory levels. As noted in the past few months, there is definitely some caution in the market, but sufficient numbers of buyers are still stepping up and paying the premium. We are seeing more cash deals and alternative financing such as seller carrybacks, which helps with that trend from a pricing perspective. Many sellers remain reluctant to put their homes on the market because of the difficulty of finding a replacement property in the new interest rate environment.
From February to March 2023, the supply-demand index increased from 126.7 to 134.7, with a 3.2-point drop in supply and 0.8-point rise in demand. It’s been an eventful month! Effective March 2023, mortgage insurance premiums are reduced on FHA loans, saving borrowers as much as $100–$200 per month on their payments. The recent failures of two large banks pushed more investors towards bonds, which lowered the 10-year Treasury yield, causing mortgage rates to decline sharply in response. Then, the Consumer Price Index report was released, with more positive reactions than negative. And finally, the Federal Reserve met and increased the Fed Funds rate by 0.25% as expected, but with a hint that the beatings may be coming to an end. All of this happened over the course of 2-4 weeks.
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: Active supply continues to decline in Greater Phoenix, down 32% since October. If this continues for the next 3 months, we will see the year-over-year change race to zero percent, or possibly negative once again. New homes with build dates between 2022-2024 make up 22% of overall active inventory in the Arizona Regional MLS. iBuyers such as OpenDoor and OfferPad listings compose less than 3% of supply, a significant change from last July and August when they were 12% of active listings. Acquiring short-term holds is still not a popular endeavor in this market as OpenDoor, the largest iBuyer, is selling 300 per month on average while only acquiring 20-30 (per Mike Orr of The Cromford Report). This month, new listings have been added to the MLS at a rate of 1,643 per week. That is not sufficient to increase supply, however, when weekly sales are averaging 1,316 and cancelled/expired listings are reducing supply by 369 per week. This explains why price reduction activity is low and declining—opposite what we would expect for this time of year. There’s very little incentive for a seller to reduce their price if there isn’t a valid competitor asking less in their vicinity. The median time listed prior to an accepted contract is currently 31 days, which holds true across nearly all price points. This is down 25 days from the January 1 measure of 56 days.
Sales Volume & Price: The monthly median sales price looks like it will stick to $420,000 this month, up $5,000 (+1.2%) from the $415,000 recorded in December, January, and February. Sales price per square foot, however, has continued to improve for 3 months straight now, with a cumulative improvement of +4.7% since December. It can be confusing with all the percentages flying around the media these days. There’s the drop from May to December of -12.3%, and the year-over-year drop from March last year of -4.3%, and the most recent improvement of +4.7% from December to now. Frankly, only people who have owned their homes for the past year, and want to sell, care about the first two numbers. History tells us that a good time to buy is at the beginning of a seller’s market. Why? Because most buyers like to know their home will appreciate after they buy it. While buying at the beginning of a seller’s market is sound advice, sometimes mitigating circumstances can get in the way. Specifically speaking, volatile mortgage rates. It’s not the rate, it’s the volatility. When rates were stable for 4-6 weeks at the beginning of the year, buyer activity increased. But when rates fluctuate on an extreme level, buyer activity tends to pause until the boat stops rocking. That is why recent drops in mortgage rates didn’t result in an immediate boost in contract activity. If rates stabilize for another week or two, we may see accepted contracts pop up again—especially if prices continue to rise.
Originally shared via roiproperties.com newsletter. Click here to read full newsletter.
