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Arizona October Real Estate Market Update

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Hey, shoutout to all my amazing clients and the fantastic folks who’ve had my back during these rollercoaster market updates. If you haven’t checked out my previous blogs, you’re missing out on some valuable insights from the Cromford Report. It’s been a real game-changer in providing spot-on guidance for your future investments. I’ve been glued to my screen, attending those weekly Zoom meetings and subscribing to the Cromford Report, so you can trust that the info I’m dishing out is top-notch.

Now, let’s talk turkey. I know, I know, it sounds crazy when people say home prices are on the rise, especially in a world with 8% interest rates, global tensions, and whispers of a looming recession. But here’s the scoop: supply and demand are the big players in the home price game. Right now, we’re in a bit of a bind with a shortage of available homes. Sellers are reluctant to part ways with their sweet low-interest rate mortgages, and on top of that, prices have surged from a cozy 4% to a whopping 8%. Now, picture this: what if interest rates eased back from 8% to 5% over the next six months? It would be like opening the floodgates of demand, with sellers finally making their move.

We’re rolling into the Fall season, which, historically, is prime time for buyers. Demand tends to ease up, supply increases, and yes, interest rates are doing a little dance of their own. While we’re still firmly in a seller’s market in most cities, the wind is gently blowing us toward a buyer’s market. The new year promises to bring even more demand, and that’s when things might get really interesting. Short term? Brace yourself for a bumpy ride, but the pressure for prices to climb is undeniable.

So, stay tuned, my fellow market adventurers. We’ve got some twists and turns ahead, but together, we’ll navigate this exciting journey! 🏡💰📈🌟

Here are a few key points to get you going:

  •  Interest rates are hard to predict but you have to follow inflation, it’s not budging so its likely these high interest rates will be around for a while. 
  • We are currently in a slight seller’s market with increasing supply and weakening demand.
  • Homes are expected to rise conservatively by 3-5%/year
  • FHA loans offer lower interest rates at 7.92%, compared to 7.34% for conventional loans.
  • Did you know that VA loans are assumable? I saw one offered at 2.2% the other day.
  • Accepted contracts are very low.  Just nothing happening out there.
  • 30% of gross monthly income goes towards housing payments now and has been rising for decades.  A roof over your head is just expensive now. 
  • Will there be a flood of new inventory anytime soon?  The Fed has put a poison pill into the US market market of low-rate mortgages. 25% of people have 3% or lower, for their rate,  65% have a rate of 4% or lower, and 42% of all homes in the US have no mortgage at all. Very unlikely there will be any distressed homeowners and to have a crash, you need distressed sellers. Add a housing shortage in Arizona, and that pretty much explains where we’re headed for a few years.  Many homeowners are likely to stay put, which means low inventory will persist for some time. Other countries have 1-5-year mortgage terms but make monthly payments based on a 30-year amortization schedule.  The US has a 30-year, keeping people in their homes.
  • Expect it to be slow up until Christmas, with the seasonal slow time of the fall, along with high-interest rates and inventory rising, will we hit a buyers market by Christmas? January will pick up typically.
  • The Cromford Market Index has fallen 17 points in the past 30 days meaning that we are heading towards a buyer’s market, when?  Only time will tell. 
  • Looks like 2023 will have given us 5-7% appreciation by year-end. (That’s not a bad year)
  • The Case-Shiller Index is released with a two-month delay, so the data is slow.
  • Median Sales price is an average.  It will fluctuate with a good luxury market, a huge misleader. 50% sold for more 50% for less in sales. The median is almost the same as from a year ago. 
  • The monthly average price per square foot is increasing faster, up by 6.3% compared to a year ago.  So this is the main indicator to watch for home prices.

 

From the Cromford Report:

For much of this year, the new listing counts have been extremely low—often more than 40% below the same period in 2022. We observed between 6,500 and 7,500 new listings every 28 days from May 25 to Oct 2.

Since Oct 3, we have been measuring slightly over 7,500 listings per 28 days. The normal level ranges from 9,500 to 11,000. Therefore, we are still well below the normal levels this time of year, though not as low as in the past 4 months.

The additional new listings are arriving just as demand experiences another decline, resulting in a higher input and lower output into the active listing pool. Consequently, you would anticipate the active listing count to increase, and you would be correct.

For all areas and types, we observed 13,901 active listings without a contract on Saturday. This increased from 13,432 the previous week to 13,103 the week before.

With both monthly and annual sales counts dropping, inventory measures such as months of supply and days of inventory are on the rise. While they are still below normal levels, the competition among sellers is increasing, and the remaining buyers now have more choices.

The market is softer compared to the second and third quarters, and the upward pressure on prices is subsiding.

Here are some important charts from the Cromford Report

The median sales price is based on 50% of the homes sold for below $449, 450 and 50% of the homes sold for above.
Analyzing the Average Sales Price per Square Foot trends with a 3-month moving average in Greater Phoenix shows a we are just above last year's levels, the 3 month is more of a lagging indicator in this fast-paced world.
In October 2023, the average price per square foot stands at $297.62 with a total of 930 sales. This marks a 7.0% increase up to date compared to what was obtained back in September with an average price per square foot at $285.64. This chart is more in tune with where the market can go next.
5 months before, housing predictions claims that the housing market could crash down to 2008 levels expecting 4 cities to see massive home price decrease.
The housing market exhibits consistent growth, surpassing a 5% annual appreciation rate. This highlights the market's resilience and strong potential for appreciation.

Who will get the upper hand in this rat race?💪

Annual price appreciation depreciated back in 2014 and remained at a flat rate until 2018, with a slight bump in 2019, followed by a massive increase in 2020. Although the annual price depreciated in 2023, it is expected to rise again.
The Supply Index Trend gained 3.4 points, while the Demand Index Trend lost 1.8 points. On the other hand, the Market Index Trend took a substantial hit, losing a whopping 13.5 points.
In 2023, we observed the closest result to a balanced market, with only a slight bump above during week 38, which is expected to decrease slightly. This marks a significant difference when compared to last year's results, which had a substantial gap from mid-February until late March.
Single-family homes under 2,500 square feet have been steadily increasing over the past years from 2015 to 2019.
Compared to last year, we observed four increases: the average sales price per square foot, sales over the asking price, the SP/LP ratio, and days on the market. Meanwhile, three decreases were noted.
Interest rates have climbed to a high. What will prices in Arizona do once the rates start to drop?
The mortgage rate forecast for 2023 shows that the trajectory has failed to unfold as expected, and a reversal is still highly anticipated. Predicting the outcome is quite difficult, although a new supply of long-bond buyers is expected to bring the rates down.
Foreclosures are still at historically low levels due to the equity homeowners have even when having difficulty making the payments.
The rental supply has historically shown the highest rates in 2023.
Insights into the actively listed leases for residential rentals (excluding vacation rentals) show a decrease of -7.77% during March to May 2023.
The demand for the housing industry is greatly affected by mortgage rates. In the years 2022 and 2023, it has depreciated below the normal seasonal trend experienced from 2015 to 2018.
The annual sales rate of REO transactions is surpassing both short sales and HUD transactions.
For median family income in the 1970s, around 15-21% of the gross monthly income was necessary, compared to a higher rate of 38-40% in the 1980s. In comparison to the median sales price, the 1970s saw 7.3-9.5%, while the 1980s had a significant increase to 16.3-17.6%.
In summary, Arizona sees a record-breaking rise in high-paying tech jobs this year, boosting wages across the state. Different generations experienced varying levels of recessions and jobless periods.

Click the button below to view the full Cromford Market Report Charts

If you would like to know more about what your current home is worth or what it looks like to get into a new home please reach out to me at 480-466-4917 or jay@jaybrugroup.com

Regards,

Jay Bru

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