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Market update July 13th, 2022

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A lot has changed in just a few months with prices coming down, the supply being higher, demand lower, interest rates skyrocketing, and people being sidelined with too much drama that these past few years have caused.

For Buyers:
Welcome to a balanced market, how quickly the tables have turned! While seller markets are ideal for the not-so-perfect home, balanced markets are ideal for the not-so-perfect buyer. This means that buyers who have been recently rejected due to lower down payments, non-conventional financing, or need for closing cost assistance will find sellers who are now willing to work with them in this new environment. Supply across all price points is up, with 53% of active listings added by new home developers and investors. Builders especially are dropping prices and offering unique buyer incentives to compete. Experts don’t know how long this period will last as it depends on what interest rates do over the next few months, but home buying just became fun again. You can ask for concessions especially to buy your points down, ask for 10-day home inspections, ask for repairs, get a home warranty, and not have to beg with a pathetic love letter, lol.
For Sellers:
The proverbial “Dump Your Junk” season is over, that loving phrase the industry uses when demand is significantly higher than supply and even the smelliest dilapidated property gets multiple offers over the asking price. That is no longer the case as of this writing. Get ready for longer marketing times, multiple price reductions, price opinions, staging, repairs, seller-paid closing costs, and price negotiations. The extreme seller market is over.
It’s no surprise that the market has been shifting since February, with the primary influence being large mortgage rate increases. However, over the past 6 weeks mortgage rates have been particularly volatile, fluctuating from 5.1% to 5.8% within 3 weeks only to drop to 5.3% over the next 2 weeks, and then back up to 5.8% a week later. History tells us that buyers do not like sharp, rapid fluctuations in mortgage rates. It causes buying activity to freeze until a level of stability and certainty can be achieved. This market is no different, contract activity has dropped 28% in the last 6 weeks. The number of listings under contract at this time of year should be around 10,000, putting today’s count of 8,680 well below normal.
In the meantime, a 220% increase in supply over the past 15 weeks has put pressure on sellers to compete. With cash buyers offering significantly below list price recently, attention is back on traditional buyers, many of whom have been priced out of the market due to affordability. Price reductions have gone up 500% since March, but have done little to increase demand as mortgage rate increases offset their effect and continue to keep payments high.
But not all is lost! Cue the interest rate buy-down, a seller concession tool that has been collecting dust, unneeded, for well over a decade. The reason price reductions have had little effect on affordability is a $10,000 price reduction only saves a buyer $53 on their mortgage payment at 5.8%. However, for a similar cost a seller can buy down a buyer’s mortgage rate and save them $100’s on their monthly mortgage payment, either permanently or temporarily depending on the plan; thus putting their property at a higher competitive advantage than just a straight up price reduction.

My take is that lenders make more in this scenario and it’s confusing to most but it does work if you’re willing to take that road.

To view all the latest charts, please click this link.

Price reduction vs. rate buy-down options:

This is a balanced market now, unfortunately, interest rates are high. There are fewer buyers now, but buyers were always waiting for this, so they’re on the sidelines because now they want a buyers market and a low-interest rate. I feel like when you buy in a seller’s market you’re better off, because you know the prices are rising. The contract ratio determines if we are in a balanced market or not.

Rental supply is growing in the ARMLS database, with single-family detached rentals growing the fastest. On July 12, there were 2,012 single-family detached homes available for long-term rent with an average price per square foot of $1.57 per month. One year ago we saw 820 homes at $1.90 per square foot per month.
Apartments on offer for long-term rent number 443 at an average rent of $2.08 per square foot per month. Last year, we had 332 at an average of $2.13/sqft.
There are 33% more apartments and 145% more single-family detached homes on offer to tenants compared with 12 months ago.
The average rent asked has dropped 2% for apartments but 17% for single-family homes. The latter does not mean average rents have fallen 17%. It reflects a mix where far lower-priced rentals are being listed than in 2021.
However, it is pretty clear that the era of rapidly rising rents is coming to an end. Another thing to consider is there was a +12% in 3 days from one investor, which affected the entire rental market. More roommate situations are on the rise which increases persons/households.

This is who is listing their home. 12% are buyers like Opendoor, Investor based supply. Owner-occupied must maintain their properties. This is not an AS-IS market.

Cromford market index:

Even though the CMI is above 100, the median home price is now falling, the CMI is based on a per year basis.

Different cities have different CMI’s.

Differences in bubble. You’re not going to get that 20% appreciation anymore.

10% cash in 2006 and 30% now. Not a foreclosure crisis right now and would take a long time to get to one.

Mortgage rates do come down if you look at the history.

To view all the latest charts, please click this link.

One thing that really bothers me about this wild roller coaster is that the government doesn’t have any ideas or doesn’t seem to care about whether these wild swings affect people. Did they know that giving all this money out would increase inflation, then followed by a wild increase in home prices and acting too late with massive interest rate hikes? It seems like they don’t really know. Anyhoo, the Cromford Market report has always been super positive about the market, they just give the numbers that they have calculated which is a lagging indicator. People still buy and sell houses in every market, I hope this helps you if you’re a buyer or seller. Please reach out to me if you have any questions.

Jay Bru

480-466-4917

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