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June 2023 AZ Real Estate Market Report

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Welcome to the June 2023 update on the Arizona real estate market. Despite the passage of the last few months, the landscape remains relatively unchanged, with dwindling inventory and a consistent upward trajectory in prices. As we step into the summer season, we anticipate a potential reduction in demand while hoping for a surge in listings on the MLS. Throughout this period, both buyers and sellers have encountered their share of challenges.

Buyers have grappled with elevated interest rates, translating to higher payments, adding a weight to their financial commitments. Concurrently, sellers seeking to streamline or transition homes have encountered their own set of hurdles. The prospect of selling a property and venturing into a new purchase has unveiled the likelihood of notably increased mortgage payments compared to their existing expenses. To render these payments manageable for buyers, a 2/1 buydown on your mortgage emerges as a requisite.

We encourage you to delve into the assortment of charts provided, facilitating a holistic comprehension of the present state of the Arizona real estate market and the underlying factors contributing to its current status quo. As of now, no immediate respite is apparent in terms of diminishing interest rates or prices. On the contrary, the next 3 to 5 months are projected to witness a further ascent in prices due to demand consistently outpacing supply. This persistent elevation in interest rates can be ascribed to the overarching impact of inflation. Experts are aligned in their predictions that these rates will persist at their heightened levels in the foreseeable future.

If you’re curious about estimating your potential payments for a new home, please don’t hesitate to contact me at 480-466-4917 or reach out via email at jay@jaybrugroup.com. This could provide you with valuable insights into what this prospect might entail.

Charts and stats are based on the latest Cromford Report

A brief look at the current state of the Arizona Real Estate market and what is expected in the future.

If mortgage rates go on a decreasing trajectory in 2023, prospective buyers may return to the market to increase the demand.  The important thing to take away from the shortage of housing units is that economists anticipate that the price of homes may continue to rise slowly in the AZ housing market in 2023.

On the supply side, it favors the property sellers. The bottom line here is that a stark imbalance between supply and demand continues to put upward pressure on AZ home prices. This partly accounts for the somewhat bold Arizona real estate market forecast for coming years. The other factors are that the economy of Arizona is robust, but the state is struggling with elevated levels of inflation and housing price growth. In 17 different states, the unemployment rate is at an all-time low.

Arizona has 3.3 percent unemployment. The pace of population increase in Arizona is the fourth fastest in the country. A significant number of states saw a loss in population as a consequence of COVID-19, low birth rates, and migration to neighboring states. Florida, Texas, and Arizona are the three states with the most rapid population increases. Years of underbuilding are a key contributor to the low inventory.

According to a study conducted by the Weldon Cooper Center for Public Service at the University of Virginia, Arizona’s population is projected to expand by 26.1% between 2020 and 2040 – an increase of 1,897,585 people. As the population is expected to rise yet there are only a few available homes on the market.

This also raises a bit of a concern that in Arizona wages are not keeping up with the rising costs of housing. When prices go up, some buyers can no longer afford to buy and drop out. The faster that pricing goes up, the more buyers tend to drop out, at least in a healthy market. Mortgage rates also play an impact here. In the past few years, interest rates have remained at historically low levels.

This is one of the causes that contributed to a countrywide increase in home-buying activity. However, rates have increased somewhat during the previous several months in 2022. If rates continue to rise, the Arizona real estate market might experience a general cooling trend. However, the persistent supply deficit is projected to “outweigh” this effect, guaranteeing that the AZ housing market will stay competitive long into 2023.

Of course, there is also a great deal of uncertainty in the air. From escalating inflation to the conflict in Ukraine, several elements might affect the economy in the future. Consequently, it is difficult to make reliable projections for the Arizona real estate market or any other market in the United States.

Inventory has dropped 46% since October 2022 and now below 2019 and 2020 levels

When looking at Sales $/sqft, we have only dropped 3.8% from the Peak in May 2022

Contract ratio has put us in a sellers market with more demand than supply. Its typically best to buy Sept-Dec seasonally

Median Hits $440K, Annual Appreciation Expected to be Positive Again Soon
Traditional Buyers Rebound After Investors Retreat

 

For Buyers:

Last month we reported that the year-over-year supply change will be negative within 6 weeks, and at that time supply was 80% higher than the previous year. Now 5 weeks later, supply is only 3.7% higher than last year’s count and is expected to be below 2022 in another week. (Supply is very low)

New listings continue to be insufficient in replacing properties that have gone under contract, resulting in overall supply dropping an average of 151 listings per week within the last month.

That’s a slower rate of decline compared to previous months, but it’s not because more sellers decided to get off the fence and list their homes. The slower decline is in response to demand weakening when mortgage rates increased from 6.5% to 7.1% within 2 weeks last month, the shock causing many buyers to take a breath. Once again, just when housing economists got optimistic in April about mortgage rates stabilizing or declining, less than favorable inflation reports caused them to spike once again. It’s tough to do mortgage rate predictions these days.

Since then, conventional mortgage rates have dropped only slightly, hovering around 6.9%. The downturn in demand has created a noticeable advantage for FHA buyers, who had been mostly rejected by sellers over the past 2 years in favor of cash investors. As investors have retreated back to normal levels this year, putting traditional buyers back in the driver’s seat, FHA increased the amount of money they’re willing to loan to $530K. They also lowered their Mortgage insurance premiums by $100s on monthly payments annually. These changes have resulted in the market share of closings in Greater Phoenix funded by FHA to go from just 9% in April 2022 to 22% in April 2023 on sales under $600K.

Sellers are still contributing to closing costs and buying down mortgage rates on behalf of the buyers to make the monthly payments attractive and competitive compared to local rental rates. In May, many lenders upped the game and announced new down payment assistance programs and loans with just 1% down. Each program has separate requirements that need to be explained by a qualified loan officer, but they are often focused on getting first-time home buyers into entry level homes.

You may be surprised when we tell you that does not disqualify many buyers who have previously owned a home. Search the definition of first-time home buyer online and you’ll find that any individual who has not owned their prim yr residence within the last 3 years is re-classified as a first-time home
buyer. Couples also qualify as first-time home buyers if one spouse has not owned a home in the last 3 years.

If you have the option of living anywhere, consider a New Build on the outskirts of town such as Maricopa, San Tan Valley, Buckeye, or Surprise.  Builders are giving mortgages out there from 3.75%-5.8% and have less competition. 

For Sellers:

Despite the increase in mortgage rates and subsequent drop in demand, prices continue to rise in Greater Phoenix and are expected to continue doing so for the next 3-5 months. While still down year-over-year, the median sales price has recovered 5% since our December newsletter, up $22K.
Before the end of the 3rd quarter this year, it’s very likely annual appreciation rates will turn positive once again.

Nearly every city is officially a seller’s market this month.  When markets soften like they did last year, the cities on the outskirts fall into buyer’s markets first and are the last to come out.
Cities on the interior are the last to go into buyer’s markets, and the first to come out. As the interior cities such as Phoenix, Glendale, and Chandler first moved into seller’s markets in January, the shift of these outlying areas is the final step to coming full circle in the market correction.
Improving market conditions for sellers only slightly relieves the need to contribute to closing costs and rate buy-down for buyers. Over 50% of sales between $200K-$500K involved sellers contributing to buyers’ costs with the median contribution at $7,500 so far this month. That’s down from January’s sales where 62% involved concessions in this price range, at a median cost of $9,300. So while things are improving, make no mistake that Greater Phoenix would not be in an appreciating market if sellers were not willing and able to offset the costs associated with closing on a home.7 

I think Its still a good idea if you’re anxious of where the country is going and are afraid home prices will crash.  We have 5 good months left even with high interest rates, and going into Summer.  It may take longer to sell a home, but prices are high and were in an appreciating market.  Try listing your home for 3 days with us with no obligations.  We’ll market the property fully and try and get a sale within 3 days of being listed with our 7 day listing Launch.

Supply has dropped 46% Since October 2022

The peak of prices was May 2022

The dip in home prices hit a low in December 2022

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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