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Mid-November 2022 Arizona Real Estate Market update – Cromford Report

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For the complete list of Charts to explain the Real Estate market for November 2022, click here.

The biggest question is when interest rates will fall. High-interest rates have caused a low contract ratio, falling prices, and low demand. When will buyers feel comfortable coming back to the table with all this pent-up demand? Most likely when monthly payments make sense. When that happens, prices will likely continue upward. We have the demand but are suppressed by the environment, high-interest rates, and uncertainty.

For Buyers:
­The price reductions keep coming. Last week when mortgage rates hit 7.0%, the Greater Phoenix housing market responded with 4,427 price reductions, 24% of all active properties in the MLS. At least 50% of sellers dropped their price by $12,000 or more.

September saw 1,372 closings involving seller closing cost assistance to the buyer, equating to 23% of MLS sales, with a median concession of $7,000. This is a 334% increase from last June’s count of just 316 sales involving concessions. New home sales through the MLS showed 33% with concessions and 50% at $10,000 or more. OpenDoor, as a seller, paid concessions on 355 transactions, 77% of their sales through MLS, with 50% costing $6,000 or more.

Closing cost assistance is expected to continue to rise into the 4th quarter as mortgage rates continue to stay high and stifle demand for the time being. Aside from paying the buyer’s costs for title insurance, pre-paid taxes, insurance, lending fees, and other closing costs, seller-paid concessions can also be used to buy down a buyer’s mortgage rate, if applicable, and ease the pressure on their monthly payment.

For Sellers:
The 4th quarter is expected to be a test for sellers as mortgage rate hikes have reduced contract activity to levels not seen since 2008. Frankly, it’s not the best time to sell if you have a choice. Unlike in 2008, most sellers today have a choice, and those without an immediate need to sell have chosen to wait. This is reflected in some of the lowest counts of new listings coming on the market recorded at this time of year going back to 2001.

Fewer new listings are a ray of hope for existing properties on the market. If new listings are trickling in and new buyer contracts are trickling out, then the overall supply does not spike and causes further downward pressure on price. Thus keeping the market in a delicate balance for now.

Prices hit their peak in May, shortly after mortgage rates hit 5% and before they peaked at over 6% in June. Once that happened, buyer demand dropped dramatically, and the reflection in prices started to show a downward trend. Now rates are near 7%, and the sale price per square foot is down 9.6% over the course of 4 months, currently measuring less than 1% higher than January 2022 and representing the elimination of appreciation achieved from January through May. Although, just as of today, rates fell dramatically to 6.74%.

While this is disappointing to those who purchased this year, 66% of active sellers in the MLS (new homes excluded) have owned their homes for two years or longer. This means that even with the most recent downturn in price, the 2-year appreciation rate from September 2020 to September 2022 is still 40.3% based on per-square-foot measures, and the median sale price is $112,000 higher, indicating most sellers have enough equity to shoulder the added costs to sell in this marketplace if they must.

Finally, heading into the 4th quarter, expect marketing times to increase as they typically do this time of year. The median days on the market before the contract was 31 days last week. From October through December, active days before the contract is known to rise anywhere from 44 to 56 days historically, with 50% of listings going longer. If you wish to sell in the spring when more activity is expected, you will most likely get less for your house.

The keywords for sellers in this “new” market are condition, price, concessions, and patience.

For the complete list of Charts to explain the Real Estate market for November 2022, click here.

To put the demand situation into context, it helps to look at the count of listings under contract. The chart above shows counts made every Saturday during 2022, 2021, and 2007 (the weakest year ever for demand). 2021 was a strong year, and 2022 started well – almost as strong as 2021 until the end of the first quarter. Since then, demand has weakened quickly in the face of higher interest rates, albeit with a pause in the decline during August and September. Since the end of September, it has dropped further and is starting to approach the dismal levels of 2007. However, we currently have about 1,900 more listings under contract than we saw at the same time in 2007, so things can be worse.
Under-contract listing counts tend to fall during the last two months of the year, so it is still possible that we start 2023 at a lower level than we started in 2007. The difference between now and 2007 is that we have fewer active listings. There are also very few distressed active listings, so there is not as much downward pressure on prices as we saw in 2007.
Rates plummeted today, November 10th, 2022
Its not just about housing and inflation but about Employment.
The difference a few months makes.
Everything is chilly.
It is expected to be a buyers’ market for months to come.

CROMFORD MARKET INDEX

THE CROMFORD MARKET INDEX IS THE PREDICTOR FOR FUTURE SALES PRICE APPRECIATION

When the CMI is over 110, the market is considered a Seller’s Market  – Prices Rise More than the Rate of Inflation*

When the CMI is between 90-110, the market is considered in Balance – Prices roughly follow the Rate of Inflation

When the CMI is below 90, the market is considered a Buyer’s Market – Prices will Decline

*The more extreme the CMI is, the more dramatic the price response is expected to be relative to the rate of inflation

CROMFORD MARKET INDEX

Different cities have different CMI

Fountain Hills, Scottsdale, Paradise Valley, and Fountain Hills are still sellers’ markets but falling off.

New Listings

Median Days on Market Prior to Contract

CONCESSIONS – It’s likely, 44% of the time, the Seller will have to give concessions of an average of $7400. In big buyer markets, its 74% of the time.

APPRECIATION

Median Sales Price

May $480,000 -7.3%

Oct 2021 $420,000 Oct to Date +5.9%

Oct 2022 $444,900

Sales measures don’t tell us where we ARE; they tell us where we’ve ALREADY BEEN.  

They reflect contracts written at least 4-6 weeks ago. 

Sale prices are a trailing result, not a forecasting indicator.

I hope this helps; let me know if you have any questions; I can get you more specific on your neighborhood if you’d like.

Jay Bru

480-66-4917 – jay@jaybrugroup.com

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