AZ Market Update

Aug 11 - The average monthly change in CMI was -29%. This is another slight improvement on last week when the reading was -31%. Once again it is a large deterioration in a very short time, but there are more signs that the trend is slowing at last. Supply is growing more slowly and in a few areas has stopped growing entirely, at least for a moment. Demand is still very weak, but in a few areas it is stabilizing or even increasing slightly.

In the last week we saw an average change in CMI of -5.7%, and all 17 cities still declined. But if the negative weekly decline continues to reduce, we will eventually find one or more cities showing some improvement.

We have 6 cities in a buyer's market - Surprise, Tempe & Gilbert have joined Buckeye, Queen Creek and Maricopa. The reduced number of buyers now have a strong negotiating advantage with a large number of active listings to select from. However this negotiating power is not yet universally reflected in weaker closed prices. In particular, Queen Creek (which includes San Tan Valley) is maintaining strong closed price numbers, especially considering how unbalanced demand and supply have become. This is unlikely to last.

Above these 6 we have Chandler, Peoria, Glendale, Phoenix, Mesa and Avondale in a balanced market where the buyers and sellers have no particular advantage. This leaves 5 cities that are statistically in the seller's market zone with a CMI over 110. Only one of these is a large market - Scottsdale. One of them (Cave Creek) saw a relatively modest decline in their CMI over the last month of 9%.

The bottom 13 cities saw CMI declines of 24% or more but now there are none worse than -38%. The housing market is still deteriorating for sellers but it is getting worse at a significantly slower rate.

The top four, Fountain Hills, Paradise Valley, Scottsdale and Cave Creek are in a stronger position with supply still less than demand. However, Scottsdale prices have reacted more swiftly than the low-priced areas and averages and medians are weaker than you might expect. This pattern does not apply to Fountain Hills, which is not only still over 200 but is seeing very few signs of price weakness.

Aug 4 - The average monthly change in CMI was -31%. This is a slight improvement on last week when the reading was -32%. Once again it is a very large deterioration in a very short time. New listings have slowed down to a normal level. However a normal quantity of new listings is far more than the market can cope with, when demand is as weak as it is at the moment. Demand is falling at a slower rate and is even rising in a few places. However it is currently so far below normal that in most areas it will take a large increase to get back to the level where it can absorb a normal quantity of new listings.

We have 3 cities in a buyer's market - Buckeye, Queen Creek and Maricopa - the same as last week. In all three, the reduced number of buyers now have a strong negotiating advantage with a large number of active listings to select from.

Above them we have Gilbert, Tempe, Surprise, Chandler, Peoria, Glendale, Phoenix and Mesa in a balanced market where the buyers and sellers have no particular advantage. This leaves only 6 cities that are statistically in the seller's market zone with a CMI over 110. Only one of these is a large market - Scottsdale. Two of them (Fountain Hills and Cave Creek) saw relatively modest declines in their CMI over the last month of 15% or less.

The bottom 13 cities saw CMI declines of 29% or more but at least there are none over 40%. The housing market is still deteriorating for sellers but it is getting worse at a slower rate. This is particularly true of Phoenix itself. The next stage we are looking out for is for one or more of these cities to stop deteriorating and edge higher. This means their arrow circle will turn green and point upward. April 21 is the last time we had one or more cities showing green.

Gilbert, Tempe and Surprise look ready to become buyer's markets within days, while Avondale and Goodyear are likely to move into the balanced zone shortly.

Jul 28 - The average monthly change in CMI was -32%. This is an improvement on last week when the reading was -34%. It is still a very large deterioration in a very short time. New listings are still coming at us faster than last year, but not as fast as they were three weeks ago. Demand is still weak and showing only a few modest signs of stabilizing.

We now have 3 cities in a buyer's market - Buckeye, Queen Creek and Maricopa. Here buyers now hold a distinct negotiating advantage and have a total of 2,243 active single-family detached listings to choose from. This compares with 675 just three months ago. Because the majority of these areas cater largely to first-time buyers who are less experienced, it can take a few weeks for these buyers to realize how strong a hand of cards they hold.

Above them we have Gilbert, Tempe, Surprise, Chandler and Peoria in a balanced market where the buyers and sellers have no particular advantage. However astute sellers will realize that the situation is very fluid and slipping away from them. At the current rate of change, Gilbert will become a buyer's market by the end of the first week in August. Tempe is only a day or two behind Gilbert, while Surprise, Chandler and Peoria will probably become buyer's markets by mid-August.

Glendale, Phoenix and Mesa are seller's markets but within a couple of days will enter the balance zone between 90 and 110. At the current rate of change they will become buyer's market before the end of August. Goodyear and Avondale are 2 weeks behind these but unlikely to be still seller's market by the end of next month.

The 4 cities at the top of the table are in a different situation. The luxury market over $1.5 million is seeing far less of a surge in supply and although the market is deteriorating through weakening demand, the deterioration is much slower. However in Scottsdale, the less expensive end of the market is behaving similarly to the rest of the Greater Phoenix area.

Prices have looked wobbly for the last 2 months, but as buyers start to flex their muscles, we should be prepared for more serious consequences. While we cannot forecast accurately several months out, it would be reasonable based on current trends to expect significant declines in average prices, median prices and average $/SF by the end of 2022. Current trends can (and often do) change, so this is not baked in, just a reasonable base case.

We would not be surprised if the growth in supply started to slow down, but what is going to re-start demand? The most obvious answers are that either interest rates have to come down or home prices have to come down. Either or both of these can increase demand so we can get back to a balanced market again.

Jul 21 - The average monthly change in CMI was -34%. This is the same as last week and the week before. The week before that it was -35%.

The deterioration in the market for sellers continues with almost as much speed as ever. There has been a slight reduction in the rate of arrival of new listings, but it is still much higher than last year at this time. Demand has not stopped falling and listings under contract are exceptionally low for the time of year. Even our best performing city, Paradise Valley, has slumped 11% over the last month, but it may yet overtake Fountain Hills and grab the top spot, since Fountain Hills fell 18%, the second best result. Cave Creek is third and fell "only" 21%, which looks good by comparison with the other 14 cities which range from -30% (Avondale) to -44% (Glendale).

Buckeye is now a buyer's market by a large margin and Queen Creek is almost as bad for sellers. Maricopa is not quite there yet but it will be a buyer's market in 2 or 3 days. Gilbert, Tempe, Peoria, Chandler and Surprise are all going to be balanced markets within a few days and on their current trajectory they could be buyer's market by mid August. The largest market by far, Phoenix, looks like it will be balanced before the end of July and a buyer's market before the beginning of September. Glendale and Mesa are just a week or so behind.

The high end market is still holding out much better than the mid-range.

Only 3 cities are now over 150. A month ago we had 14. The market has changed dramatically for the worse over the past 4 or 5 weeks.

Jul 19 - The dramatic change in market conditions has taken their active count from a low of 72 on April 12 to 381 on July 19. This latter number has increased 58% in the last month.

We estimate that OfferPad has 453 homes in inventory, which implies there are only 27 unlisted properties. 45 are under contract which gives OfferPad a contract ratio of less than 12. On April 12, their contract ratio was 204.

Based on their monthly sales rate for June, they have about 6.7 months of homes to sell, even if they stopped buying today.

The rest of us should be grateful that the iBuyers have soaked up so many homes over the last 3 months. Without their activities the market statistics would show a much larger drop in demand than reported. It has not made a lot of different to supply since the homes they have listed would probably still be listed by their former owners if they had not sold them to an iBuyer,

It seems that the iBuyers will need to focus mostly on iSelling during the second half of 2022.

 July 

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 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.

*The market is considered in balance when the contract ratio is between 30-60. Calculated by dividing what’s under contract (8,680) by what’s active (15,033) and multiplying by 100, the contract ratio as of July 7th, 2022 is 58.

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 asking price. That is no longer the case as of this writing. Get ready for longer marketing times, multiple price reductions, Realtor® tours, 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.

Price reduction vs. rate buy-down options:


Median Price
$475,000, 10% Down
5.8%* 

Full Price
No Concessions

Price 
Reduction

Permanent 
Buy-down 
to 4.8%*

2/1 Buy-down 
to 3.8% for 1st year
then 4.8% for 2nd Year*

Estimated Cost to Seller

$0

$15,000

$12,825**

$9,405***

Estimated P&I Payment

$2,508

$2,429

$2,243

$1,992

Monthly Savings to Buyer

$0

$79

$265

$514

*Conditions apply. Talk to a lender.

 

 

**Approx. 3% of loan

***Approx. 2.2% of loan

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC

Jul 14 - The average monthly change in CMI was -34%. This is the same as last week. The rate of decline in the CMI readings over the past two months is easily the fastest we have ever witnessed.

The negative trend remains extremely powerful. Supply is still growing at roughly 1,000 listings a week while demand is still weakening despite some (possibly temporary) relief in the mortgage rates. We now have 1 city (Buckeye) which is a buyer's market and 2 cities (Maricopa and Queen Creek) that are in the balanced zone between 90 and 110. It is just a matter of days before Maricopa and Queen Creek become buyer's markets and their time in the balanced zone will have been very short indeed. Peoria, Tempe, Gilbert, Chandler, Surprise and Phoenix are all just a week or two away from a balanced market as they all dropped close to 40% in the last month. Based on current trends, these 6 cities will probably be buyer's markets before the end of August.

Things are different in Paradise Valley where there has been very little increase in supply and the 7% fall in its CMI is entirely due to a drop in demand. Fountain Hills and Cave Creek are also seeing declines in their CMI, but at roughly half the rate of the average city in the valley.

Only 5 cities are now over 150. A month ago we had 15.

Buyers are much more aware of the dramatic change in the market than are sellers. New sellers will need to take time to understand just how different market conditions are today compared with 3 months ago. They should not expect multiple bids. They should plan to market their property, not just sell it.

With the Federal Reserve considering a 1% rise in the federal funds rate in their July meeting, demand could drop even lower next month if mortgage rates move sharply higher again.

Jul 8 - If you are looking for some good news, I have a tiny morsel for you. The average monthly change in CMI was -34%. This is smaller than the -35% we saw for each of the past three weeks. However the difference is really small and the negative trend is still very powerful. We now have 2 cities (Buckeye and Queen Creek) that are in the balanced zone between 90 and 110 and a third (Maricopa) that is only a seller's market by one tenth of a point. We can be confident that Maricopa and Queen Creek will be in a balanced zone next week, but on current trends, Buckeye will be the first city to become a buyer's market during the third week of July. Queen Creek and Maricopa look likely to follow before the end of July.

Paradise Valley is seeing a very stable supply and its CMI is down only 3% for the month. Fountain Hills and Cave Creek are next best with falls of 25% and 26% in their CMI

Much worse are all the other 14 cities with CMI dropping by 32% or more. Glendale is worst this week with a 43% fall.

Because the CMI is based on a formula that uses rolling averages and smoothing techniques, at this time of unprecedented rapid change it understates quite how far the market has deteriorated for sellers. With so many new sellers and so few buyers, prices are looking more wobbly by the day and almost all the price readings look very ready to drop during July.

Almost all the monthly median sales prices are below their recent peak. For example on July 7:

  • Avondale is down from $460,000 to $450,000
  • Buckeye is down from $451,040 to $445,500
  • Chandler is down from $630,000 to $577,450
  • Gilbert is down from $635,000 to $623,950
  • Goodyear is down from $554,700 to $520,800
  • Maricopa is down from $415,000 to $410,000
  • Mesa is down from $520,000 to $500,000
  • Peoria is down from $570,000 to $550,000
  • Phoenix is down from $500,000 to $480,000
  • Queen Creek is down from $515,000 to $510,000
  • Scottsdale is down from $1,115,000 to $1,100,000
  • Surprise is down from $494,495 to $490,000
  • Tempe is down from $585,000 to $555,000

Only Glendale is unchanged at $475,000 but this will probably not last much longer.

We omit Cave Creek, Fountain Hills and Paradise Valley because their monthly medians are far too volatile to be useful, as a result of their very small transaction volumes and wide ranges in home prices.

Unless trends change sharply from their current trajectory, we are likely to see further weakness in median sales prices over the next several months. We are definitely NOT able to forecast 5 months into the future. However it would not be at all surprising if prices in December 2022 were in the same ball-park as those we saw in December 2021. This is just one of many plausible outcomes that would have looked nearly impossible to imagine as recently as March when almost every seller had multiple buyers to chose from.

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