Graphic: Cromford Report. (August 2023). Retrieved from https://cromfordreport.com/
By Sean Colón
As we step into August 2023, the Greater Phoenix real estate market is displaying some intriguing dynamics that both buyers and sellers should take note of. In this comprehensive guide, we'll delve into the current state of affairs, armed with real statistics and expert insights to keep you well-informed and ahead of the game in this unique housing landscape.
Market Waiting Game: Buyers and Sellers in Limbo
Picture this: a market in a state of anticipation, where both buyers and sellers seem to be waiting for the right moment to strike. The real question is, what's holding them back? Let's uncover the key factors at play.
Stable Mortgage Rates Paint a Steady Picture
Mortgage rates have been the talk of the town, remaining impressively steady, fluctuating between the high 6% and low 7% range for nearly three months. But here's the catch – there's no significant indication of a decline in rates on the horizon.
This stability has cast a shadow on contract activity since July 4th, with the overall demand dipping 22% below the typical levels for this time of year. So, what does this mean for the market's pulse?
Supply and Demand: The Balancing Act Continues
The Greater Phoenix area has been grappling with a dwindling supply of homes since October, although this decline has somewhat slowed and steadied over the past six weeks. However, the numbers remain startling – supply levels are still a whopping 52% below the usual for this time of the year and 37% lower than last year's inventory.
Despite these challenges, Greater Phoenix remains firmly in the grasp of a seller's market, albeit a milder one compared to the robust conditions of the past three years. This setup has exerted a moderate upward pressure on prices, a fact that has not gone unnoticed by both buyers and sellers.
Anticipating the Turnaround: Positive Signs for Buyers
The latter half of the year holds a silver lining for buyers in Greater Phoenix for two compelling reasons. Historically, this period, stretching from September to December, has proven to be the optimal time for buyers. Why? The heightened competition that peaks from March to June starts to wane, giving buyers the breathing room they desire to explore homes and make decisions.
Moreover, buyers naturally gravitate towards markets where their investments appreciate. With expectations of annual appreciation rates turning positive between September and December, there's a glimmer of hope. We could return to pre-pandemic levels, reminiscent of 2018 and 2019, with annual appreciation rates ranging from a healthy 5-8%.
Mortgage Rate Mysteries: What Does the Future Hold?
One looming question in everyone's minds revolves around the uncertainty of mortgage rates. Will this ambiguity continue to cast a shadow on the market? There's optimism that the clouds may clear towards the end of the year or after the Federal Reserve's meeting on September 20th.
While mortgage rate predictions have been anything but consistent, if rates do indeed decline over the next three months, we can anticipate a revival of both buyer and seller activity in the housing market.
Sellers: Steady Marketing Times and Over-Asking Closures
Sellers, shouldn’t be disheartened by the typical "summer slowdown." Over the past two months, properties have spent a reasonably steady 21 days on the market before securing a buyer. Moreover, 41% of closings continue to involve seller-assisted closing costs, with a median cost to the seller amounting to $8,000.
But here's an interesting twist – there's a rising trend of sales closing above the asking price. June witnessed 21%, July saw 22%, and August is charting at nearly 23%. These figures surpass the usual statistics of a seller's market, which typically peak in June or July, often hovering around 18%. In July, the median amount over the asking price reached $6,000. Most of these sales involved properties listed below $600,000.
New Home Construction and Permit Activity
New home construction plays a significant role in Greater Phoenix's real estate scene. Currently, it constitutes roughly a third of the available inventory in the Arizona Regional MLS. After a significant permit activity drop last year, 2023 has seen a bounce-back, although not quite to the same extent as 2022. Year-to-date, new single-family permits have reached levels not seen since 2017.
For existing homeowners, this implies fewer new homes will compete with the existing supply, potentially boosting their properties' attractiveness. Multi-family permits, particularly for rentals, have surged, setting new records. However, it's worth noting that these units primarily cater to the rental market and have minimal impact on existing townhouses and condominiums.
Arizona's Robust Employment Scenario
The latest employment report for Arizona paints a positive picture. The state's labor force has grown by an impressive 2.5% year-over-year, surpassing the U.S. growth rate of 1.8%. Non-farm employment has surged by nearly 72,000 jobs, and private sector earnings have experienced a healthy 2.4% increase.
The icing on the cake? The unemployment rate stands at a mere 3.5%, well below the pre-pandemic measure of 4.9%, marking the lowest unemployment rate for Arizona since 2007. This robust employment base and favorable economic indicators continue to bolster price stability and the modest appreciation of home values in Greater Phoenix.
In Conclusion,
The Phoenix real estate market in August 2023 offers a unique landscape for both buyers and sellers. While it's a waiting game for many, the signs are promising. With stability in mortgage rates, a shifting supply-demand dynamic, and positive economic indicators, there's every reason for optimism.
As realtors, staying informed is your greatest asset in guiding clients through this market. Keep an eye on those mortgage rate forecasts, watch for shifting supply trends, and be ready for an uptick in buyer and seller activity as the year progresses.
Happy navigating, and may your transactions be as hot as the Arizona sun!
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