Market Summary April 2022

Market Summary for the Beginning of April 2022

Here are the basics - the ARMLS numbers for April 1, 2022 compared with April 1, 2021 for all areas & types:

  • Active Listings (excluding UCB & CCBS): 5,051 versus 4,088 last year - up 23.6% - and up 10.1% from 4,588 last month
  • Active Listings (including UCB & CCBS): 8,663 versus 8,699 last year - up 0.9% - and up 4.3% compared with 8,305 last month
  • Pending Listings: 8,008 versus 7,964 last year - up 0.6% - but down 3.9% from 8,333 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 11,620 versus 12,575 last year - down 7.6% - and down 3.6% from 12,050 last month
  • Monthly Sales: 10,123 versus 10,398 last year - down 2.6% - but up 26.6% from 7,998 last month
  • Monthly Average Sales Price per Sq. Ft.: $290.87 versus $231.72 last year - up 25.5% - and up 2.3% from $284.71 last month
  • Monthly Median Sales Price: $456,000 versus $358,250 last year - up 27.3% - and up 2.5% from $445,000 last month

The downward trend in supply that started in late October has reversed during March and we are now seeing what appears to be a significant rising trend. However, this is not due to more incoming new listings. It is due to fewer active listings going under contract. Ordinary owner-occupier home buyers are hitting real trouble.

Closed listings remained healthy during March, but were down 2.6% from last year. However the massive rise in prices since March 2021 means that March 2022 holds the record for the highest monthly dollar volume ever seen - $5.816 billion.

This might lead you to think that demand remains very strong, but you would be wrong. The falling number of listings under contract show a negative story - down almost 8% from this time last year and even down 3.6% compared to the beginning of March. As we said - fewer active listings are going under contract

The very significant rise in mortgage interest rates over the past few months is keeping many sellers out of the market - they do not want to let go of their cheap fixed rate loans. However it is also taking the wind from the sails of the normal owner occupiers, especially the first-time home buyer. Not only are they suffering sticker-shock from the asking prices of the homes they would like to buy, and crazy competition from cash buyers, the higher interest rates mean their monthly mortgage payment has increased alarmingly. In some cases it has increased so much it is no longer deemed to be affordable by their lender and their loan application is denied.

In this way an expensive market reduces demand and prices start to climb less steeply. At least they would do if it were not for the investor demand. Many investors are flush with cash and to them residential real-estate looks like a safe haven. A hedge against inflation, revenue producing (unlike many stocks, cryptocurrency, commodities and gold) and very tangible - it looks extremely attractive when coupled with rapidly rising rents.

The problem is that rents are not rising any more. Based on closed leases on ARMLS, average rents peaked last August and have been gently falling since then. The leading indicator, average asking prices, has fallen more significantly. So many new rental properties of all kinds have been created - we may be running a bit short of prospective tenants sometime soon. How will investor sentiment change when tenants get scarce?

Meanwhile home prices are still rising at amazing speed. The average $/SF has risen 8.9% in the first 3 months of the year and is likely to continue rising until June at least. The median sales price is up from $425,000 to $456,000 in 3 months and looks likely to break $470,000 by the end of the second quarter. The third quarter is always a slower period and it is likely we will get some respite from the rising prices between June and September. What happens in the fourth quarter will largely depend on how long investors retain their current euphoria in the face of increasing risks. Is their investment safe as houses?

 

57% of Sales are Over Asking Price
Median Sale Price Up 27% to $457,000

For Buyers:
Supply is still the top concern for buyers these days and we continue to look to new construction to add new homes and ease the pressure on price. The top areas for new single family home sales are the West Valley, with 44% market share, and Pinal County, with 27% market share. The Southeast Valley comes in 3rd with 17%. If you’re looking to the West Valley for a new home, your best bets are Laveen, just east of the new 202 freeway loop, and cities just west of the 303 freeway such as Peoria, Surprise, Waddell, Goodyear and Buckeye. In the Southeast Valley, new home subdivisions are concentrated in East Mesa, Queen Creek, South Gilbert and South Chandler. In Pinal County, Casa Grande and Maricopa have the most new home sales.

As of February 2022, the median cost of a new home closed was $447,000 overall with a median size of 2,197 sq. ft. That was just under the resale median of $450,000 in the same month, which had a median size of 1,783 sq. ft. In the West Valley, the new home median is $443,000 with 2,237 sq. ft. In the Southeast Valley that median is $579,000 and 2,456 sq. ft., and in Pinal County it is $385,000 with 1,888 sq. ft.

New home developers continue to struggle with a labor shortage and supply chain issues. It’s not uncommon for builders to estimate 14-16 months before completion of a home. Because prices have been rising sharply, this means that by the time a home is built, the costs to complete it have gone up and it’s already worth significantly more than the negotiated purchase price. For this reason, some builders are including escalation clauses in their contracts that allow them to raise the price prior to close of escrow to accommodate the higher costs to build and closer reflect the current market value. In addition to escalation clauses, a handful of builders are including restrictions on when a homeowner can sell or rent the home after close. It’s important to read builder contracts closely and ensure you understand every section before moving forward.

For Sellers:
The market continues to heavily favor sellers. Supply is still 76% below normal for this time of year and demand is 6% above normal. However, demand is declining in response to recent increases in interest rates. Just 30 days ago, demand was 12% above normal, and 30 days prior to that it was 21% above normal. Buyers across the nation are in the best financial shape seen in decades with an average credit score of 714 last year, according to Experian, and Maricopa County has the lowest percentage of consumers with credit scores below 660 in at least 22 years. However, in just a few short months, the average interest rate increased from 3.1% in December to 4.7% by April. This resulted in a $500 increase in the estimated payment on a 1,500-2,000 sq. ft. home, pushing the cost to buy significantly higher than the cost to rent in Greater Phoenix.

This does not mean the market is at its peak, or at the precipice of a price decline. The only response we are seeing at this time is a sharp increase in supply between $500K-$1M over the past 2 weeks, a price range that happens to have less interest from investors and 2nd home owners and a higher market share of owner-occupants. Despite this increase in supply, the median days on market prior to contract is still only 7 days, and there aren’t any bold movements in price reductions or seller concessions. Until we see an upward shift in price reductions and seller concessions, we will not see a flattening out or decline in sale prices.

Currently, April closings to date have seen 57% of closings over asking price and a 22% appreciation rate compared to April 2021 thus far. While it’s reasonable to expect price appreciation to slow down at some point, there is little evidence at this stage to show prices declining in the near future.


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

If you, or anyone you know, is looking to buy or sell, Please let me know!

Troy Holland

Cell:  480-773-5792

Email:  TroyHolland44@yahoo.com

Web:  www.AZ-RealEstateGroup.com 

Raving Fans: Client Reviews Here

 

Information provided courtesy The Cromford Report.