Market Summary August 2021
Here are the basics - the ARMLS numbers for August 1, 2021 compared with August 1, 2020 for all areas & types:
- Active Listings (excluding UCB & CCBS): 7,105 versus 8,477 last year - down 16.2% - but up 24.7% from 5,699 last month
- Active Listings (including UCB & CCBS): 10,913 versus 13,259 last year - down 17.7% - but up 11.6% compared with 9,783 last month
- Pending Listings: 7,236 versus 7,550 last year - down 4.2% - and down 0.8% from 7,294 last month
- Under Contract Listings (including Pending, CCBS & UCB): 11,044 versus 12,332 last year - down 10.4% - and down 2.9% from 11,378 last month
- Monthly Sales: 9,131 versus 10,544 last year - down 13.4% - and down 10.3% from 10,179 last month
- Monthly Average Sales Price per Sq. Ft.: $250.93 versus $191.21 last year - up 31.2% - but down 0.5% from $252.15 last month
- Monthly Median Sales Price: $400,000 versus $315,000 last year - up 27.0% - and up 0.8% from $397,000 last month
Supply continues to move higher. We would usually consider a 24.7% increase in one month to be an exceptional growth rate. However, we are rising from a very low point and the number of active listings without a contract is still down 75% from what would be considered normal. We are witnessing new listings arrive at a faster rate than we usually see at this time of year, especially those priced between $400,000 and $1 million. This is helping buyers, but there are still far more buyers than homes for sale.
I still read articles describing demand as exceptionally strong. This is absurd. Demand is only slightly above normal and has been getting weaker over the last several months. This is obvious both from the pending and under contract counts (down compared with last month and last year) and from the monthly sales counts (down compared with last month and last year). If demand were strong, then all these numbers should be responding to the increase in supply. They are not.
The large majority of market commentators have not grasped that demand is not the issue. Interest rates are not the issue either. Everything today is about supply. Even after a rise of almost 25% there is nowhere near enough supply to take the stress out of the market.
Demand has changed its make-up since the start of the year. Owner-occupiers are down, while second-home buyers are up, particularly those from out-of-state. Also more active are iBuyers and all types of investors, with fix and flip and buy-to-rent investors filling the gap left by owner occupiers. Many buy-to-rent operators are buying from each other, and a few are building neighborhoods entirely for rent. This practice started in Phoenix in 2012 and the original local company that built the first rental neighborhood in Gilbert has just sold it complete to one of the large institutions. The build-to-rent business does not affect our numbers since the entire neighborhood is owned by a single company and the homes are never listed for sale. It is similar to the multi-family apartment block market. The only difference is that the homes are physically more separated from one another, an attractive benefit during a pandemic.
Over the last year, prices have not been rising because of strong demand or low interest rate, as often stated by the media. They have been rising because of extremely poor supply. Buyers do not pay more for a home because they can. They pay more because they have to. Multiple bids make them pay more, unless they drop out. Low interest rates merely allow them to compete. If there were more homes for sale, they would get the home for less than the asking price. During July the average buyer had to pay 1.4% over the asking price.
New home builders currently experience elevated demand because so many buyers have given up on trying to find a re-sale property. But the demand they perceive is due to the low supply of re-sale homes, not some unusual build up of buyer demand. The new and re-sale markets are not really separate because almost every buyer can switch from one to the other based on personal decisions. Buyers are spilling over to the new home market that would normally have chosen a resale home.
The market remains hot but has been cooling for 4 months now and this is reflected in a large array of measurements. For example:
- In June, buyers were paying 1.8% more than list price on average, well above the current 1.4%
- The listing success rate is down to 89.3%, having peaked at 93.1% in May
- The contract ratio is down to 155, having reached 332 in March
Prices have been leveling off over the past month. This is consistent with the seasonal trend that weakens prices during the third quarter in most years. It is caused by a slowdown in high end sales during the hottest months (May through September) We did not see that effect last year because of the lock-down, but this year we expect 3Q to be nothing like the explosive 2Q. There is still no long-term downward pressure on prices and this pressure is unlikely to emerge until supply rises much higher than current levels.
What’s Ahead for Sellers as Demand Weakens
Median Sales Price Up 29%, Fewer Contracts
For Buyers:
Buyers with budgets over $300,000 may be noticing that they have more listings to choose from compared to a few months ago. This is especially true in the price points between $400,000 and $800,000 where inventory has grown 92% since February. When a buyer has, for example, 4 or 5 homes available that meet their criteria instead of just one, they are less inclined to throw all of their ammunition into one home in order to win it. They may still offer full price or more, but may not be under as much pressure to waive contingencies and shorten inspection periods.
As this subtle change proliferates with more inventory, the buyer experience will become less stressful. As the median sale price continues to rise, affordability is something to pay attention to. Not what’s affordable to you necessarily, especially if you’re out of state, but what percentage of the local population can afford your home if you need to sell right away or sometime in the future. A family making the median income in Greater Phoenix could afford 63% of what sold in the 1st quarter of 2021. That was within the normal range of 60-75%, indicating a good time to buy or sell. While we wait until August for the 2nd quarter measures to be released, we expect the new measure to land around 57%, slightly below normal. This does not indicate that the market will plunge into a buyer market causing prices to decline, but it does indicate a reason to expect prices to rise much slower going forward.
For Sellers:
The Greater Phoenix housing market continues to shift from an extreme seller market into a less extreme seller market. As prices continue to rise, more new sellers are motivated to put their home on the market and fewer buyers are able or willing to pay the higher price. Over the next 5 months, give or take, the market is expected to move into a weaker seller market, driven in part by dwindling affordability and buyer fatigue.
The first half of 2021 has been so insane with contingency waivers and exorbitant offers over asking price that many sellers may not know what a normal seller market looks like. Here are a few things to expect:
- Sales price appreciation will not average 3.1% per month. April 2021 saw prices appreciate 5.1% within 4 weeks. May was 2.3%. June was 1.1%. From 2015-2019, a long-term seller market but much weaker than today, prices appreciated at an average of 0.5% per month with a range between 0.3% and 0.8%.
- There will be more list price reductions. It’s important to remember that the sales price is the LAST thing to respond in a shifting market. One of the first things to respond is a list price, in the form of a price reduction. When a seller overshoots what the market can bear, they will get the silent treatment in the form of zero offers. That triggers a price reduction by the seller. Weekly price reductions have risen 112% since mid-February from 317 in a week to 672. In a weaker seller market, expect between 1,500-2,000 price reductions every week.
- Sellers will get their price, but pay more in concessions. If a seller prices their home high in anticipation of excess demand but only gets one offer instead of multiple offers, they are more likely to accept home warranties, do repairs and offer concessions. Currently the percentage of sales involving concessions is very low at 4%, up from 2.7% the week prior. In 2019, a good seller market, 25% of closed sales involved seller concessions.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2021 Cromford Associates LLC and Tamboer Consulting LLC
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Troy Holland
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Email: Troy@Sell4Free-AZ.com
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