Market Summary for July
Here are the basics - the ARMLS numbers for July 1, 2022 compared with July 1, 2021 for all areas & types:
- Active Listings (excluding UCB & CCBS): 14,406 versus 5,699 last year - up 152.8% - and up 52.6% from 9,439 last month
- Active Listings (including UCB & CCBS): 17,261 versus 9,783 last year - up 76.4% - and up 34.8% compared with 12,801 last month
- Pending Listings: 5,766 versus 7,294 last year - down 20.9% - and down 16.3% from 6,887 last month
- Under Contract Listings (including Pending, CCBS & UCB): 8,621 versus 11,378 last year - down 24.2% - and down 15.9% from 10,249 last month
- Monthly Sales: 8,059 versus 10,184 last year - down 20.9% - and down 7.7% from 8,734 last month
- Monthly Average Sales Price per Sq. Ft.: $300.48 versus $252.09 last year - up 19.2% - but down 1.0% from $303.39 last month
- Monthly Median Sales Price: $474,374 versus $397,000 last year - up 19.5% - but down 0.1% from $475,000 last month
June presented us with all sorts of statistical records, all of them dismal.
The rise in supply has been faster than ever seen before. Excluding UCB and CCBS listings, we recorded active listings up 53% in a single month and up 153% compared to this time last year. It is not the absolute numbers of listings that are records, but the percentage changes are far above anything we have previously experienced.
The change in demand was equally stunning. Listings under contract dropped 16% from last month and are down 24% compared with a year ago. Monthly sales are down 21% from June 2021 and down 8% compared with May 2022. These are normally fairly stable numbers that take their time to rise or fall.
When a housing cycle changes from positive to negative, we normally go from euphoria to uneasiness for a few months, followed by several months of denial and then several more months of pessimism before we get to the panic phase. This is what played out in 2005 and 2006. But in 2022 we seem to have taken just a week or two to skip through each of these steps and gone from euphoria to panic in no more than 10 weeks. After the first round of sharp rises in mortgage rates, everyone was so willing to believe that the market was about to fall that it became a self-fulfilling prophecy. Those who owned houses that they did not occupy themselves decided that 2Q 2022 would be an excellent time to sell them, while prices were near their peak. At the same time, buyers dropped out at an unprecedented rate, unable to afford the new monthly payment or unwilling to buy a home at what looks increasingly like a top in the market. In isolation both of these decisions look eminently sensible. In combination they caused the market to hit the brakes so hard it has skidded off the road.
It is predominantly the wealthy who are involved in the market at the moment. Most ordinary buyers are priced out. Most ordinary homeowners are not selling their only residence because they would have to pay much higher interest on any new loan associated with wherever they move to. But there are many wealthy people and companies who own multiple homes and who are trying to offload them urgently to maximize their profits. Home builders have gone from rationing their product only a few months ago to needing incentives such as mortgage rate buy-downs to coax buyers to sign up or keep their existing orders. The speed of the change is gut-wrenching.
June 25 saw the highest ever weekly total of new listings being added to ARMLS (3,169). A week later, things have calmed down a bit, but this may just be because of Independence Day. The week before Independence Day tends to be relatively quiet every year. We will have to wait until the week after to know if the flood of new listings has really peaked. We presume that the supply of wealthy sellers will eventually die down, which would herald a return to something that more resembles normality.
As for demand, the weakening trend seems to have longer to run. Mortgage rates could go higher still and stay high for a long time, at least until the Federal Reserve has a change of heart. iBuyers have continued to buy homes (bless their cotton socks), but how long can they afford to let their inventory grow when their sales are declining sharply? iBuyers create 2 transactions when they act as an intermediary, so their presence in the market makes transaction volumes artificially high. If they slow or stop their purchases, demand measurements will take another step down.
We do not pretend to know the future and the market is moving so quickly, even a week makes for a dramatic shift. Those who measure monthly are almost flying blind. All we can do is measure daily and report to you any significant new trends in the daily observations section.
Seller Market is Officially Over! Here’s What to Expect.
How Some Sellers Are Winning Against Interest Rates
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:
|
|
Full Price |
Price |
Permanent |
2/1 Buy-down |
|
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
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
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Information provided courtesy The Cromford Report.
