Market Summary for the Beginning of March 2022

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

  • Active Listings (excluding UCB & CCBS): 4,588 versus 4,491 last year - up 2.2% - but down 5.9% from 4,876 last month
  • Active Listings (including UCB & CCBS): 8,305 versus 9,094 last year - down 8.7% - and down 0.9% compared with 8,380 last month
  • Pending Listings: 8,333 versus 8,027 last year - up 3.8% - and up 6.9% from 7,798 last month
  • Under Contract Listings (including Pending, CCBS & UCB): 12,050 versus 12,630 last year - down 4.6% - but up 6.6% from 11,302 last month
  • Monthly Sales: 8,000 versus 8,035 last year - down 0.4% - but up 12.7% from 7,096 last month
  • Monthly Average Sales Price per Sq. Ft.: $284.55 versus $231.11 last year - up 23.1% - and up 3.6% from $274.70 last month
  • Monthly Median Sales Price: $445,000 versus $349,000 last year - up 27.5% - and up 2.7% from $433,500 last month

The downward trend in supply that started in late October continued throughout February, but slowed down. We have slightly more inventory than we had this time last year, as long as we exclude UCB and CCBS listings. We have fewer active listings in total, but UCB counts have fallen by almost 20% compared to a year ago.

Demand is slightly below last year but given the sharp increase in interest rates, it is holding up pretty well. The market is cooler than a year ago, but not by much. The contract ratio stands at 263, down from 281 this time last year, but still abnormally high. In a normal market, this would be somewhere between 30 and 60.

Prices are rising at colossal speed. The average $/SF has risen 6.2% in the first 2 months of the year and are likely to continue rising until May at least. The median sales price is up from $425,000 to $445,000 in 2 months and looks likely to break $470,000 by the end of the second quarter. The third quarter is always a slower period and we may get some respite from the rising prices between June and September.

The only real sign of any slowdown is in the rental market which has seen a significant rise in new listings compared to the first 2 months of last year. The average rent for listings closed through ARMLS has stayed around $1.35 per sq. ft. per month since July 2021 and currently has little upward momentum. We have suggested several times that when a cooling off comes it will be seen in the rental sector far earlier than the purchase sector. If rents start to stagnate then investors cannot afford to pay ever higher prices to purchase those buildings without seeing their cash flows depressed. The number of building permits for multi-family properties suggests we may be over-building for the rental demand even though we are still under-building in the single-family segment.

There are plenty of observers suggesting the market is due for a downturn, but the market is not giving off any data to support that opinion. Supply remains extremely low with no sign of significant new supply of homes to buy. Demand is down a little but seems to be extremely resilient and although it is lower than last year, it remains very strong by historic standards. A change may happen, and you know we will report it if it is there to be seen. Right now there is no change to report.

Housing Market is Just as Tough for Buyers over $1M
Median Sale Price up 2.4% Over Last Month

For Buyers:
Affordability has been dominating the headlines as of late, however few have been documenting the plight of buyers in the luxury market over $1M. Typically, the higher in price one can go, the more they’d expect to see less buyer competition, more choice and more negotiating advantage.  Not so.
In more expensive areas such as the Central Phoenix/Camelback Corridor, Paradise Valley, Scottsdale, Fountain Hills and Carefree/Cave Creek, supply of homes is still not sufficient for the demand. This is true even for buyers with budgets from $1M to $3M where 31% of sales close over asking price and many buyers need to prepare to offer $50,000 or more over market value.

In Paradise Valley, on February 5th there were 85 active listings in the Arizona Regional MLS and 85 in escrow.  From 2015-2019, supply ranged from 370-450 active listings in February and 53-93 under contract.  So while demand is within range, the fact that there are so few properties to choose from means that competition remains tight. The median time prior to an accepted contract was 13 days and prices rose 34% in the past year; impressive for a city where the median sale price is currently $2.79M.

In the Central/Camelback Corridor of Phoenix, typically there would be 140-200 active listings over $1M and 19-52 under contract .  However, on February 5th there were only 55 active and a whopping 88 under contract. The median time on the market prior to contract was 10 days and property values have risen 28% per square foot since last year.

Similar stories can be heard throughout the luxury market.  Scottsdale would typically see 800-1,000 listings over $1M with 80-240 under contract in February.  On February 5th there were 274 active and 365 under contract.  Buyers have a median of 7 days before a listing over $1M is under contract and 34% of sales closed over list price.

For Sellers:
The median sales price went up another 2.4% over the past month, which is impressive considering the average mortgage rate increased from 3.11% in December to 3.55% by the end of January, according to Freddie Mac. Buyers who have been waiting for prices to stop accelerating, possibly even flatten out or decline, have been disappointed for at least 18 months in a row as home values appear to defy the affordability limits of the population. Despite prices continuing to rise, there is still an expectation that rising interest rates will eventually influence demand, and thus prices, sometime this year.

Frankly, that’s not an unreasonable expectation under normal circumstances. However, the housing market is far from normal right now. Over the course of 30 days, demand has gone from 23% above normal to 19% above normal, so there has been some shifting in demand that can be attributed to mortgage rates and their effect on affordability.  But demand is still very high, and supply moved from 72% below normal to 75% below normal during the same time frame. This drop in supply mitigated any relief the drop in demand would have had on rising prices.

When the total number of homes in an area is insufficient for the number of people living there, the interest rate has less impact on rising home values. There are fewer homes for sellers to move to, so they choose not to place their home on the market at all.  Even if demand falls due to mortgage rate increases, if it remains above normal while supply remains below normal then property values will continue to rise.

Unless the supply of MLS homes for sale achieves a range of 16,000-24,000 listings, prices will continue to rise before demand drops low enough to stop them.

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

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Troy Holland

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Information provided courtesy The Cromford Report.