Market Summary for October

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

  • Active Listings (excluding UCB & CCBS): 20,084 versus 7,649 last year - up 163% - and up 7.4% from 18,694 last month 
  • Active Listings (including UCB & CCBS): 22,580 versus 11,622 last year - up 94.3% - and up 5.0% compared with 21,506 last month
  • Pending Listings: 4,862 versus 7,605 last year - down 36.1% - and down 13.3% from 5,607 last month 
  • Under Contract Listings (including Pending, CCBS & UCB): 7,358 versus 11,578 last year - down 36.4% - and down 12.6% from 8,419 last month 
  • Monthly Sales: 6,361 versus 9,377 last year - down 32.2% - but up 0.7% from 6,315 last month
  • Monthly Average Sales Price per Sq. Ft.: $277.40 versus $251.87 last year - up 10.1% - but down 3.3% from $286.79 last month 
  • Monthly Median Sales Price: $439,000 versus $410,000 last year - up 7.1% - but down 1.3% from $444,900 last month

After several weeks of reasonably neutral moves, the market is starting to turn unpleasant again. This is particularly true of the last week of September, and October is off to a very poor start.

Demand has been weak for many months but a small improvement was observable in August and the first few weeks of September. Thirty-year fixed mortgage rates were still around 6% a month ago but are now flirting with 7% and, as expected, this appears to have turned off enough tranche of would-be buyers. Higher rates also discourage sellers and make them appreciate the loans they already have in place. More of them are deciding to expand or improve their current home rather than take on a new loan at a much higher rate.

Listings closed in September were actually a shade higher than August, but these were mostly deals done with interest rates locked at the lower levels. With these transactions completed, the listings under contract count is now unusually low at 7,358, down almost 13% from a month earlier and more than 36% lower than this time last year.

Transaction volumes have plummeted since last year with sales down more than 32% compared to September 2021. The current trend in contract signings means this volume is not likely to recover quickly. Instead, we are more likely to see volumes head lower still in the short term.

New supply is still well below normal for the time of year, but is starting to edge up slightly. With contract signings getting scarcer, the inventory is starting to build again. Although it only rose 7.4% during September, we anticipate it may rise by a higher percentage during October.

Seller confidence has been crushed over the past 5 months and the recent trends are going to do nothing to help. This means buyers will get more confident in their bargaining position and this is negative for pricing. The monthly average $/SF for closed listings is down 9.3% from the peak of $306.1 measured on June 9. The monthly median sales price is down 7.6% from the peak of $475,000 last seen on June 29. 

If mortgage rates had remained between 5% and 6% we might have seen a slow recovery taking place by now, but the Federal Reserve kicked the market while it was down and looks ready to kick it again. We need listings under contract to move above 8,500 to be experiencing signs of a recovery and the current 7,500 level is not even enough to absorb the relatively slow arrival rate of new supply. I recommend that you watch this key number closely over the next few months.

More Buyers Got Help With Closing Costs in September

What To Expect for Housing in the 4th Quarter

For Buyers:
The price reductions keep coming. Last week when mortgage rates hit 7.0%, the Greater Phoenix housing market responded with 4,427 price reductions, 24% of all active properties in the MLS. At least 50% of those dropped their price by $12,000 or more. 

September saw 1,372 closings involving seller closing cost assistance to the buyer, equating to 23% of MLS sales, with a median concession of $7,000. This is a 334% increase from last June’s count of just 316 sales involving concessions. New home sales through the MLS showed 33% with concessions, and 50% at $10,000 or more.OpenDoor, as a seller, paid concessions on 355 transactions, 77% of their sales through MLS, with 50% costing $6,000 or more. 

Closing cost assistance is expected to continue to rise into the 4th quarter as mortgage rates continue to stay high and stifle demand for the time being. Aside from paying the buyer’s costs for title insurance, pre-paid taxes, insurance, lending fees, and other closing costs, seller-paid concessions can also be used to buy down a buyer’s mortgage rate, if applicable, and ease the pressure on their monthly payment.

For Sellers: 
The 4th quarter is expected to be a test for sellers as mortgage rate hikes have reduced contract activity to levels not seen since 2008. Frankly, it’s not the best time to sell if you have a choice in the matter. Unlike 2008 however, most sellers today do have a choice and those without an immediate need to sell have chosen to wait. This is reflected in some of the lowest counts of new listings coming on the market recorded at this time of year going back to 2001.

Fewer new listings is a ray of hope for existing properties on the market. If new listings are trickling in and new buyer contracts are trickling out, then overall supply does not spike and cause further downward pressure on price. Thus, keeping the market in a delicate balance for now.

Prices hit their peak in May, shortly after mortgage rates hit 5% and before they peaked over 6% in June. Once that happened, buyer demand dropped dramatically and the reflection in prices started to show a trend downward. Now rates are near 7% and sale price per square foot is down 9.6% over the course of 4 months, currently measuring less than 1% higher than January 2022 and representing the elimination of appreciation achieved from January through May. 

While this is disappointing to those who purchased this year, 66% of active sellers in the MLS (new homes excluded) have owned their home for 2 years or longer. This means that even with the most recent downturn in price, the 2-year appreciation rate from September 2020 to September 2022 is still 40.3% based on per square foot measures, and the median sale price is $112,000 higher, indicating most sellers have enough equity to shoulder the added costs to sell in this marketplace if they must. 

Finally heading into the 4th quarter, expect marketing times to increase as they typically do this time of year. Median days on market prior to contract was 31 days last week. From October through December, active days prior to contract is known to rise anywhere from 44 to 56 days historically, with 50% of listings going longer. 

The key words for sellers in this “new” market are condition, price, concessions, and patience.

 

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report

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Troy Holland

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Email:  TroyHolland44@yahoo.com

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Information provided courtesy The Cromford Report.