Market Summary for September

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

  • Active Listings (excluding UCB & CCBS): 18,694 versus 6,873 last year - up 172% - and up 4.1% from 17,957 last month 
  • Active Listings (including UCB & CCBS): 21,506 versus 10,988 last year - up 95.7% - and up 3.8% compared with 20,724 last month
  • Pending Listings: 5,607 versus 7,917 last year - down 29.2% - but up 6.0% from 5,291 last month 
  • Under Contract Listings (including Pending, CCBS & UCB): 8,419 versus 12,032 last year - down 30.0% - but up 4.5% from 8,058 last month 
  • Monthly Sales: 6,291 versus 9,048 last year - down 30.5% - but up 1.7% from 6,188 last month
  • Monthly Average Sales Price per Sq. Ft.: $286.78 versus $249.39 last year - up 15.0% - and up 0.2% from $286.10 last month 
  • Monthly Median Sales Price: $444,900 versus $401,000 last year - up 10.9% - but down 1.6% from $452,500 last month

August was a pleasant relief after 2 awful months in June and July. The market still moved in favor of buyers but the rate of change dropped significantly and a few indicators actually managed to turn positive. We haven't been able to say that for quite a while.

The supply of active listings grew during the month but only by 4.1%, which is a lot better for sellers than the 24.6% we reported last month. By the end of the month the rate of growth of active listings was almost zero. This is largely because we are now seeing a low number of new listings. This is a big change because June and July gave us an unusually high number of new listings.

Demand has also shown a few tentative signs of growth. This is again a big improvement on large declines month to month. Demand is still paltry compared to a year ago but it is slightly better now than it was a month ago. You can see this in the monthly unit sales, pending listings and under contract listings. All are slightly higher than a month ago.

Clearly desiring to reduce its inventory, iBuyer Opendoor has been cutting its list prices fast and furiously. This has attracted buyers and the number of listings under contract with Opendoor has jumped from just 137 at the start of August to 477 at the start of September. This demonstrates that low prices are strong motivators for buyers (well duh!). However, it puts a lot of pressure on sellers competing against Opendoor and leads us to expect pretty low average sales pricing in September as these contracts close escrow. The drive to sell and sell quickly is what we saw from the banks during the foreclosure wave. The bank-owned inventory is tiny now, but iBuyer inventory is very large and a strong motivation to reduce it will drive pricing lower. And lower than it would go if iBuyers were not in the market.

The second largest iBuyer OfferPad is not following the same strategy, probably because the last thing they want is to cause prices to drop even further. However, their sales pipeline is weaker as a result, with only 42 homes under contract at the beginning of September, no higher than it was the month before. You can have your cake or eat it, not both.

The market is still suffering the effects of unusually low affordability. Interest rates are much higher than they were at the start of the year and even if prices drop to the level they had in January, homes will still be less affordable due to these higher rates. The future direction of interest rates is notoriously hard to predict. The last 2 months saw a decline in average 30-year fixed mortgage rates from 5.52% to 5.22% (as reported by Freddie Mac) and a clear drop in asking prices. You could argue that the slight rise in demand we have witnessed is a weak response to both these factors. However at least it did respond. The small increase in buyer enthusiasm could soon dissipate if interest rates rise again.

Ominously we have seen a large rise in rates over the past week and if they stay at this level, demand is likely to fade again quite quickly.

Another factor in demand is that coming from investors looking to buy and rent, or fix and flip. The latest data shows a marked reduction in purchases by these buyers.

All in all, August was not too bad, but it might be just a temporary respite due to a small up-tick in demand which could easily fade. The lull in new supply may prove to be more long-lasting and therefore more significant. We will have to wait and see.

32% of New Home Sales Had Concessions to Buyers
Mortgage Rate Hikes Cause Drop in Contracts Again

For Buyers:
The percentage of closings with seller-paid closing costs continues to grow as August and September to date range between 12-13% of total sales in Greater Phoenix, inching closer to the normal range of 25-28%. Areas on the outskirts, such as Casa Grande, Maricopa, Coolidge and San Tan Valley in Pinal County and Wittmann, Tolleson and Buckeye in western Maricopa County all have 20-30% of sales closing with concessions. These areas have more than their fair share of new home subdivisions that contribute to this measure as 32% of new homes that closed in the MLS in the last 6 weeks involved concessions, compared to only 11% of resale homes.

As mortgage rates remain volatile and difficult to predict, it’s important for buyers to get educated on the lending tools designed to ease the impact of dramatic rate swings. Tools such as the “Lock and Shop” option, offered by some lenders to allow buyers to lock at an acceptable rate for up to 90 days, and seller-paid permanent and temporary rate buy-down incentives designed to dull the sting of payment increases.

Buyers who are less affected by mortgage rates, but are looking for the best time to pounce on a home, should know that the 4th quarter of the year tends to be the best time for buyers seasonally. There is often a boost in supply around September and October with sellers eager to close before the end of the year. Once 2023 gets started, contract activity is expected to rise sharply from January through May. The upcoming Super Bowl, Phoenix Open and Spring Training events are expected to generate more open house traffic and exposure for active listings.

For Sellers: 
The last 3 weeks saw more hikes in mortgage rates, rising from recent low weekly averages of 4.99%, 5.22% and 5.13% in early August to 5.55%, 5.66% and 5.89% in late August and early September. A similar spike happened last June when rates spiked from an average of 5.09% to 5.81%, also within 3 weeks. The result was a 28% drop in weekly accepted contracts over the course of 4 weeks and the worst July for closings since 2007. Then rates got better, dropping to an average of 4.99% by August 4th. The buyer response was near immediate with a 25% boost in accepted contracts within a 4-week period. The latest spike has unfortunately resulted in another dramatic drop in buyer contract activity, down 14% in 2 weeks. 

For now, the housing market is not for the faint of heart, only serious sellers need apply. Gone are the days of buyers waiving appraisals and inspections, Wall Street cash buyers offering more than asking price, and multiple offers. Over the last 6 months, the housing market has shifted away from an intense seller market to a delicate balance, the predictability of which relies on the behavior of interest rates. Until rates move below 5%, demand in the coming months will most likely remain weak, thus putting more pressure on sellers to reduce their price, offer permanent rate buy-downs, and pay for their buyer’s closing costs. Many sellers are sitting on significant equity in their homes and while the cost to sell has increased significantly, a great majority of those who have owned their property for at least 2 years can bear that extra cost without distress and still close with a significant profit.

Measure 

March 2022

September To-Date

Change Since March

Seasonally Normal Range (Established 2014-2019)

Average # of Weekly Price Reductions

480

3,690

+669%

1,800-2,300

Median Price Reduction

$10,000

$10,000

-

$5,000-$6,000

Median # of Days Active Prior to Contract

7

31

+24 Days

21-42 Days

% of Sales with Seller-Paid Closing Costs

4%

13%

+9%

25-28%

% of Sales Over Asking Price

54%

17%

-37%

12-15%

Sale Price to List Price Ratio

101.5%

97.6%

-3.9%

97-98%

 

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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Email:  TroyHolland44@yahoo.com

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Information provided courtesy The Cromford Report.