It has been an incredibly volatile year for our real estate market. January to May was very competitive for Buyers, and if a property was even remotely saleable, we had multiple offers for our Sellers - usually over list price. With the change in seasons, came a drastic transformation in the marketplace. In June we started to feel the uptick in interest rates locally and as a result, a massive slowdown in the market overall.
This has had numerous consequences. The first of which has been a back down of pricing. In May the median sales price in Phoenix metro reached an all-time high of $475,000. In September, we are projected to be at $440,000, a 7% drop. That’s substantial for a period of four months. The second major consequence has been an uptick in the number of homes listed for sale. In the first half of the year, we hovered around 7,000-10,000 homes on the market, today we are double that at 20,000. A third outcome has been a tangible change in listings. We are now seeing far fewer showings on listings, longer days on market and seller concessions. All of which were virtually non-existent this past winter and spring.
The largest factor in this downturn has been the Fed and the fact that they have continued to ramp up rates as a response to the overly heated real estate market and as a way of dampening inflation. The theory is that with higher interest rates, consumers will borrow less, spend less and eventually that will result in a reduction of inflation. But these things take time and we may be in for a few more months of a soft real estate market – something we are simply unused to seeing!
So where does this sobering news leave us for the foreseeable future? Over the past three years we have seen year over year (YOY) appreciation rates in the mid 20 percentiles. That kind of appreciation is simply not sustainable, so in many ways this correction was not only inevitable, but healthy. Distressed sales (foreclosures and short sales) are holding firm at a non-consequential .01% of total sales. This suggests that we are nowhere near a crash like we saw in 2009.
Now is a good time for us all to catch our breath, re-assess things from a new perspective and hopefully move forward with a more balanced marketplace in terms of listings for sale, buyers looking to purchase and prices with more modest gains YOY. At the same time, investment instruments (Stocks, bonds, real estate, etc.) have proven to be remarkably resilient over the past decade. Economic corrections have been unable to upend substantial gains in the near past. In addition, Maricopa County has consistently ranked as the fastest growing county in the nation. With that population growth comes demand for housing. Employment continues to be strong, and Arizona has done a good job of attracting more large businesses to the state via tax incentives and a generally low cost of living. These things, coupled with the strongest time of year seasonally, have us cautiously confident in a stronger real estate market come Quarter 1 2023.
For our Buyers, we believe that your patience continues to pay off. Prices are moving downwards and probably will continue to through the rest of the year. It puts you in strong negotiating position if you’re ready to go out and shop. You can be particular and take your time until you find the perfect home at the right price. And if you aren’t afraid of the loan process, you should consider today’s rates as temporary. Buy now, get a great price for your house and refinance to a better rate in the future when they come down. For our Sellers, we think that you are better off holding until after the new year unless you absolutely need to sell. Seasonally, February to May is the strongest time of year to sell anyway. Our snowbirds are here, major events like the Waste Management Phoenix Open, the Barrett-Jackson Car Auction, Spring Training and the Super Bowl in 2023, all give us optimism that there will be plenty of buyers available come Spring.