Last week, Shannon and I went to our first realtor tour of the year. We had not been on this tour in a long time. Between Covid and many years of an intense Seller’s market (which precluded the need to have realtor tours), the home tour had more or less ceased to exist. At the end of 2022 came massive change and the tour sprang to life again. So much so that the parking lot was full, and it was standing room only for the meeting.
Realtors had just endured the most topsy-turvy year in over a decade. 2022 began just like the previous three years – in a substantial Seller’s market. Listings, if priced well, would sell in a matter of days, often over asking price. Buyers scrambled to put in bids as soon as possible with the strongest terms (in favor of Sellers). It continued this way through our Spring selling season into May and then the bottom dropped out of the market; spearheaded by the Fed increasing interest rates as a mitigation factor against inflation. From that point on, we languished in a balanced or slightly Buyer’s market through the end of the year.
For several reasons, which we’ll pursue shortly, we had maintained an optimistic attitude about the Phoenix metro marketplace, notwithstanding our phones being much quieter than usual. We were very anxious to listen to what our peers had to say, and we were beyond vindicated in that meeting. It was incredible to hear, despite media reports and economic data related to inflation, that the other realtors were seeing positive signs in the marketplace too. Maybe the most shared sentiment was that Phoenix metro is different than other major markets and because of this, everything happening locally had to be viewed differently than what was portrayed nationally.
Maricopa County has been the fastest growing county in the nation for the better part of the last decade. This desire to move to Phoenix has meant high demand and low inventory for a long time. One of the reasons for great optimism is that we feel there is a tremendous amount of built-up demand. Those buyers have been sitting on the sidelines either because they are afraid of the current interest rates, they did not want to sell as they watched the market correct or they live in another market where it is difficult to sell. It is our opinion that this will change in the first two quarters of 2023 either because of interest rate changes or a shift in Buyer sentiment that allows them to see interest rates in the 6-percentile range are really not so high from a historical perspective.
There are other reasons for optimism. For Phoenix metro a balanced market has roughly 30,000 homes for sale. In January 2023, we have 23,000 homes on the market and 30% of those are under contract. This low inventory and solid contract ratio provide further hope that when the psychology of a down market subsides, the turnaround will likely be dramatic. Other factors to consider as we look at the overall marketplace is the cost to rent, which is becoming more and more expensive. Millennials who have been renting because of affordability concerns getting to a point in their lives where they are ready to purchase. Plus, a very strong jobs market coupled with the fact that Arizona is offering major tax incentives for businesses to move here.
Let’s wrap up with some general advice for our specific clients:
For Buyers: We’re bullish on the market in 2023. We believe that there is great opportunity to be had and that we may not see this kind of opportunity again for many more years. 2022 marks the first year since 2010 that we did not have a year over year price gain. That’s 11 years in a row with price appreciation! 2021 saw a massive 28% year over year price gain, so a correction was bound to happen, but we view this correction as short-term and likely to subside quickly, putting us right back in an accelerating marketplace. Assuming inflation continues to drop, we can expect a change in interest rates during the second half of the year, affording today’s buyers an opportunity to refinance once they complete a purchase. If you can buy now, we highly recommend getting out to look before the end of the winter when the evidence of the market shift will have gone viral.
For Sellers: We have been preaching patience and continue to do so. You are likely to be in a strong position later this year. If you need to sell sooner rather than later, holding until March or April should provide you a larger pool of buyers and the winds of change in the market will be in the air. Seasonally these months are always the strongest and the post-Super Bowl/WM Phoenix Open/Barrett Jackson momentum should have the local economy humming. This fall might be the best time to sell though as we will likely see a drop in interest rates by then and a potential return to bidding wars + escalated prices.
Broker, Avenue3 Realty, LLC