Do I Wait? Market Update: July 2022

It is still a seller’s market. And it’s still a great time to be a home owner.

Here at azarchitecture/Jarson & Jarson Real Estate our knowledge base runs deep. We are always watching for trends and analyzing data for our real estate market. One of our best assets is the subscription-only service provided by The Cromford Report. In addition to nearly real time analysis, The Cromford Report recently announced the market statistics comparing July 2021 to July 2022. First, let’s take a look at the hard numbers for 7.21.2022.

– 14,406 active listings for sale +152.8% in one year (up 52.6% from 9,439 last month).
– 8,621 listings under contract +24.2% in one year (down 15.9% from 10,249 last month).
– $474,374 Monthly Median Sales Price +19.5% in one year (down 0.1% from $475,000 last month).
– 8,059 Monthly Sales -20.9% in on year (down 7.7% in one month).

Fast facts and a lot of changing data. “Okay,” you ask, “so what’s this all mean?” We’re here to help you break it all down.

BUYERS:
With an increase of 152.8% of supply, buyers are increasingly finding themselves in better conditions. Homes over $400k have surged over the last year, giving buyers an abundance of options. Supply of homes under $400k are rising. While this is the fastest rate of supply in history, the supply is rising simply because buyers have pulled back (for fairly obvious reasons we will explain).

In a nutshell, our market is headed to “balance”. Typically we’d expect a balanced market to feel, well… “normal”. But this is a normal market put under highly irregular circumstances as it follows a period of shortages and frenzy. But now, when sellers have to compete because of rising inventory and softer demand, buyers get normality. And there’s nothing a buyer loves more than just that.

The process of buying a home can slow down. Buyers are able to weigh their options carefully. It takes a few more days to close a contract, and there’s suddenly some breathing room for scheduled showings.

Of course, buyers are also aware that interest rates are rising as Lenders are following the cue from the Federal Reserve rate hikes. This explains the decreased demand we are experiencing as some Buyers are simply “priced out” due to higher payments. However, rates usually don’t stay fixed in one direction or the other. They can rise, and then they can decline. They usually revert toward some kind of mean once the economy appears stable. The Mortgage Bankers Association predicts mortgage rates will decline to 4.4% by 2024. The current rates are circling 5.5%.

For example, if you bought a home today for $425,000 at a mortgage rate of 5.5%, you would pay approximately $2,413 per month. If rates dropped to 4.4% by this point, a refinance of the remaining balance would lower the payment to $2,068, saving $345 per month. It is important to note that renters are not paying off an investment, or anything except maybe their landlord’s kid’s college fund! They are paying off someone else’s loan or providing income for others. That may seem obvious, but if you’re on the fence about buying a new home, this is a fair reason not to sit on cash.

SELLERS:
As competing supply rises sharply, sales measures are expected to change in tandem. Even if a seller market has weakened, well-priced properties can still receive multiple offers and sell over their asking price. What is normal? This last year saw an average of 19.2% in average sales price per square foot. That’s $300.48 versus $252.09 last year. It’s only down 1% this month.

We’re on the path to “normalcy” in that balanced market. It has taken some time for the Fed to act, but the process of taming inflation is underway and that’s the key to our current market conditions. As a seller, you should expect just that. “Normal” includes, but is not limited to, buyer contingencies, price negotiations, paying for home warranties, and eventually closing cost assistance. These aspects are expected to return to the marketplace before sales prices react. All the things that we are used to seeing in a “normal”, balanced market.

Lastly, this isn’t a buyer’s market. But after spending some short time at the highs of 2021 and early 2022, it may feel like one to some.

Conclusions:
You’ve heard the saying before, what goes up must come down. Right now, you’ve probably been hearing it a lot. It makes your heart pound, your pulse race, and your palms soak as you imagine the worst scenario possible unfold.

Well, the inverse is often true, too. What goes down, must go up. If you’re trying to time the roller coaster, you’re going to get caught in the cross fire. You’ll buy the peaks and sell the valleys, and the fees will tear you apart along the way. Buying or selling with emotions like fear at the steering wheel will only lead you toward the path of least resistance: missing out on the next big party.

The fundamentals of our real estate market, and the Arizona economy at large, bode well for the next few months, even years, in spite of interest rise and increased inflation. There is simply no logical data that points to a substantial decrease in prices and values of residential real estate in our market.

The bottom line: The Fed isn’t done tightening the markets. They have just begun. Historically, we have seen interest rates climb to highs of 18.36%. That was only fifty years ago. Buyers should remember that, while prices can come down and supply may still climb, interest rates can still rise against them. This is a squeeze where strong buyers will prevail. Don’t forget Lenders will try to provide some relief with assorted loan programs that keep home ownership possible for the most payment sensitive buyers.

In as early as the Fall of 2022, the Fed is doubling their tightening on assets. Buyers could find themselves with higher mortgage rates than they would have if they bought months prior.

Again, these are just observations, not predictions, and we all know that predictions are rooted in hope and fear. Don’t make guesses. Don’t wait for the herd to act. Put emotions aside. Make your own plan and stick to it.

It is still a seller’s market. And it’s still a great time to be a home owner. Seller’s will find themselves now having to reasonably compete and that will lead to some correct market pricing.
This could be the market pause that finally offers buyers a chance to act, with opportunity!