Market Summary June 2022
Here are the basics - the ARMLS numbers for June 1, 2022 compared with June 1, 2021 for all areas & types:
- Active Listings (excluding UCB & CCBS): 9,439 versus 4,917 last year - up 92.0% - and up 41.1% from 6,688 last month
- Active Listings (including UCB & CCBS): 12,801 versus 9,361 last year - up 36.7% - and up 25.6% compared with 10,191 last month
- Pending Listings: 6,887 versus 7,873 last year - down 12.5% - and down 6.8% from 7,386 last month
- Under Contract Listings (including Pending, CCBS & UCB): 10,249 versus 12,317 last year - down 16.7% - and down 5.9% from 10,880 last month
- Monthly Sales: 8,729 versus 9,663 last year - down 9.7% - and down 6.1% from 9,295 last month
- Monthly Average Sales Price per Sq. Ft.: $303.55 versus $248.81 last year - up 22.0% - and up 0.4% from $302.43 last month
- Monthly Median Sales Price: $475,000 versus $390,000 last year - up 21.8% - and up 1.9% from $466,000 last month
Supply has risen dramatically over the last month. Excluding UCB and CCBS listings, we see active listings up 42% in a single month and up 92% compared to this time last year.
Almost everyone expected demand to fall because of the sharp increase in mortgage interest rates, and demand has behaved as expected - sales are down almost 10% compared with May 2021 and listings under contract are down almost 17% compared with June 1, 2021. Demand numbers tend to be less volatile than supply numbers. Lower demand means active listings stay active longer and if the arrival of new listings remains constant, supply starts to build up. This has happened as expected, but what was not generally anticipated was a significant increase in the rate of arrival of new listings.
As of June 1, the rate of arrival of new listings is up more than 14% compared to the same time last year. It is also up 40% compared with June 1, 2020, but that is an unfair comparison because the housing market was being disrupted by the COVID-19 pandemic. If we compare with 2019 then new listings are arriving 13% faster. I think it is fair to say we are getting significantly more new listings each week than we are used to. Because demand is falling, these extra new listings accelerate the supply growth. The number of active listings without a contract exceeded 10,000 today (June 3) for the first in 2 years. At 10,000, the number of active listings is well below normal right now, but if it keeps increasing at the current monthly rate, we would be looking at more than 26,000 active listings without a contract within 3 months. This means that by the beginning of September we would not be a seller's market, unless we also saw a recovery in demand.
The big unknown is whether this increase in new listings is a short-term blip or the start of a much more important trend. The increase is only 5 weeks old, but at the moment it is getting stronger each week.
The increase in supply is not confined to homes for sale. There are 2,316 active rental listings, up from 1,382 this time last year, an increase of 68%. In addition, coming soon listings are up 20% compared to June 1, 2021.
Closing prices continue to move higher, but at a slower rate than last month. List prices for active listings have started to weaken, as sellers start to realize they need to moderate their ambitions. Some may not realize this and their homes will probably stay on the market for a long time before reality bites and they realize a price cut is in order. We expect to see a large increase in the number of price cuts for active listings over the coming months.
During May, the buy-to-rent operators remained very active. Institutional buyers purchased 770 homes in Maricopa County alone, representing almost 9% of sales and nearly 15% of sales below the median sales price of $475,000. If these institutions were to suppress their appetite, demand would fall further and supply increase faster. At the moment it is not clear whether the rising supply will cause them to increase their acquisitions or tamp them down. The danger we see from institutional players is that their decisions can have a more sudden effect on numbers than those of ordinary home buyers.
It is very rare for the Greater Phoenix housing market to change as fast as it has done over the past month. In fact, this represents the most dynamic period we have ever recorded since 2000. This rate of change only adds to the uncertainty of where we are headed. It suggests that extreme caution is in order.
MLS Supply Up 113% Over Last Year
Median Days Prior to Contract Rising
Market conditions continue to get better for buyers undeterred by rising mortgage rates. Over the last 10 weeks, there has been a surge of new listings in every price point over $400K, pushing the supply level up 113% over this time last year. The surge in new listings is not happening under $400K, however rising interest rates have caused demand in this price range to decline. As a result, supply is rising on the low-end due to buyers pulling back, not excessive new listings.
In a nutshell, when sellers have to compete, buyers win. What they win at this stage is their sanity and some normalcy in the home buying process. By normalcy, typical contract requirements such as appraisal and inspection contingencies remain in place. There may be multiple properties available that fit a buyer’s needs, instead of only one with multiple offers already submitted. The median number of days prior to contract is now 11, up 4 days from last month, which provides more breathing room for scheduling showings.
For some buyers, this moment is bittersweet because it comes with higher mortgage rates. However, interest rates typically do not stay high, or low, forever. The Mortgage Bankers Association expects mortgage rates to decline to 4.4% by 2024. How does that play out for someone who buys a home today? Let’s look.
Current rates at 5.2% place the estimated principal and interest payment for a $425,000 loan at approximately $2,335 per month. Fast forward to the future, the remaining mortgage balance after just 2 years of payments would be $413,000. Hypothetically, if interest rates are 4.4% by this point, a refinance of the remaining balance would lower the payment to $2,068, saving $267 per month.
If a potential home buyer instead decides to wait 2 years for the interest rates to decline to 4.4% before purchasing, assuming home prices stay exactly the same, their PI payment on a $425,000 loan would be $2,128, only saving $207.
The problem with waiting for the perfect time to purchase a home is that most people don’t realize the timing is perfect at the time it’s actually perfect. For this reason, planning to hold property long term is the best way to mitigate short term risk and take advantage of refinance opportunities as they come, continually building equity regardless of what the market is doing.
As competing supply continues to rise sharply, certain sales measures are expected to start changing rapidly. One of the most dramatic measures is the percentage of closings over list price and the median dollar amount over asking price. April 2022 saw 58% of sales close over asking price with a median of $20,000 over. So far, closings in June show 51% closing over asking price with a median of $15,000 over. Even in weaker seller markets, excellent properties well priced receive multiple offers and sell over asking price. The difference is that they typically only make up about 15% of sales with a median of $3,000 over. So the market isn’t back to normal yet, but it’s rapidly moving in that direction.
Price reductions are now up 258% in 10 weeks, but just over the past 5 weeks the days on market prior to contract has started to rise as well. Over the next 4 weeks, expect the number of closings over asking price to drop sharply along with the dollar amount and expect to be reintroduced to buyer contingencies, price negotiations, paying for home warranties and eventually closing cost assistance. These aspects will return to the marketplace before sale prices ultimately respond. This isn’t a buyer market, but for some it feels like it is compared to just 2-3 months ago.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
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