The housing market is one of the hottest topics right now on the news, social media, and with all my clients and friends. I am constantly being asked, “Is the market going to crash?” especially from buyers who are sitting on the fence not knowing what to do. Whatever you hear or read seems to leave you with far more questions than answers, but we are not heading for a crash or a correction; the market is shifting, which is a good thing, and we need to get back to a normal market.
I do have a word of warning though especially if you are thinking of selling your home. I am hearing realtors and brokerages telling sellers to sell now, stay in your house (or rent for 6 months), and then they will help you buy another home when prices have dropped. Be very wary of anyone who is telling you where the market is going to be in 6 months, and that you can sell high now and buy low later.
This is just a marketing tactic, and in my opinion, is a very unethical one to try to persuade you to sell your house and list with them. If the market doesn’t come down you will be paying the same or more for the house you wanted to buy, most likely at a higher interest rate, and lost 6 months of mortgage payments that you have paid toward someone else’s mortgage.
WHAT IS GOING ON WITH THE HOUSING MARKET?
As with anything, prices are driven by supply and demand — the scarcer the supply the more valuable and higher the price, just look at gas prices right now. We had a boom in the housing market that was totally unexpected starting in 2020 as we entered the COVID pandemic. Who would have thought going into a pandemic and shut down we would have seen such a boom?
With record-low supply and record-high demand, the housing market went into a frenzy and stayed that way for two years with home prices increasing 55 percent. This was unprecedented and unsustainable, and after 2 years we all expected a pull back. The problem is no one expected the shift in the market to be so dramatic and so incredibly fast, and that is what has caused all the worry and speculation. There are several factors that when happening together have created the perfect storm and can help explain this sudden shift in the market.
Interest Rates: The supply is not the only thing that has changed rapidly. Interest rates have increased, going from 3.725 percent in March to 6.059 percent in June. On the flip side, interest rates are expected to continue to increase in the near future, so waiting for them to come down could actually cost a buyer more. If you purchase now and rates do come down, you may be able to refinance at that time to take advantage of the lower rate.
The Stock Market and the Economy: With the stock market falling, some cash buyers have been taken out of the housing market while others are waiting to see what the stock market does over the next few weeks and months. The rising inflation and constant talk of a recession have people worried and pausing their home purchases for now. Demand has dropped 16 percent year-over-year.
On the flip side, the housing market is often used as a hedge against the stock market and rising inflation, so we may start seeing more buyers, especially the larger hedge funds. Seasonal: As we head into summer, our visitors are gone and no one wants to house shop in 115 degrees, so the demand drops.
On the flip side, Phoenix is one of the top cities for growth and people are still relocating here. As our temperatures cool off, visitors will be coming back and looking to purchase their second home or relocate here. Companies are still moving here, keeping the demand high.
Where Has the Supply Come From: The drop in demand has caused some of the extra supply, but most are new listings from sellers who feel now is the right time to sell.
On the flip side, even though we have seen this sudden surge in supply it is unlikely to continue, certainly at this pace. With the housing boom came record-low interest rates. So many homeowners refinanced into mortgages under five, four, and even three percent rates. With interest rates climbing, homeowners who were thinking of moving are more likely to stay put — why move and lose a three percent interest rate for a six percent unless you really have to.
Home Prices: Price reductions are rapidly increasing but I think we have to look at how aggressive sellers were on their list price. Just a few months ago sellers could price their home tens of thousands above the last sale and still get multiple offers above asking.
For Buyers: This shift in the market is a welcome relief for buyers who have been battling multiple offers, cash buyers, and bidding wars. Buyers can purchase a home now without having to waive repairs or appraisal contingencies. It is starting to feel a little more like a normal market again.
If you are ready to buy, don’t wait, because prices aren’t headed dramatically downward. They may dip a bit but even with the increase in supply, they are not going to be taking a cliff dive anytime soon. Add that to the rising interest rates and waiting could be a lot more costly in the long run.
For Sellers: As supply increases, we shift away from being such a strong seller’s market and the days of selling for over list price, and multiple offers are coming to an end. It is important not to overprice your home and to change the marketing to compensate for the new market conditions we are in — which are very different than they were just a few months ago.
You can view monthly supply, demand, and price charts on my website Homes2SellAZ.com. If you are thinking of buying or selling your home or would like more information on the current market conditions, please don’t hesitate to contact me.
Lorraine is a Multi-Million Dollar producing agent, has been a full-time Realtor for over 13 years, is an Associate Broker of KOR Properties, a Certified Negotiation Specialist, and is on the Professional Standards Board. You can reach Lorraine at (602) 571-6799.