It is often said that hindsight is 20/20. This is especially true when looking at real estate values; since sales prices are a lagging indicator of market trends, looking at recent sales prices will not provide a good understanding of the state of the market right now.
Historical data shows that the high point within the last year for the Phoenix metro area was in April of 2022, with an average sold price per square foot of $305 (the highest recorded average in Phoenix, ever). Mortgage interest rate hikes sent sales steadily declining for the next eight months, down 12.4 percent, to the low point, with an average sold price per square foot of $268 in December of 2022.
The tables started to turn in January 2023 with a cautious week-over-week improvement in sales prices, beginning with what was a more balanced market. Since then, data shows four straight months of improvement, as home values have begun to trend upward once again, and almost every Valley city has tipped the scale in favor of sellers. With a current average sales price per square foot of $279, we are still below the high of April 2022, but prices showed an increase of 5 percent since January.
So how is the market today, and what are we seeing that may affect it in the near future? To answer that, here are a few great data points to consider.
THE SUPPLY VERSUS DEMAND DANCE While buyer demand has been lackluster, it has improved as mortgage interest recently dropped from 7.1 to 6.1 percent, evidenced by new mortgage applications on the rise. What is blatantly missing from the buyer pool are the ibuyers — many have given up the ibuying business (Zillow, for example), and a few of the more well-known institutions have eased up on purchases.
News and media analysts tend to focus on buyer demand only, resulting in gloomy forecasts; however, without also looking at supply, it is impossible to get a clear picture.
Sellers have pulled back on listing their homes, many unwilling to trade in for a higher interest rate, and this slowdown in new inventory is putting upward pressure on pricing. In a nutshell, if you are a buyer waiting for prices to drop, that is just not happening.
CALM OR FRANTIC? Clearly, the shift is moving toward a weakening supply of homes and a slight increase in buyer demand. In early 2022, the supply versus demand gap drove up prices quicker than was sustainable, resulting in an overheated market. What is different this year is that the gap between supply versus demand is much smaller — buyers have a better supply of homes to choose from, however, there is less negotiating room than there was even four weeks ago, including seller concessions.
The chart below illustrates the supply and demand curve; when they intersect (come closer), we see a more balanced market. Right now, the trend is showing supply going in a downward direction, and demand going up.
This may be a hint to those considering selling their home, now may be a great time to do so. There is less than a two-month supply of homes currently, with the exception of the very high-end price points.
New home sales are also faring well, with pricing remaining strong compared to resale homes. Builders are having little trouble selling homes at the rate they can build them, and healthy margins leave room for buyer incentives such as upgrades or concessions toward closing costs.
WHAT IS THE FORECAST FOR THE REST OF 2023?
Because there are many factors that affect real estate (interest rates, jobs, economies, unforeseen events), there is not a crystal ball answer. According to The Cromford Report, the leading source of local real estate data analysis, the expectation is that prices will continue to hedge higher in the next few months, with a potential for a slight slowdown in the third quarter due to a seasonal drop-off in luxury home sales, which generally occurs during that time.
Unless there is a new crop of listings that go on the market in the third or fourth quarters, such as those holding short-term rentals who are seeing little success, we should continue a positive trend, albeit a modest one, into 2024.
For more information on your specific market in these ever-changing conditions, it is best to consult with a qualified real estate professional to provide the very best information. For a complimentary and confidential consultation, contact Christine Anthony, Russ Lyon Sotheby’s International Realty, at (480) 200-0972 or canthonyre@gmail.com.