Metro Phoenix Market Summary for the Beginning of August 2022
We described June as dismal but July was worse. There has been a slight let-up in the supply of new listings, but they are still arriving much faster than demand can cope with. This means an ever-increasing number of active listings - the total without a contract having grown another 25% in the last month. This is for the market as a whole, but the high-end is not seeing the same increase. Areas like Paradise Valley, Fountain Hills, far North Scottsdale, Carefree, and Cave Creek still have fairly modest numbers of active listings. Other modestly-priced areas like Buckeye, Maricopa, Florence, and Queen Creek (including San Tan Valley) already have more active listings than their long-term average.
The real downer is the demand. Closed sales dropped 24% compared with June and they are almost 33% lower than last year. This is obviously bad news for those whose incomes are derived from closings, such as real estate agents, title company staff, and mortgage brokers. Listings under contract slipped again, down more than 8% from last month, meaning that we do not expect much joy from August numbers this time next month. Even in the high-end of the market, demand is low, so the modest number of active listings is still plenty.
Prices are reacting much more quickly to the poor market conditions than we expected. In 2005 and 2006, it took a long time for prices to change direction. In 2022, the change happened almost overnight. This is probably because people are primed to believe price drops are likely whereas in 2005 most people still believed that home prices never go down. Whatever the reason, sellers in 2022 have been willing to make quick and frequent cuts in their asking prices and accept offers well below those. The average percentage of the list achieved dropped from 99.81% on July 1 to 98.74% on August 1 and the trend is strongly downward.
Further falls in price are likely until a recovery in demand takes place. There is very little distress in the market with foreclosures still extremely low. Pressures to sell at lower prices are coming from the sellers themselves. Low demand means they are competing with other sellers and a lower price is an obvious tool for them.
Demand from iBuyers has remained surprisingly strong for the last few months and they have built up large inventories. These have to be a concern to them, so we expect far fewer iBuyer purchases and much more effort focused on selling their existing stock of homes. These two factors will unfortunately compound the problem of too little demand and too much supply, driving prices lower. Many iBuyer homes are already being closed at sale prices lower than their purchase prices. This will probably become commonplace in the next few months.
Institutional investors have mostly continued their homes buying sprees, but in the July numbers, we are seeing clear signs of their enthusiasm waning. If more of them stop buying this will cause further falls in demand measures. If they also start to dispose of any of their rental properties, this might add to the supply.
The listing success rate dropped from over 91% on May 1 to under 73% on August 1. This is a crucial statistic and it is in free fall. The long-term average stands at 67.5% and it looks as though we will drop below this percentage during August. If more than 1 out of 3 listings fail to sell, it creates an atmosphere of worry that is hard to escape. We are nowhere near the dreadful 20.4% that we experienced in January 2008, but the listing success rate is a reliable and crucial indicator that is flashing red. We need this to stabilize and start increasing if we are to be optimistic in our outlook. We recommend watching this number closely.
All in all, there are few reasons to expect an improvement in market conditions just around the corner. A large drop in interest rates would almost certainly help, but this is not something that is widely expected at the moment.
©2022 Cromford Associates LLC and Tamboer Consulting LLC
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