By Mike Bodeen · 5 March 2018
There may be changes ahead for our market of which we will speculate. In some ways, it’s pretty much business as usual, meaning limited inventory continues, yet there are other events occurring that could result in, what I call “a flash market.”
What is a flash market? My definition of a “flash market” is an abrupt burst (like a flash of light) of sales activity lasting a relatively short period of time in reaction to market forces.
Correlating to our local home sales market, as mortgage rates tick upwards (and they are), rents continuing to increase, (and they are) and Phoenix Metro residential real estate appreciation rising to 7% (which it now has) the sideline buyers, should their numbers continue to increase, will further reduce inventory and thereby increase prices for at least the short term (6-12 months+-).
Therefore, if buyers continue to jump off the sidelines to buy in response to these market forces, prices will keep driving up. There is one big caveat about how much that can actually happen – which is whether the Phoenix area can sustain higher values. Any increase in values must have a like-increase in buyers with the purchasing power necessary to buy the higher priced homes. The reason why it can be short lived, is for this very reason, a lack of equivalent purchasing ability, and as rates increase affordability becomes more difficult. Higher rates and costs will themselves cap price increases.
Let’s look at the most recent numbers:
Phoenix Metro Market Summary for the Beginning of March
Active Listings: 16,924 versus 19,648 last year – down 13.9% – and down 1.7% from 17,211 last month
Under Contract Listings: 11,708 versus 11,815 last year – down 0.9% – but up 16.6% from 10,039 last month
Monthly Sales: 7,017 versus 6,520 last year – up 7.6% – and up 14.4% from 6,212 last month
Monthly Average Sales Price per Sq. Ft.: $158.72 versus $147.63 last year – up 7.5% – but down 1.3% from $160.76 last month
Monthly Median Sales Price: $251,000 versus $230,000 last year – up 9.1% – and up 2.4% $245,000 last month
“Overall appreciation rates over 7% are abnormal and we therefore need to monitor the market closely for signs of over-heating.” (Michael Orr, Cromford Report)
Active listings show a 1.7% decline in available supply. Not positive news for buyers who have faced dwindling supply for many years now. The situation is far worse for those looking for affordable homes. The available supply of single-family homes under $200,000 has collapsed by 48% over the past 12 months, and it was very weak to begin with. Things are a little easier between $200,000 and $300,000 but even here supply has dropped over 16% and competition from other buyers is intense. Activity has grown sharply in the price range from $300,000 to $600,000 yet supply is down 10% compared to March 1, 2017. For the lower ranks of the luxury market, between $600,000 and $1 million, available supply has fallen 7% and at the top, over $2 million, active listings have drifted lower by 2%. This leaves the mid-range luxury market, between $1 million and $2 million, as the only price range where supply is higher than this time last year. The increase is just 2%, from 1,185 to 1,214.
“There are a few market segments where supply remains adequate, but for the most part Greater Phoenix remains woefully under supplied in both homes to rent and homes to purchase.” Michael Orr – Cromford Report
Market data referenced in this article comes from The Cromford Report.