By Mike Bodeen · 11 September 2023
7% Rates Get the Credit (or Blame)
The most closely watched local real estate index, the Cromford Market Index (CMI), has been slowly turning south since mortgage rates hit 7+% this past July.
The chart below shows the curvature of the Cromford Market Index (CMI), which is an early indicator of the direction of the market. A balanced market is in the 90-110 range (numbers on the left). So as you can see, we’re still in a seller’s market at about 155. But this can change – either way in a hurry. If rates move further up towards 8%, no doubt, sales will slow even more. If they start to drop into the 6% range, buyers could jump into the market.
The good news for buyers is that inventory is rising, albeit slowly, but rising it is. Though we call this a seller’s market, wise sellers are working with buyers in price and concession buy-downs. Price drops will pick up steam if rates remain or rise further. The further rates rise, the more disincentive there is for owners to sell, hence prices may not drop so much, but neither will sales increase due to limited inventory.
If you note the chart below, courtesy of Mortgage News Daily, you’d see that at the end of last year, we briefly hit the 7% range which slowed mortgage movement, hence sales slowed too, but it was during the holidays so we weren’t that concerned, and then, when rates drifted back into the mid to the lower 6% range, business picked up nicely – only to slip again when rates hit 7%. Today, rates have moved up to 7.30%.
If it happens, look for the 6% range to bring a startling amount of buyers back into the market.
And sales continue to slow. How much have sales slowed? Two years ago, sales for this same period were 9,523, versus 5,759 currently, almost a 40% drop. During the same period, almost 12,000 listings were under contract, compared with 7,341 today – a 38% drop.
In the weeks ahead, we’ll look at how local cities are starting to help ease the tight inventory of housing, including the city of Phoenix having just announced the allowing of backyard casitas for long-term rentals. Something has got to give as it has become obvious that our housing crisis is not fixing itself. Unfortunately, there are no quick fixes, but it’s better to start now than not at all.
Market data referenced in this article comes from The Cromford Report.