By Mike Bodeen · 19 June 2023
If So, You Heard it Hear First
You gotta admit, today’s Snapshot title is pretty provocative, eh?
For those businesspeople who utilize CRM’s such as Constant Contact, each send-out report is analyzed for the percentage of “opens” it gets. Most get less than 10% opens – that for every 100 sent out, less than 10 will open it. The average open rate, per Constant Contact is 15% – 25%. Our Snapshot open rate is close to double that average – every week. So today’s title I’m guessing will be at the top tier of all we’ve done. We’ll see.
The reason why you opened is likely because (in my opinion anyways) you want to read something that no one else has publicly printed before. First of all, who’s ever heard of a real estate reverse crash? And what is it? Now granted, there’s probably a catchier title – I’ll leave that for my editor wizard Jonathan to work out.
To understand a “reverse crash” one needs to understand what a real estate crash is. As you might expect, we’d define that as a seismic plummeting of values such as happened in 2007-2009. Back then, values dropped from a Phoenix Metro average price per square foot (PSF) of $184 PSF to $83 PSF in less than two years – a 55% drop. That is a crash!
A reverse crash then would be a seismic “rise” of values in a short period of time. Mike, are you saying our values will rise 55% in two years? Yes and no! No, they will not rise like that- though we’ve seen that happen before.
This week’s chart below was an eye opener for me. In March of 2020 (brown line), Pre-Covid, we had just over 11,000 listings. When Covid hit, listings rose over 30% in 5 weeks. If ever there was a time to pronounce doom and gloom that was a no-brainer. World pandemic. People will sell, prices will drop. And briefly that occurred – and then it didn’t. People started buying, and buying, reducing the listing volume, and increasing prices, and increasing prices, ad infinitum. They rose from $180 to $306 – 70% rise in two years. That was a reverse crash.
Getting back to the chart, currently, our 2023 number of listings is almost exactly the same as 2020 when average sales price began to launch. The last two weeks, we’ve seen the number of listings level out. Which way they go from here is anyone’s guess. If they decrease, values will continue to rise. If they rise, we may seem some balance for a while.
Now the real problem for either type of crash is that it further wipes out our supply of buyers. In 2007-2009 many homeowners lost their homes in foreclosures or sold via short sales. Either way, hundreds of thousands of owners became renters and for a period of time could no longer buy a home. Today, we’re experiencing the same result in that so many cannot buy a home with higher values and higher mortgage rates.
Now this is where it gets scary. Bear with me. The Phoenix Metro market has begun to see values rise due to a slight imbalance of supply and demand, favoring sellers, i.e., price are rising again. For faithful followers of our Snapshot, we’ve demonstrated a huge resistance for homeowners to sell. That will no doubt continue.
What happens if rates do drop, to 6% or less? Let me tell you what will happen. There will be a further increase in sales, further increasing home values. Now we may not see the 55% rise, but we will see more buyers boxed out, having the negative effect of a crash – with many more buyers not able to buy.
And here’s the real scary part: Apart from a huge economic cataclysm, we’re not seeing any significant way to solve this Phoenix crisis.