By Mike Bodeen · 22 October 2018
For the monthly period ending October 15th, the market is currently recording a sales $/SF of $162.00 averaged for all areas and types across our local MLS. This is up 0.2% or 37 cents from the $161.63 that the Cromford Report measured on September 15th.
The total volume of sales is weakening compared to last month and last year. Though on October 15th, the pending listings show an average list price per square foot of $169.73, up 2.2% from one month earlier.
According to Michael Orr of the Cromford Report, the current trend of weakening demand isn’t likely to affect prices until 2019 at the earliest. While the demand is weakening, it’s important to remember that in most markets here in the valley, the sellers still have the advantage.
Rising Mortgage Rates Hit 5%
As you’ve no doubt read or heard from other sources, the 30 year fixed rate mortgage has now hit 5%. This is a significant rise in just a few months. Buyers are also being squeezed from a residential sales market that is still rising in value (see below). Also, the rental market continues to get more expensive too, which helps no one but Landlords.
So, buyers (and sellers) are wondering if they should wait to buy to see if rates drop. Sellers are waiting because they may be holding a 3.5% mortgage on their existing home and getting into a 5% loan is a significant rise they may not want to stomach at this point.
The dilemma is that the market is rising on all fronts and may get worse before it gets better – assuming it will. It might be best to buy now and refinance if rates drop. That way you’ve made it to the next rung before prices move higher.
The Market Slows
The slowing market mentioned above “appears to be hitting an air-pocket with falling demand and rising supply,” per Orr. There are a number of possible causes and probably a combination of them is driving this change in market direction:
Interest rates have now risen enough to dampen buyer enthusiasm
Interest rates have now risen enough to cause sellers to defer move-ups or downsizing
We are starting to see the end of the wave of boomerang buyers (buyers who lost homes in the crash and then bought again the recovery)
Home prices have risen enough to seriously affect affordability
Interest from foreign buyers is at an extreme low (which means mostly Canada in Arizona)
Recent tax changes have removed incentives for home ownership over renting.
Buying a home has become more expensive relative to renting. Black Knight Financial Services estimates that the monthly mortgage payment required to buy the average home in the USA has increased 16% since January. Wages are up an average of 3% and rents are up an average of 8% across Greater Phoenix in the last year. Official government measures of inflation might be relatively low, but inflation in the cost of shelter is very high.
Revisiting the NACA “Miracle Loan”
Seven years ago I reported to you about a miracle loan program called NACA (Neighborhood Assistance Corporation of America) which assists sellers trying to save their home and buyers wanting to buy a home. Designed primarily for low to moderate income folks, they will still loan up to $453,100.
Why is the NACA loan program a miracle loan? For the following reasons:
No down Payment
No Closing Costs
No Income Limit
No Fees
Lower than Market Interest Rate (Currently 4.375% for 30 Year Fixed)
No Need For Perfect Credit
This is not a giveaway loan program. The logic behind the qualifying it to make sure the borrower can afford the home, budget for the payments, and it may require 6 months or so of being put on a budget if you’ve got less than stellar credit. They WANT TO GET folks into homes. This is a National advocacy group. I recommend checking it out at www.NACA.com.
Market data referenced in this article comes from The Cromford Report.