By Jonathan Bodeen · 10 July 2017
Just as temperatures are heating up every summer, we usually see a cool down in the market. Less buyers cruise the streets in search of a home and less sellers have a mind to list. Often during this time, prices will remain stagnant or even dip a tad before they pick up again in the spring.
This year however, prices have continued to rise. The median price is at $245k for vs $240k last month ($230k this time last year), and the average price per square foot is up 0.9% since last month (7.7% since this time last year). The interesting note here is that demand has been decreasing in its normal seasonal way and then some. But if demand is softening, then why are prices still increasing?
It turns out that the supply is running abnormally low, even to the point of staying ahead of the also abnormally low demand. So while in a sense the market has slowed, the amount of sellers willing to list has dropped even more so, keeping the balance of supply and demand skewed toward sellers where seasonally it would usually favor buyers, thus continuing the seasonal price build-up a month or two after it should have already plateaued.
Why has demand been decreasing more than what’s seasonally normal? And why have sellers decided to stay out of the market more than is usual as well?
I would submit that this decrease in demand is in large part buyer reaction to price increases. In a normal and healthy market, when prices climb swiftly, it will edge buyers off the playing field. Only in a bubble-esque market do buyers board the euphoria train and gladly pay ever-increasing prices, no questions asked. Some would suggest this is proof-positive that Phoenix is not in a bubble, because we are seeing healthy push-back from buyers, a pendulum effect.
In Phoenix, the greatest demand for housing remains at the entry level, 350k and below. This is where most of the demand is, and as prices increase beyond this point, buyers aren’t happy with what they can get for their money.
As for the sellers, perhaps they are suddenly seeing the investment value of their homes and are happy to watch them appreciate instead of sell.
My guess is that next spring will be another hot market full of eager buyers and sellers like it was this year. The question is whether supply and demand will even out between then and now, giving prices increases a reprieve, or if appreciated will simply continue unabated.
– Jonathan