By Mike Bodeen · 17 July 2023
or, “Bye-bye, Miss American Pie?”
Many sideline home buyers here in the Phoenix Metro communities and in many locales across the country are waiting for either mortgage rates to drop to their perceived ideal rate, or for home prices to drop, or both.
As inflation is tamed, mortgage rates will drop. Everyone’s in agreement about that. But this seeming buyer benefit will only exacerbate the affordability problem, making it FAR worse than it is now. How’s that you ask?
First, our Phoenix Market’s values are on the rise, despite higher mortgage rates. The Cromford Report forecasts a 1% rise over the next 30 days (7/15-8/15). This continues a rise which began in January, but the point is that under difficult buying circumstances, prices are still rising.
Consider this, as mortgage rates drop, more buyers enter the marketplace to take advantage of those lower rates. Unless there’s a significant supply of homes matching the number of increased buyers, these buyers will further fuel demand for homes and drop supply. The result will be an escalation in prices, knocking more buyers out of contention to own a home.
Note the Cromford Supply and Demand Index chart below. In this chart you’ll note that there have been few times in the past 20 years where supply and demand matched. We have just come through such a time at the end of 2022, and the beginning of 2023. Where the blue line of supply was below normal (100 on the scale) a seller’s market prevailed.
Now, the supply index (inventory) is dropping – steeply. Watch for prices to continue upward without added supply. And as we’ve discussed in several previous issues, we’re not seeing anything on the horizon to indicate any great flood homes coming on the market anytime soon.
Another way to sum this up is that the Greater Phoenix market peaked in May of 2022 at $306 PSF. Values bottomed out in December 2022 – 7 months later, at a PSF of $268 – a 12% drop. Since then, our PSF values have climbed back up to $285 PSF – a 6% rise since then, and still rising.
Therefore, I’m fairly confident in sayin, barring some other cataclysmic events even greater than a global pandemic, that our market bottomed out December 2022. And considering all we know at this point, I’m not as confident to go out on a prophetic limb about how high values can go.
Well, now you have some interesting stuff to chat about as you encourage any and all possible buyers you know, that whether it’s Phoenix or anywhere else in the country, get a slice of the American Pie, before that 1971 hit’s lyrics haunt them;-(So bye, bye, Miss American Pie…)
Market data referenced in this article comes from The Cromford Report.