Metro Phoenix’s housing market has strongly favored home sellers since the turn of the decade as more people moved to Arizona and the pandemic scrambled the status quo. The S&P CoreLogic Case-Shiller IndexThe most recent release shows that home prices in Phoenix rose 17.1% from August 2021 to August 2022. Over the past few months, however, the momentum has begun to change. Andrea Crouch, President of PHOENIX REAL ESTATE AGENTSnote that prices are starting to drop.
“It’s just a matter of supply and demand,” she says. “The iBuyers evacuated here, which left the real homeowners to be the buyers, but rising interest rates made it harder for them. That’s why we’ve seen this drop, but the bottom isn’t going to drop all the way. It just turns into a more normal market, which is great.
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The Cromford Market Index is one indicator that shows whether the real estate market in the Phoenix metro area is biased towards buyers or sellers. Rich La Rue, a broker at HomeSmart, explains that the index takes into account deals made the day before.
“Today [Sept. 6] chart is at 105.3,” he said. “100 is considered a perfectly balanced market, but in reality anything between 90 and 110 is considered balanced by Cromford.”
In the two months since the conversation with La Rue, Cromford’s market index has slipped to around 92, approaching buyer’s market territory. As the Greater Phoenix housing market returns to some semblance of normalcy, what does this mean for buyers and sellers heading into 2023?
The Phoenix Real Estate Market Advantage
Stories abound of how, over the past two years, would-be buyers have faced fierce competition as homes received dozens of offers above the asking price within days – sometimes hours – of being posted. on sale. Trevor Halpern, CEO of Halpern Residential at North&Co., says intense demand and low supply for homes has significantly increased sellers’ power, but the bargaining disparity is fading.
Trevor H. Halpern, JD is North&Co’s #1 Independent Agent, based in Phoenix. and the founder of the Halpern Residential real estate group.
“Buyers and sellers have a reasonable chance of succeeding in this market,” Halpern says. “When [the market is] balanced like that, everyone knows he’s going to have to come to the table. We are seeing winners and losers on both sides, unlike six months ago when buyers were always short-term.
For sellers, Crouch advises owners to adjust their expectations based on the change in negotiating position. Gone are the days of every home getting multiple offers just because it was for sale, but she says people can still get a solid price if the right steps are taken, like having high-quality photos of the set. of the property.
“We have another opportunity to make a great first impression, so you need to make sure your home is ready to show and have a trusted real estate professional to guide you through getting your home ready for sale” , notes Crouch.
Since people are no longer willing to pay tens of thousands of dollars over the asking price as they were a year ago, La Rue suggests that sellers consider offering concessions such as a warranty of the house or allow for an appraisal contingency.
One of the best things buyers can do, according to La Rue, is to get pre-approved for a loan, because sellers are always looking to reduce uncertainty when putting their homes on contract. In a rising interest rate environment, he adds that buyers can loosen their bargaining power by asking for an interest rate cut.
“A simple 2-1 buyout costs the seller 3%,” he says. “I’m using ballpark numbers here, but what that means for the buyer is that instead of having 5.5% [mortgage] loan the first year, they pay 3.5%, then 4.5% the second year and 5.5% for the rest of the loan.
Inventory growth
One of the reasons why buyers and sellers are on an equal footing is in the supply of housing. According to Realtor.com’s Residential Listings Database, the Phoenix metro area grew from 4,688 active listings for sale in January 2022 to 16,778 in September 2022, an increase of 257%. The boom in available housing has occurred because of the rising cost of borrowing, Halpern notes.
Tucker Blalock is co-founder and chief broker at The Brokery.
“When interest rates rose dramatically over a compressed period of time – from around 3% to 5% in 60 days – it was as if buyers were going on strike. The sellers panicked because they thought, ‘We’ve reached the [market] peak, so we need to sell right away,” he says.
Simultaneously, demand collapsed as buyers who qualified at lower interest rates could no longer afford the monthly payments for the homes they were considering buying, so they backed off. This pushed the average time on market to 40 days, which Crouch says is still relatively low compared to years past.
“When sellers had to sift through 30 offers trying to figure out which one was going to hold until closing, buyers had to act so quickly they didn’t have a chance to think,” she says. “Chaos was good for no one.”
Tucker Blalock, managing broker and co-founder of The Brokery, noticed that buyers no longer feel the need to make an offer immediately. “People walk into one of our homes and love it, then say, ‘I’ll get back to you next week.’ There’s no sense of urgency,” he says. “Buyers are exhausting all their options before making a decision now, rather than jumping on the first one they see.”
Even though more homes are listed, Halpern says the pace has stabilized in a more normal range and that concerns about institutional investors flooding the market with “dummy inventories” are largely unfounded.
“We’ve seen some sharp moves, with units changing hands between hedge funds and big companies such as Zillow, but we haven’t seen a massive dumping of properties in our market that would affect prices on a large scale. They would suddenly have to list thousands of homes to do that,” says Halpern. “Unless [these entities] can find an exit that makes sense for their investors, they won’t because Wall Street will beat them for it.
Looking to 2023, no one can predict whether house prices will rise or fall, but Blalock advises people to focus on the primary function of their home and try to ignore the instinct to time the market – which he and Halpern both agree is unwise if not impossible.
“Don’t think that the real estate market evolves like the stock market. Although it has been more volatile over the past two years, things will normalize as they have over the past few months,” Blalock concludes. “Keep a longer-term approach, especially when it comes to your primary residence, which should be viewed as a place to live and enjoy, not strictly as an investment. If you’re comfortable with the payments you make on a monthly basis, there’s no need to worry.