The Greater Phoenix housing market has been as hot as an Arizona summer for the past two years. But, much like the region’s winter months, things are starting to cool down. Tina Tamboer, Senior Housing Analyst at The Cromford Reportspoke about the state of the real estate market, the impact of iBuyers and what to expect in the next Valley Partnership breakfast on November 18.
Looking at the Housing Opportunity Index reveals that the second quarter (Q2) of 2021 was a turning point in housing affordability in metro Phoenix. “We want a family with the median family income to be able to afford 50% to 75% of what is [for sale]“, explains Tamboer. “When [the index] fell below 60% [in Q2 2021], we expected lower demand and price stabilization. When that didn’t happen, it created a bigger red flag.
As the affordability of homes in the area has plummeted, the percentage of home sales intended for use as primary residences has also plummeted. “Owner occupiers started to be evicted – they went from 80% [of home sales] to around 62% in the second quarter of this year. [Then] we started to see investors coming in,” says Tamboer.
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iBuyers such as Opendoor were one category of investors that accelerated their involvement in Metro Phoenix starting in the second quarter of 2021. Since these companies do not buy homes to rent or live in, this business represents what which Tamboer calls a “false request” because it inserts another transaction between the seller and the end buyer and distorts the request data.
As people looking for homes to live in began to pull out of the market, Wall Street-backed companies continued to buy and sell. These companies are not as price or risk sensitive as homeowners, so they continued to compete with each other, which led to prices rising steadily.
From the second trimester [of 2021], [Opendoor] had more active listings for sale than under contract. Usually that’s not a good thing,” says Tamboer. “Come April [2022], when mortgage rates rose above 4.4%, we started to see Opendoor acquiring and holding more inventory than they would like. They didn’t have the demand there.
Mortgage rates affected 7.37% in October, but have since declined slightly. In Q3 2022, the Housing Opportunity Index for Greater Phoenix fell to 22.5% as mortgage rates soared throughout the year. With home loans being more expensive – thus reducing overall purchasing power – Tamboer says sellers are making concessions to buyers in the form of interest redemptions or closing costs.
Taken together, these factors point to a market where buyers outweigh sellers. Indeed, the Cromford Market Index – which is based on historical supply and demand trends – now indicates a buyers’ market.
At 100 on the index, the market is considered balanced. Above 110 is a seller’s market where prices are rising faster than the rate of inflation, while below 90 and prices will not perform better than inflation. The Cromford Market Index low was 26.5 in 2007 before property prices crashed.
“Since Wednesday [Nov. 16], we slipped into a buyer’s market. We are not in freefall,” concludes Tamboer. “We’re literally kissing a buyer’s market and people are freaking out or asking, ‘Can I offer 50% below the listing price now?’ No, it’s not the time yet. I still feel quite optimistic.