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Market Update

The rapid pace at which the real estate market in Arizona has changed course in the last 6 months has added whiplash to the list of emotional injuries Valley residents have sustained from one of the most profitable real estate markets in the Country. Still recovering from the PTSD caused by the financial crisis of 2008, Valley residents are shell shocked by the escalation of pricing in the last 36 months, the swing in interest rates from 2.5% to 7% in that same time period, and the roller coaster of emotions that are caused by experiencing all of this change amidst a global pandemic, a major national election, and countless other domestic and international headlines. 

While there is plenty of opportunity in the current market, it is no surprise that demand continues to fall as Valley residents attempt to decipher what is normal and what their expectations should be of the market after experiencing a record breaking 40% appreciation on their Valley home in the last 24 months followed by a 130% increase in inventory in that same time period. Unlike 2008, Arizona does have the employment diversification to sustain current inventory levels, most homeowners have a significant amount of equity in their home, and rental rates are not plummeting - an indication that we have the population growth to support the building we are doing from the Loop 303 to State Route 24.

While its difficult for your average consumer to decipher a hot market from a cold one without relying on indicators like word of mouth experiences from your neighbor about how much they sold their house for and how long it took, visual indicators like the lines many took photos of that wrapped around the block for open houses caused by anemic inventory levels versus the increase in for sale signs that many are noticing in their neighborhoods now, or the emotional triggers caused by buyer fatigue after years of writing multiple offers and waiving all contingencies versus seller fatigue caused by a recent increase in concessions and days on market - there are more reliable trends to follow that indicate that our current market is neither hot NOR cold, but rather quite in balance. 

After years of off-the-chart readings of some of the most important statistics to follow when determining the climate of the market including how many homes that are listed actually sell, how many listings are under contract at any given time, how many months or weeks would it take to sell all of the homes currently on the market if no new ones were added, what is the gap between current inventory and demand levels, and the ratio of how many listings are under contract as compared to how many are available to purchase - each of these have returned to a more normal range in the last 6 months. In the absence of the data, however, consumers can only feel the fall from the frenzy versus the return to normalcy and that is greatly impacting consumer sentiment. 

While the current interest rates certainly provide a challenge for buyers, they are not record breaking in any way and while restrictive, they are not prohibitive. The higher interest rate is the trade off for the better purchasing conditions whereas those that had more cash to bring to the closing table were rewarded with lower interest rates in 2020 and 2021, current buyers have more negotiating power, the opportunity to get closing costs and rate buy downs covered by their sellers, and are not forced to waive inspection, appraisal, or buyer contingencies. For many, selling their home is a necessary component of qualifying to buy a home and if the purchase is contingent on the proceeds, it can be difficult to know how much you will sell your home for and how long it will take in a balanced market which is why first time home buyers, renters, and anyone not dependent on a sale should especially be flocking towards the current market. 

The key to understanding our market is to look at the volume of transactions - a market can balance with a very high number of transactions or a very low number and ours is currently of the latter. If a market balances with a very low number of transactions, its overall health will likely feel more negative to a consumer than it really is and many will forfeit the opportunity that real estate investment brings every time, over time because of it. If we look at investing in real estate like the planting of a tree, once the seed is planted it will continue to grow over time. Arizonans are notorious for wanting to move every 2 or 3 years because consistent positive equity gain has allowed it but if you look at real estate like a long term investment, the current balanced market is nothing more than a healthy reset for buyers and sellers.

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