Demand is low!

Active listings in the Greater Phoenix Area have grown 187% (6,433 vs 18,467) since November 2021 and 340% (4,197 vs 18,467) since April 2022. From August 2021 to April 2022 the active listing count was stable with few changes. But in April that quickly changed when interest rates started increasing.

Single-family building permits are down 53% from October 2021 and is the lowest monthly total we’ve seen since 2015. Furthermore, the year-to-date number is even more shocking. The number of single-family permits issued this year is lower than the 10 years spanning from 1996 to 2006. Because of this significant decline in building permits, we are expecting another shortage in supply if the interest rates drop, and demand improves.

Currently, only 2 of the 17 largest cities in Maricopa County hang on to a seller’s market, Scottsdale and Fountain Hills. The only city that rests in a balanced market is Paradise Valley and the remaining 14 cities have slumped into buyer’s markets and show weak demand, including Phoenix, Glendale, and Gilbert.

Three months of inventory is a healthy number in Arizona, and we are currently just shy of this at 2.7 months. My only doubt about this seemingly “healthy” number is the fact it was driven by the historically quick rise in interest rates. As soon as interest rates drop, I wonder if the buyer’s frenzy will be right where it was earlier this year?

The average time it takes for a home to sell now in the Greater Phoenix Area is 59 days. This feels like homes are lingering on the market compared to the short 25 days it took to sell in the past year, but 59 days is right on par with the healthy housing market we had in 2017-2019. The current days-on-market is much lower than the last buyer’s market in 2014 when homes took 84 days to sell and even lower than in 2008 when homes took 131 days to sell. Not to mention that historically, homes take longer to sell in the last quarter of every year in Maricopa County so we may expect this number to improve in the Spring due to the seasonal nature of the real estate market in Arizona.

Due to diminished demand, the listing success rate has fallen to 61%, meaning 1 in 3 homes will fail to sell. This may sound like a scary number but it’s actually the norm. For reference, back in 2006 – 2009 when the market crashed, the listing success rate was a measly 21%. So instead of every 1 in 3 homes failing to sell, only 1 in 4 homes that were listed successfully sold.

With the demand falling prices are adjusting back to familiar territory. In November, sellers received 97% of the list price when selling their homes, which was the average from 2012 – 2019. Another way to look at this is that buyers saved 3% off the list price compared to last year when they were paying 2% over the list price, on average.

So, what does all this mean if you are looking to buy a home? It means you have all the leverage for negotiating with sellers! Nearly 47% of transactions in the Greater Phoenix Area had seller concessions in November, with the median concession being $9,000. Back in May of 2021 only 10% of sellers provided concessions and the median was just $3,000. This means more sellers are willing to pay a portion of the buyer’s closing costs or pay money towards buying down their interest rate. As stated earlier, sellers are dropping prices an average of 3% off list price. That’s $15,000 on a $500,000 home! I’m also finding many sellers are now willing to make repairs, accept offers contingent on the buyer’s selling their current home, and no longer asking the buyer to make risky moves such as waiving the appraisal contingency.

A recent client dreamed of a new build home but had been priced out over the past few years. With low inventory, lot premiums, lotteries, and bidding wars, they just couldn’t compete. With the shrinking demand, builders now have incredible incentives they were able to take advantage of. The price for this brand-new home was dropped $60,000 with a much lower interest rate. The builder also paid the closing costs and included upgrades such as natural stone counters, front and back landscaping, a smart home system, and window coverings throughout the home, all of which are typically upcharges for new build homes. Many builders are now offering interest rates between 4-5% when most people are at 6.5-8%.