The Market Begins to Cool
The market has been in such an overheated condition this year that any headline of a “market slowdown” is almost inherently misleading. Yes, the market is slowing. But it is a good sign, not a bad one. The market shift actually began in March, and now is confirmed. In addition to the shift, the market is following our typical seasonal pattern; slowing in the back half of the year once the spring buying season is over. Last year the pandemic extended the buying season as people could not flee the valley for vacations. This year we expect, as in years past, activity to gradually slow through the end of the year.
It is important to understand that the market balance in favor of sellers has been and continues to be driven by the levels of supply. Yes as prices rise, demand drops. But it is the increased supply – both in unsold properties and in the form of new listings that is driving this rebalancing market. We are in the early stages of the rebalance.
What to know if you are a seller:
Sellers are going to need to adapt to a market that is shifting. You likely will not see the carloads of showings, multiple offers and spiraling pricing as desperate buyers fight to outbid each other. You will see more properties not selling if improperly priced for their condition. That does not mean homes are no longer selling or that prices are plunging. But seller expectations do need to adapt. Michael Orr of the Cromford Report comments on this issue: “The number of active listings is increasing by roughly 300 per week. The number of showings is in decline and the number of contracts getting signed is getting smaller as each week goes by.
All this makes sense. When prices leap by over 35%, demand is suppressed and supply stimulated.
The obvious question is how far this trend will go before it levels out. The honest answer is that no-one knows. Buyers are more cautious now than they were in 2005. Sellers’ normal first reaction will be denial. Some will blame their agent. These sellers will probably be complaining that they are not getting the viewings and offers their house deserves. This is because they have so quickly become accustomed to a frenzied market. They will now need to get re-adjusted. The market still favors sellers, but buyers will start to gain a little more respect.”
What to know if you are a buyer:
Despite the increasing supply, it is still not easy to buy a home. The supply of homes for sale must rise to the range of 28,000 properties to have a truly balanced market. As of this writing, we have 5627 properties on MLS without offers. Prices are going to continue to go up until supply increases significantly. The exact amount and rate of appreciation is what is unknown. The fact that they will continue to rise is predictable- as even in a balanced market pricing keeps pace with inflation. If interest rates are low (they are, but won’t be forever) and prices are going to continue to rise (they are, even if more slowly) it makes sense to buy now. So our advice? If you are a buyer who can buy, buy now.
The Median price for homes in the greater Phoenix area is up a whopping 35% from 2020. With a rebalancing underway, we do not expect to see anything like that kind of increase in the back half of 2021. But, as long as supply remains low, prices will increase albeit more moderately. To quote Tina Tamboer of the Cromford Report: “At its current rate of decline, the Greater Phoenix market is still projected to remain in a Seller Market for 16 months. That’s a target of October 2022 before prices stop rising.” Prognosticating in real estate is a thankless task. Remember that these projections are based on today’s numbers. Market shifts, while somewhat predictable, can be quite stubborn in conforming to exact timelines.
Hidden Market Factor: There is a hidden market factor that sellers should be aware of that could affect them. The expiry of governmental home retention programs on July 31st. Tina further explains: “However this year there’s an event coming up that could alter that scenario, that is the end of forbearance for many homeowners. While the vast majority of forbearances have ended with homeowners staying in their home, anywhere from 16%-20% have resorted to selling their home one way or another according to the Mortgage Bankers Association. This could result in an increase in supply over the next few months, adding extra days of marketing time to your listing and possibly a few price reductions.” Although we do not anticipate a major impact to our market, it could speed up the shifting timelines towards balance.
As always, we will continue to watch the numbers and keep our clients informed. Want an up-to-date forecast for the market whether buying or selling? Contact us. We are always here to help and inform.
Russell & Wendy Shaw