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Arizona Real Estate Market Report May 2022
A Look Back at April 2022
Arizona Real Estate Market– May 2022 Stats
- Market Summary for the Beginning of MayHere are the basics – the ARMLS numbers for May 1, 2022 compared with May 1, 2021 for all areas & types:
- Active Listings (excluding UCB & CCBS): 6,688 versus 5,080 last year – up 31.7% – and up 32.4% from 5,051 last month
- Active Listings (including UCB & CCBS): 10,161 versus 9,438 last year – up 8.0% – and up 17.6% compared with 8,663 last month
- Pending Listings: 7,386 versus 7,829 last year – down 5.7% – and down 7.8% from 8,008 last month
- Under Contract Listings (including Pending, CCBS & UCB): 10,889 versus 12,187 last year – down 10.7% – and down 6.3% from 11,620 last month
- Monthly Sales: 9,270 versus 10,200 last year – down 9.1% – and down 8.6% from 10,144 last month
- Monthly Average Sales Price per Sq. Ft.: $302.64 versus $243.36 last year – up 24.4% – and up 4.1% from $290.75 last month
- Monthly Median Sales Price: $466,000 versus $373,000 last year – up 24.9% – and up 2.3% from $456,000 last month
Between late October and mid March we saw a downward trend in supply. However this has completely changed direction over the past 6 weeks and active listing counts are rising very strongly. They are up more than 32% in a single month, one of the most dramatic shifts in direction we have ever seen. If this trend continues for several months the market dynamics will change significantly.
The large increase in supply is caused by a combination of factors. First, we are seeing more new listings arrive, possibly because people who have made large unrealized profits cash out while the going is good.
Secondly, we are seeing a significant drop in demand as a sudden jump in interest rates and eye-watering prices discourage new owner-occupiers from entering the market. We note that listings under contract are down more than 6% since last month. Closed sales are also down more than 9% from April 2021. Demand is weak and getting weaker.
The overall effect is a major cooling event, turning a hot housing market into one that still favors sellers (for now) but is looking increasingly dangerous with each passing day. It only favors sellers because the supply is still very low compared with a normal market.
But if supply continues to increase, as looks very likely at this point, we could quickly find ourselves with as many sellers as buyers. The market does not turn on a dime, but it can certainly change dramatically over a handful of months, as it did between August and November 2005. The charts today suggest we are now entering a very different phase of the market cycle.
Make no mistake – closed prices will continue to rise for some time – they are a trailing indicator and will only stop rising long after the market has cooled down. But it does not take too much imagination to envisage a situation where they overshoot.
Right now we have just seen the average $/SF rise 4.1% in a single month. But this reflects the huge imbalance between supply and demand that existed two months ago. That imbalance is much smaller today and is shrinking noticeably with every passing day.
We are entering a much more uncertain period and great caution is advisable. The mid-range market between April 2021 and April 2022 has been largely driven by enthusiastic investors. If their enthusiasm dissipates and turns to fear we could see far more rapid change than we have become used to.
Prices are rising at colossal speed. The average $/SF has risen 6.2% in the first 2 months of the year and are likely to continue rising until May at least. Dennis Kolodin, CCIM
The average of $545.98 per sq. ft. was achieved in 2021 for a single-family home of 1,566 sq ft. set on 20 acres near Mud Spring Canyon within the Tonto National Forest. And yes this remote spot is within Maricopa County. It was first marketed in 2015 for $1,350,000 and failed to sell after 2 years.
It finally changed hands for $550,000 in 2020 which seems like bargain for anyone who likes wonderful desert views, horses, boats and getting away from it all. Apache Lake is only 2 miles away.
Supply has been arriving in greater quantities over the past few weeks, This applies to both rental and for-sale listings.
The most dramatic rises are in rentals. There were 2,550 new rental listings created in the last 4 weeks, which is up 45% from the same 4 weeks of 2021. For 2022 year-to-date we have seen 26% more new listings (10,072 versus 7,995).
Residential for-sale listings added over the last 28 days number 10,476, up from 10,387 in the same period of 2021, a 0.9% increase. Year to date we have seen 40,198, down from 40,580 last year.
The problem for the market is that this extra supply is coming just as demand is dropping fast.
The for-sale active listing count (excluding UCB and CCBS) across all areas & types has jumped 27% in just 4 weeks. This is even faster than we experienced in April 2005. That’s a scary percentage, even though the absolute numbers remain small. If this growth rate persists through May and June, the market will be very different by July.
Supply is still the top concern for buyers these days and we continue to look to new construction to add new homes and ease the pressure on price. The top areas for new single family home sales are the West Valley, with 44% market share, and Pinal County, with 27% market share.
The Southeast Valley comes in 3rd with 17%. If you’re looking to the West Valley for a new home, your best bets are Laveen, just east of the new 202 freeway loop, and cities just west of the 303 freeway such as Peoria, Surprise, Waddell, Goodyear and Buckeye.
In the Southeast Valley, new home subdivisions are concentrated in East Mesa, Queen Creek, South Gilbert and South Chandler. In Pinal County, Casa Grande and Maricopa have the most new home sales.
As of February 2022, the median cost of a new home closed was $447,000 overall with a median size of 2,197 sq. ft. That was just under the resale median of $450,000 in the same month, which had a median size of 1,783 sq. ft.
In the West Valley, the new home median is $443,000 with 2,237 sq. ft. In the Southeast Valley that median is $579,000 and 2,456 sq. ft., and in Pinal County it is $385,000 with 1,888 sq. ft.
New home developers continue to struggle with a labor shortage and supply chain issues. It’s not uncommon for builders to estimate 14-16 months before completion of a home.
Because prices have been rising sharply, this means that by the time a home is built, the costs to complete it have gone up and it’s already worth significantly more than the negotiated purchase price.
For this reason, some builders are including escalation clauses in their contracts that allow them to raise the price prior to close of escrow to accommodate the higher costs to build and closer reflect the current market value.
In addition to escalation clauses, a handful of builders are including restrictions on when a homeowner can sell or rent the home after close. It’s important to read builder contracts closely and ensure you understand every section before moving forward.
The market continues to heavily favor sellers. Supply is still 76% below normal for this time of year and demand is 6% above normal. However, demand is declining in response to recent increases in interest rates. Just 30 days ago, demand was 12% above normal, and 30 days prior to that it was 21% above normal.
Buyers across the nation are in the best financial shape seen in decades with an average credit score of 714 last year, according to Experian, and Maricopa County has the lowest percentage of consumers with credit scores below 660 in at least 22 years.
However, in just a few short months, the average interest rate increased from 3.1% in December to 4.7% by April. This resulted in a $500 increase in the estimated payment on a 1,500-2,000 sq. ft. home, pushing the cost to buy significantly higher than the cost to rent in Greater Phoenix.
This does not mean the market is at its peak, or at the precipice of a price decline. The only response we are seeing at this time is a sharp increase in supply between $500K-$1M over the past 2 weeks, a price range that happens to have less interest from investors and 2nd home owners and a higher market share of owner-occupants.
Despite this increase in supply, the median days on market prior to contract is still only 7 days, and there aren’t any bold movements in price reductions or seller concessions. Until we see an upward shift in price reductions and seller concessions, we will not see a flattening out or decline in sale prices.
Currently, April closings to date have seen 57% of closings over asking price and a 22% appreciation rate compared to April 2021 thus far. While it’s reasonable to expect price appreciation to slow down at some point, there is little evidence at this stage to show prices declining in the near future.