Metro Realty Real Estate Market Report – January 2023*
Catherine del Rey Kolodin, GRI, Designated Broker
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Arizona Real Estate Market Report January 2023
Arizona Real Estate Market– January 2023 Stats
Market Summary for the Beginning of 2023
Here are the basics – the ARMLS numbers for January 1, 2023 compared with January 1, 2022 for all areas & types:
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- Active Listings (excluding UCB & CCBS): 16,298 versus 5,776 last year – up 182% – but down 14.9% from 19,155 last month
- Active Listings (including UCB & CCBS): 18,097 versus 8,630 last year – up 110% – but down 14.7% compared with 21,206 last month
- Pending Listings: 3,657 versus 6,539 last year – down 44.1% – and down 15.0% from 4,301 last month
- Under Contract Listings (including Pending, CCBS & UCB): 5,456 versus 9,393 last year – down 41.9% – and down 14.1% from 6,352 last month
- Monthly Sales: 5,132 versus 9,265 last year – down 44.6% – but up 4.1% from 4,931 last month
- Monthly Average Sales Price per Sq. Ft.: $265.58 versus $267.92 last year – down 0.9% – and down 2.5% from $272.30 last month
- Monthly Median Sales Price: $410,000 versus $425,000 last year – down 3.5% – and down 2.4% from $420,000 last month
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We have very low volumes of closings because both buyers and sellers are discouraged.
Monthly sales are down almost 45% from this time last year, and listings under contract are down nearly 42%. The numbers confirm that demand is very weak compared to normal for the time of year, and even weaker compared to the strong demand 12 months ago.
However weak demand does not necessarily make a market crash. Excess supply is what really drives prices down hard.
This is what we saw in 2006 through 2008. But in 2023 supply is low and getting lower. It is much higher than this time last year, when it was abnormally low, but it is still a long way below normal.
Activity is very low across the board, but the market balance is normal. By that we mean we have equal balance between buyers and sellers.
The trend is now moving in favor of sellers, having been favorable to buyers a month ago. So although there is gloom and despondency almost everywhere, amid the murk there are clear signs of improvement.
Because sentiment is so poor, there is psychological pressure to lower prices. However there is no such downward pressure coming from the market. If all trading was done by unemotional computers, prices should be stabilizing right now.
In the real world, strongly influenced by human emotions, prices fell sharply last month, losing 3.5% in the monthly median and 2.5% based on the average price per square foot.
However sales prices are a trailing indicator and these moves reflect the balance in the market in November, when we experienced a clear advantage for buyers. Leading indicators are looking more positive.
This probably stems from interest rates being less horrible than they were six weeks ago. Demand is starting to stabilize and even showing a few signs of a slow recovery. With new supply very weak, we are not witnessing a market crash.
This is merely a correction, with prices now just a tad lower than a year ago – the monthly average $/SF is down 0.9%.
“I don’t have a crystal ball but here is a prediction of the year that it becomes a buyers’ market”, Kolodin states.
We are still dependent on the whims of the Federal Reserve. If they continue to push the Federal Funds Rate higher in an attempt to curb inflation, then mortgage rates could move higher too, putting a quick damper on any recovery in demand.
However if the 30 year fixed mortgage rate stays between 6% and 6.75%, then we should have confidence that the housing market can operate normally at this level.
Prior to 2009, anything under 7% was considered a low interest rate and rates under 5% were unheard of.
To achieve confidence we need several months of interest rate stability. This is by no means certain to happen, but it is possible.
Once the fear is removed, we should see more signs of a recovery in demand and volumes will rise back towards a more normal level.
“New supply is still very low, but we will be watching closely for any change in this trend.” Catherine Kolodin, Designated Broker
Mid Month Pricing Update and Forecast
Each month about this time we look back at the previous month, analyze how pricing has behaved and report on how well our forecasting techniques performed. We also give a forecast for how pricing will move over the next month.
For the monthly period ending January 15, we are currently recording a sales $/SF of $263.84 averaged for all areas and types across the ARMLS database. This is down 2.7% from the $271.13 we now measure for December 15.
Our forecast range mid-point was $266.79, so this month we were again a little too optimistic. The actual result was roughly 1% below the forecast and in the lower half of our 90% confidence range.
Average price per sq. ft. is at the level we last saw 14 months ago during the middle of November 2021. .
On January 15 the pending listings for all areas & types show an average list $/SF of $301.41, down $1 from the reading for December 15. Among those pending listings we have 99.4% normal, 0.1% in REOs and 0.5% in pre-foreclosures.
The distressed segment of the market remains totally insignificant, and both REOs and pre-foreclosures have fallen since last month.
Our mid-point forecast for the average monthly sales $/SF on February 15 is $262.46, which is 0.5% below the January 15 reading. This is a statistically insignificant change. We have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $257.21 to $267.71.
This means we are expecting only a small decline in average sales $/SF over the next month. The downward pricing trend is weakening because in many places the supply has dropped and demand improved.
“Asking prices are now on the rise and it does not take a big leap of imagination to see closed prices following suit during the second quarter”
Catherine Kolodin, Designated Broker
Arizona Real Estate Market – Buyers/Sellers
For Buyers:
Last year, traditional buyers took a back seat to an influx of cash investors and speculators who outbid them. Then mortgage rates increased and suppressed their power even more.
This was especially prominent in the market under $500K where owner occupant buyers made up just 56.8% of sales in June (normally 70-75%), and investors took 31% (normally 11-17%).
As of November, traditional buyers have once again returned to 71% market share under $500K, and investors have retreated under 20%. Investors make up the majority of losses associated with recent price declines.
This is great news, especially for first-time home buyers, as prices have come down significantly for starter homes.
The median sales price for a 1,400-1,600 sq. ft. single family home has declined from $435K in May to $370K so far in January; a decline of $65,000, or 15%. At today’s mortgage rate of 6%, that’s a savings of at least $352 per month in payment. This is in line to the overall median sales price, which also declined $65,000 from $475K to $410K.
To sweeten the pot, both FHA and conventional loan limits increased for 2023. FHA increased from $441,600 to $530,150, and many lenders began honoring the 2023 loan limit before 2022 ended. As a result, the market share of sales with FHA financing under $500K increased from a low of 11% in March to 20% by November.
Many first-time home buyers take advantage of FHA financing as they have softer requirements for approval and their rates are typically lower than conventional loans. Some buyers believe that prices will continue to drop dramatically in 2023 and continue to wait. However, after a brief 4-week Buyer Market from November to December, the ratios of supply to demand are showing Greater Phoenix moving back into a Balanced Market.
This means less downward pressure on price going forward and, if inflation and mortgage rates continue to decline, the worst may be behind us.
For Sellers:
Happening right now is a shift out of the shortest Buyer Market ever recorded by the Cromford Report.
The shift is a direct result of the fewest number of listings added to supply in the 4th quarter of the year going back to 2000.
Fewer listings mean fewer competitors for sellers. Demand is still very low, but when it’s met with low supply there is less downward pressure on price.
In November, every region in Greater Phoenix was in a Buyer Market except for the Northeast Valley. By mid-January, Phoenix, Glendale, Mesa, Tempe, Avondale, Gilbert, and Chandler had all come out of Buyer Markets and into Balance, except for Chandler which leapt into a Seller Market.
Not far behind are Peoria and Surprise. The only large cities left in strong Buyer Markets are Goodyear, Queen Creek (including San Tan Valley), Maricopa, and Buckeye. This does not mean that sellers can expect 2021 and 2022 scenarios to come back.
“Price drops, negotiations, concessions, and rate buy-downs will continue to be the key to keeping buyers in the game this quarter.”
Catherine Kolodin, Designated Broker
Currently, 51% of all January sales have involved some form of concession from the seller, with a median cost of $9,854; in line with the cost of a temporary rate buy-down. While Avondale is in a Balanced market, 85392 over the last 30 days showed 14 out of 15 sales with concessions and a median of $12,000 to buyers.
In addition to concessions, final sale prices are showing sellers getting an average of 96.7% of their last list price. This is not unusual for a Balanced Market. The luxury market over $1.5M sees fewer concessions, but more price negotiation.
January sales so far show sellers closing at an average of 94.5% of their last list price in this segment. Under $500K, sellers are closing at 97.4% of list price.
All in all, the majority of sellers are coming out ahead at closing. 65% of active resale listings have been owned for at least 2 years. The long-term appreciation rates for homes in Greater Phoenix are as follows using January sales to date: 25% for 2yrs., 50% for 3yrs., 63% for 4yrs., 70% for 5yrs., and 86%+ for 6yrs or more.
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