Phoenix, AZ

Phoenix Real Estate Market Update | Rates Up.. Inventory? Rent?

Ryan Meeks - Escape To Arizona

FOMC Meeting - Raising Fed Funds Rate and How This Can Affect Mortgage Rates

This week the Federal Reserve is set to meet and poised to increase the fed funds rate by 75 basis points - or 3/4 a percentage - in its fight against inflation. The fed funds rate is the rate banks lend to each other overnight. This directly affects short-term loans like credit cards, auto loans, or adjustable rate mortgages. This is said to be the fed's best tool in its fight against inflation and the objective is to create less demand, thereby decreasing the rate of inflation. If it costs banks more money to borrow, they must pass on this increase to their customers. Keep in mind that more personal items such as credit score/history go into setting the specific mortgage rate for any client.

In March of 2022, the fed had its first increase in rates by 25 basis points or 1/4 a percent. In anticipation of this hike, Mortgage rates went from 3.55% in early February to 4.16% just before the rate hike on March 16th. At this meeting, the fed announced it would be raising rates 6 more times in 2022.

We've seen mortgage rates increase in the past month from 5% to well over 6% today. Pulling many buyers back to the sidelines. This leads us to a volume and inventory discussion.

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Mortgage Market SurveyFreddie Mac

Inventory & Volume Reaction

The reaction to the increase in rates on March 16th shows a definitive increase in days of inventory in the Phoenix Real Estate Market. In the eight weeks following the hike days of inventory increased at the second fastest pace from 15 days to 26 days of inventory. This was the second fastest increase in days of inventory in six years behind only the 2020 pandemic-effects increase in March of 2020. This was due to the annual sales rate falling and the active listings increasing rapidly. In late July and early August we saw a slight relief in this increase, however, this is only because active listings grew more slowly - but annual sales also continued to fall. In the past two weeks, we've seen housing inventory grow because buyers have been removed from the market due to higher rates. While our new active listing count per week remains low, demand is even lower.

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Days InventoryCromford Report

Dollar volume for quarter three remains around $6.5 billion dollars. This is around half of the last year's $13 billion in sales with only 10 days left in the quarter.

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Quarterly Home SalesCromford Report

September's rate hike might bring another sharp inventory increase. If it does, it will most likely be because sellers can't sell, not because more homes are being listed.

Why are buyers freaking out?

While interest rates are keeping buyers out of the game, for now, many buyers are used to inventory levels from 2020 and early 2022 also. These levels feel higher than they are. If we look at 2016, we can see days of inventory reached 100. Putting this into perspective, buyers weren't freaking out and prices still moved higher this year - from $210,000 to $225,500. Social media is also predicting doom and gloom as this is what attracts viewers!

Additionally, Open Door and Offerpad have accumulated about 15% of the resale market and the downward pressure is being felt as they list under-market to sell off their inventory. Just as they overpaid on the way up, they are underselling on the way down- and they are aggressive! For instance, they purchased a home in Phoenix at 23229 N 43rd St for $858,300 - they tried flipping it with a price starting at $965,000 - they are now down to $781,000 with 117 days on the market. This is a dramatic 19% decrease from their original list price and $77,300 below what they purchased it for. Not to mention what they need to pay in fees to sell it.

Rent Vs Buy

Many people are still moving to Arizona. The build-to-rent market is still booming with Phoenix leading the way nationally with 17,000 total units slated to be complete by the end of 2023. To put this into perspective, Dallas is second with only 4,200 units projected to be completed. While MLS doesn't incorporate build-to-rent units, several media reports are claiming the rental market is softening. We can see this in our data as well with a flood of new listings 66% or 2,952 being added in the past four weeks as compared with last year's 1,769 within this same timeframe. This is the highest we've seen in seven years with 3,482 active listings on the MLS in the greater Phoenix area. With 160% more homes on the market now than last year -when it was almost impossible to find a rental- tenants have far more choices and negotiating power.

Despite this, Real estate ownership is still the single greatest wealth creator in history. And single-family rental inventory is growing across the county. Rents, while still high, are lower than a mortgage payment. In Greater Phoenix, single-family rental rates are declining, and the average asking price has declined by nearly 18% year over year, as more and more inventory becomes available. Homeowners have 40 times greater net worth than renters.

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Homeowner vs. RenterInman- Keeping Current Matters

NAHB Homebuilder Sentiment

This number came out this morning and comes out monthly. It is the result of four different regions in the USA. It fell for the ninth straight month to 46 - 47 was the expected number which is down from 49 in August. This is the lowest level we've seen since May of 2014 (outside the pandemic) and one year ago the gauge stood at 76. Sales conditions, traffic expectations, and builder confidence are components of this measure and they all fell led by the West region.

High home prices coupled with lingering doubt about rates struggled to attract buyers. The median sales price was $439,400 in July according to the US Census Bureau. Incentives like rate buydowns, free amenities, and price drops are among the norm with 25% of builders attempting these tactics across the US.

Cromford Market Index

CMI - an leading indicator of price in the Phoenix Metro area - is currently at 106 - showing we are still in a slight seller's market - although that seems an untenable position to argue at this point.

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Cromford Market IndexCromford Report

Four cities had CMI improve from the previous month. This includes Tempe, Scottsdale, Paradise Valley, and Chandler. Maricopa, Queen Creek, and Buckeye continue to deteriorate rapidly as supply is high and increasing, especially from new home builders now putting their homes on the MLS.

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CMI for top 17 Cities in PHXCromford Report

Article by Ryan Meeks

Ryan is a RealtorĀ® located in Arizona. Follow for more useful updates and fun video tours of the greater Phoenix Area.

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