Too Much Confidence in The Real Estate Market?

There is some bold optimism coming from a couple groups in the real estate market! There is a lot of confidence that we're heading into a pivot year in 2024 with both transactions and prices on the rise.

Photo byCaitlin McKeague

There are a couple of people who are very optimistic about the 2024 housing market, and it's surprisingly not Realtors this time. So let's get into it, you guys. First of all, we've got builders. The builders are saying the housing market will take off in 2024 - a Renaissance as new construction demand is set to surge. According to the CEO of the National Association of Home Builders, construction demand is showing signs of perking up, and they're really looking forward to 2024 taking off. They expect to see higher demand and construction in 2024, basically doing a pivot from what we've seen in the last few years.

The Cromford Report also mentioned that the National Association of Home Builders says that the index has increased. It jumped from a very weak 34 back in November to 37 in December and then moved up to 44 in January. Last year at this time, it was at 31, so the sentiment is really trending higher very fast. It's not as high as it has been in the past when it was in the 50s, but builders are certainly optimistic. One of the reasons is being proposed is that people are going to get comfortable with the rates. They think rates will continue to decline, but we're also going to realize that 3 to 4% mortgage rates are not likely going to be coming back. Builders have really see an opportunity here in that a lot of buyers have decided to go towards new construction homes. This is because there aren't as many options with resale homes right now since so many sellers aren't selling. Homeowners are holding onto their rates, and new construction is ready to fill that gap. I think that's where the sentiment is coming from, especially knowing that rates will continue to soften this year. So the builders are certainly one group that is very optimistic.

But you know who else is optimistic? Sellers. Sellers in the Phoenix area are very optimistic! Here's why - the average list price per square foot for active listings out there just hit an all-time high of $370. This is higher than it was in the peak of May of 2022 and June of 2023. We have not seen this number before. Sellers are very optimistic in asking these high prices and apparently ready for a good year. So what does that tell us? Well, they're assuming that rates are going to go down, the demand's going to come back, and they have a shot at getting a really great price for their house. We'll see if that actually comes true. It's hard to know right now, but they're certainly feeling the momentum apparently and ready to be listing their homes at these prices.

I have a little bit more to talk about with demand here in
Phoenix, so we'll get into that in a minute. But before we get there, let's
talk about what's going on with the FED because this is always important. The FED
began rate cut discussions but avoided teeing up the first one. They're going
to meet on January 30th, and it's widely expected that they're going to hold
interest rates steady. Now, I say this all the time, but the FED funds rate is
not the mortgage rate, but what they do does affect where mortgage rates go. So
we need to pay attention to this. The overall expectation is that they will
start cutting rates later this year. That's what everyone was hoping for and
gathering from their commentary back in December. But for now, the expectation
is that they won't be doing much at this meeting.

So what happened with mortgage rates? Well, it might be
confusing because all the news out there has been saying that interest rates
were the lowest level since May. That's what they hit this week. But that's
actually not true. Mortgage rates actually went up slightly this past week. So
if you're out there as a buyer, make sure you're checking in with your lender
to find out what's going on. Make sure they’ve got your back and are guiding
you appropriately on what's going on.

Now let's talk about what's going on in Phoenix. The Cromford
Market Index isa t 115.9, almost 116. We've gone up once again. Demand is 72.3,
so that's 28% below normal demand, but that has been growing for sure. And
supply is about 38% which is below normal. We haven't seen too much growth on
the supply side. I think we will start to see more homes coming on the market,
but our demand is going to increase, so I don't know that the supply is really
going to change this overall index all that much. For anyone who's new,
anything over 110 is considered a seller's market. So we've got the CMI showing
a seller's market as well as the contract ratio and just really seeing a lot of
momentum in the market so far this year.

Finally, looking at all of the cities in the Phoenix area as they relate to the CMI, we've got another week of all green arrows. The average change of all of these cities over the last month is 12.6%, and last week it was 10%. This is another indication of that accelerating market, moving in the direction favorable for sellers. They're saying that in January, new listings arriving in stronger numbers is pretty normal, but the total number of supply on the market right now remains below normal. Demand appears to be rising significantly faster than the supply. So we'll see if that continues. Of course, our sales volume has remained low. January is probably going to look pretty low for sales because a lot of that is the contracts that were negotiated in December, and December is usually a slower month.

But getting into February and March, we'll see whether or not
there's much of a recovery as it relates to sales. And from what I'm seeing out
there right now, I think there might be. There is a lot more activity. I've
been getting a lot more calls from clients, new clients, and also past clients
wanting to make a move and do something one way or the other - selling and
buying. Do I expect that we're going to have a busy spring? Well, we'll see
what actually happens. Make sure to check out this video right here and tell me
your thoughts in the comments.