The Phoenix Real Estate Market Is Changing | Phoenix Real Estate Market Update

Photo byCaitlin McKeague

The Phoenix real estate market is experiencing a scenario reminiscent of 2007, a year none of us are eager to revisit in the context of real estate. Unfortunately, this is our current reality, so let’s delve into the details. We’ll discuss the lowest record of home sales, some stale listings, and more. If you're a seller, this might not be the most encouraging news, but for buyers, there could be some silver linings. Let's get into it.

Current Market Demand

First, let’s talk about the number of listings under contract, which effectively measures demand—how many buyers are willing to purchase a seller's home, make a deal, and get under contract. Currently, this number is quite low. As of today, we have approximately 8,238 listings under contract. This data comes from the most recent week, week 23 of the year.

If we compare this to 2007, where the number was in the high 6,000s, there is a difference, but it's still the lowest we've seen since then. Looking at historical data, every year since 2007 has had higher numbers. For context, in 2011 during this same week, we had only 2,476 listings under contract. This shows just how slow the market is right now, with very few homes going under contract and selling compared to the past, especially the recent past when the market was much more fast-paced.

Market Conditions

Why does this matter? While our market conditions are not identical to 2007, the dampening of buyer demand is significant. When sellers struggle to sell their homes and they don't get under contract, they might start offering credits, lower prices, or provide incentives for different types of financing. I’ll discuss this more in detail later. The current situation reflects 2007 to some extent, which is not ideal.

Economic Factors and Rates

Last week, we saw some significant economic events. The Consumer Price Index (CPI) indicated that inflation slowed in May, with consumer prices up 3.3% from a year ago. The CPI held flat in May but increased 3.3% from the previous year, slightly below market expectations . This was generally good news, suggesting progress in managing inflation, which positively affected the markets. Inflation is moving closer to the Federal Reserve's target of 2%.

The Federal Reserve met last week and decided not to cut rates yet, which wasn’t a huge surprise. Here are some key points from the Fed’s meeting:

• It’s too soon to tell if Fed policy is sufficiently restrictive.
• No one on the Fed committee has rate hikes in their base case.
• They aren't sure when they will cut rates, but they aren't planning any hikes.
• The Fed projects one rate cut this year but hasn't set a specific timeline .

The Fed kept its key interest rate unchanged at a range of 5.25% to 5.5%, but they removed two rate cuts previously considered for this year. Keep in mind, the federal funds rate is not the same as the mortgage interest rate, but mortgage rates do respond to Fed commentary and economic conditions.

Mortgage Rates

Last week, mortgage rates experienced a slight movement. As of last Friday, the average conventional 30-year rate rose slightly, with most lenders quoting just under 7%. Currently, on Monday, we’re looking at around 7.04% . Although rates have not increased significantly, they remain over 7%. After the CPI and Fed meeting, rates didn’t rise and even moved slightly downward, which is a positive sign.

Home Sales and Market Trends

Unfortunately, home sales have hit some of the lowest levels on record. In May, home sales fell 1.7% month over month on a seasonally adjusted basis and dropped 2.9% from the previous year. Only two months in the past decade had fewer home sales: October 2023, when mortgage rates spiked to 8%, and May 2020, at the onset of the pandemic .

Given the low number of listings under contract, we will likely continue to see low home sales. According to Redfin, more than three in five home listings are now stale, sitting on the market for at least 30 days without going under contract. This reflects high housing costs and dampened buyer demand. In Phoenix, the trend is similar. As of now, the average days on market for listings in the Phoenix metro area is about 28 days . This is challenging for many sellers to accept, especially after years of faster sales.

Seller and Buyer Strategies

For sellers, it’s important to stay positive and patient. Selling a home can take time, and the current market requires adjustments, such as offering seller concessions. Buyers today are picky, seeking perfect, turnkey homes with minimal repairs required. Offers often include requests for at least 2% seller concessions due to the high cost of mortgages.

One strategy we're implementing is offering seller financing on some listings. This means the seller becomes the lender, potentially providing buyers with more favorable interest rates and different loan structures. Buyers interested in seller financing can check the link in the description for available homes. Sellers with questions about this option can reach out to me directly for more information.

Active Listings and Market Index

Active listings have been slightly elevated but remain relatively stable. Currently, there are about 177,000 active listings on the market. Looking at the Cromford Market Index, we're at 104.4, indicating a balanced market. Market supply is at 74.5, 26% below normal, and demand is at 77, 23% below normal . The gap between demand and supply is narrowing, leading to a balanced market.

City-Specific Trends

Every city behaves differently. We’re seeing many areas moving away from a seller's market towards a buyer's market. Cities like Phoenix and Chandler remain far from a buyer's market, while others like Surprise, Queen Creek, Maricopa, and Buckeye are trending towards it. Typically, summer brings slower sales and increased inventory, and this trend, combined with current rates and prices, is dampening buyer demand.

Contract Ratio and Market Heat

The contract ratio, which compares the number of listings available to those under contract, provides another perspective on market activity. Ratios between 30 to 60 indicate a balanced and warm market, 60 to 80 is hot, and 80 to 100 is hotter. Some areas in South Phoenix and parts of Chandler and Gilbert fall into the hotter categories, while much of the market is balanced or warm .

Conclusion

The Phoenix real estate market is softening, and this slower pace can be an opportunity for buyers who can afford current mortgage rates and prices. Seller financing options might also provide more flexibility. Sellers need to remain patient and realistic about the time it takes to sell a home in this market. For more detailed buyer and seller resources, check the description, and stay tuned for next week's market update.

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Sources

1. CPI Inflation Data
2. Federal Reserve Meeting Highlights
3. Current Mortgage Rates
4. Home Sales Data
5. Days on Market in Phoenix
6. Cromford Market Index
7. Contract Ratio Analysis