Homebuyers Are Not Buying | Phoenix Real Estate Market Update

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Big Drop in Mortgage Rates Fuels Refinance Market but Home Buyers Unmoved

Recent trends in the real estate market reveal that while mortgage rates have decreased, the anticipated surge in homebuyer activity has yet to materialize. Here's a detailed look at what's happening.

Refinance Market Heats Up

According to the Mortgage Bankers Association (MBA), requests for purchase loans fell by a seasonally adjusted 3% last week compared to the week before and were down 14% from a year ago. In contrast, refinance applications soared by 15% week-over-week and were up 37% from a year ago, reaching their highest level since August 2022 .

This indicates that mortgage rates have decreased sufficiently for homeowners with higher rates to consider refinancing. However, potential buyers remain hesitant, finding current rates still too high.

Affordability Issues

In the Phoenix Metro Market, affordability continues to be a significant barrier. A typical housing payment has dropped to $115 below the record high as mortgage rates declined, but this hasn't spurred the expected buyer activity. A Redfin report highlights that a homebuyer with a $3,000 monthly budget can now afford a home worth $450,000 at a 6.8% mortgage rate, gaining about $25,000 in purchasing power since April .

Despite this, many potential buyers are still on the sidelines, waiting for both prices and rates to drop further.

Down Payment Challenges

Zillow reports that the typical Metro Phoenix homebuyer needs a $186,000 down payment to afford a median-priced home of $461,000, assuming they want their monthly mortgage cost to be no more than 30% of their household income . This is a considerable amount, highlighting the ongoing affordability issues.

Assistance and Alternatives

There are options to help potential buyers. Phoenix Metro homebuyers can receive an average of $21,000 in down payment assistance. Other strategies include finding homes with assumable loans or negotiating rate buy-downs, where sellers provide funds to lower the buyer's interest rate, making monthly payments more affordable.

Economic Indicators and Market Trends

Looking at the broader economic context, the personal consumption expenditure (PCE) index, the Fed's preferred gauge of inflation, is expected to show a 2.2% increase in June from the previous year. The Federal Reserve's policy decisions, particularly around rate cuts, could influence mortgage rates, although rates typically move in anticipation of such changes .

Current Mortgage Rates

As of the latest update, mortgage rates stand at 6.89%, a slight increase from 6.81% last week but still significantly lower than the peak of 7.51% in April. This decline in rates has created more opportunities for affordability, although it's still not enough to significantly boost buyer activity.

Market Indicators

The Cromford Report highlights the sales price to list price ratio as a crucial indicator. Currently, sellers are receiving about 97.5% of their list price, slightly above the long-term average of 97.38%. However, this is down from 97.8% last month, indicating a short-term downward trend .

The Cromford Market Index (CMI) stands at 100.6, indicating a balanced market. Demand is about 25% below normal, with supply also 25% below normal. Different cities within the Phoenix Metro area show varying market conditions, from strong sellers' markets to solid buyers' markets.

Conclusion

While mortgage rates have come down, the anticipated increase in buyer activity has not yet been realized. Affordability remains a key issue, with many potential buyers still waiting for more favorable conditions. However, there are various strategies and assistance programs available to help navigate the current market.

Stay tuned for more updates as we continue to monitor these trends and their impact on the Phoenix real estate market.

Sources:

1. Mortgage Bankers Association
2. Redfin
3. Zillow
4. Federal Reserve
5. Cromford Report