The US housing market is shifting and it is shifting quickly. The speed in which the changes are happening is making both real estate consumers and practitioners uncomfortable. The velocity of rate increases, the velocity of inflation (despite the very recent modest decline), the velocity of price appreciation, and now the simultaneous velocity of growing inventory and declining buyer demand. Using facts and not emotion is the best way to address the discomfort.
*Market softening does NOT mean the market is crashing nor does it mean prices are declining. Prices are still increasing, just at a slower rate. In this case, market softening means that buyer demand is declining.
Negative year over year reports illustrate what we know: 2021 was a record-breaking year for (re)sales units and volume. 2021’s records happened because of a perfect storm of both 2020’s pent-up demand and the nation’s current generational demographic of about 33 million Americans aged 27-34, the perfect home buying age.*
The AZ Market:
Greater Phoenix available inventory increased by 50% during the past 30 days and is up 79% since the end of February.
Greater Phoenix remains in the top spot for the country’s inflation rate, as of April, we made it up to an 11% year over year increase. It is mostly due to housing costs. According to Redfin; “Homes are becoming less affordable more quickly in Sun Belt metros than in coastal areas. Homebuyers in Phoenix, for instance, need to earn 46% more than they did a year ago to afford the area’s typical monthly mortgage payment, compared with 26% more in San Francisco.”
For a detailed local market update, check out my post from last week here.
National Real Estate:
NAR’s chief economist, Dr. Lawrence Yun, has been quoted as saying, “The market is quite unusual as sales are coming down, but listed homes are still selling swiftly, and home prices are much higher than a year ago.”
Dr. Lawrence Yun expects sales to continue to slow and we will go back to pre-pandemic sales activity. In 2021 there were 6.1M existing home sales, the second most sales behind 2006. A 10% decline in sales would put us at about 5.5 million sales which pre-pandemic was considered a healthy market.
- Last week was this year’s biggest listing week with nearly 111,000 new listings.
- Total available single family homes increased by 8.2% to 344,000 homes last week. That’s an increase of 26,000 more homes than last week, and 6% more than this time last year.
- This is the first we have had year over year inventory gains since 2019. Available purchase inventory has been falling each year for a decade. During that time, Americans have turned about 8 million homes into rentals, capitalizing on the low mortgage rates.
- NAR’s pending home index declined by 3.9% month over month in April to the slowest pace in 10 years. It was the sixth consecutive monthly decline.
- This week nearly 27,000 went under contract immediately. But so many new listings hit the market, the immediate sales percentage declined down to 24%. Last week it was 25%. A year ago it was 26%.
- Price reductions continue to increase. 21.7% of listings are reducing their price before selling. That is up from last year’s 15.8%.
- Purchase mortgage applications are down 16% year over year.
National Existing Home Sales:
- Fannie Mae expects total number of home sales to decline by 11% this year from last, a 3.7% decline from Fannie’s April forecast.
- The median price of a resale home sold in April was $391,200, the highest on record and an increase of 14.8% from a year ago. Remember, sales prices tell us what the market was doing 30-60 days ago, not today.
- Existing-home sales declined for the third month in a row. In April sales decreased by 2.4% from March and 5.9% year over year as declining affordability continues to challenge today’s buyers.
- Midwest increased by 3.1% (month over month)
- Northeast increased by 1.5% (month over month)
- The South declined by 4.6% (month over month)
- The West declined by 5.8% (month over month)
New Home Sales:
- Leading indicator because this market shifts faster than the resale market.
- Builder confidence declined by 8 points in May to 69, dropping to its lowest levels since June 2020.
- April new home sales dropped for the fourth month in a row by 7% month over month and 27% year over year, matching the lowest level of sales since April 2020, at the very onset of the pandemic.
- Available new home inventory has skyrocketed from 4.7 months in April 2021 to 9.0 months in April 2022! Economist Logan Mohtashami with Housingwire uses this rule of thumb for anticipating builder behavior basing it on the three-month average of supply. He writes:
- “When supply is 4.3 months and below, this is an excellent market for the builders. They will happily build.
- When supply is 4.4 to 6.4 months, this is just an OK market for the builders. They will build as long as new home sales are growing.
- When supply is 6.5 months and above, the builders will pull back on construction.
- The monthly supply has spiked, the 3-month average is at 7.4 months, and the headline number is at 9.0 months!”
Real Estate News:
- Realtor.com is the first to add wildfire risk data to properties listed on the portal.
- Opendoor is expanding in AZ and just committed to over 100,000 square feet in Tempe. The location will employ 500 people and will be Opendoor’s largest office.
- Microsoft created a real estate venture called Bing Rentals and is currently creating a team of engineers to build it, very little is known about this venture.
- Google Trends saw a huge increase in searches for the term ‘housing bubble’ in March, and it hasn’t fully returned to normal levels. Clearly this remains a concern for many. This is not good for consumer sentiment.
The negative year over year reports can easily cause fear when it shouldn’t. Consumer sentiment can have a greater impact on a market than actual data. Zillow Economist, Jeff Tucker, recently raised concern that talk of a bubble could create fear which could actually negatively impact the market.
Copyright 2022 Sarah Perkins
Sarah has been in title & escrow sales since 2004. As an award-winning sales executive and now the Director of Strategic Accounts, Sarah’s role is to bring real estate transactions to Clear Title. To do this, she focuses on supporting her clients and helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.