Math is Good

Cady : “Yeah, I like math.” Damian : “Eww. Why?” Cady: “Because it’s the same in every country.” (Mean Girls, 2004)

When I was in elementary school, I complained about math class too. And then I became a grown-up. It may be tough to figure out when someone rowing a boat at 8MPH will arrive in St. Louis but I bet most of my readers can tell me what 3% of $526,500 is pretty quickly!

The best thing about math is that it doesn’t change. Two plus two equals four in a buyer’s market and in a seller’s market. That was true when Zillow and Opendoor were buying everything in sight and remained true nearly 2 years after Zillow’s iBuyer failed (hint – buying everything in sight is not a winning strategy).

This is also true for the law of supply and demand which states that when demand outpaces supply, prices increase, and when supply outpaces demand, prices decline. At the end of 2007, there were 57,000 active listings in Greater Phoenix and only about 4,000 listings under contract. Supply significantly outpaced demand and prices fell for years. In early 2022 we only had about 4,400 available listings and over 11,000 listings under contract and prices increased quickly.

Supply increased in the second half of 2022. Demand decreased. Prices fell. Supply started to tighten in January 2023 and has continued to tighten since the beginning of the year. Supply fell and demand stabilized. Supply continued to fall and demand started to slowly increase. And yes, that means prices started to increase. The current supply of available listings is over 48% below normal. The current housing demand is about 16% below normal. Despite demand being low, supply is lower, meaning prices are increasing.

This is when the price story gets a bit more complicated. The housing market in early 2022 was still part of the pandemic housing market, which was not a normal housing market. 2020 through 2022 were unicorn years, much like 2005. We cannot compare to these years. They were truly unprecedented (remember when we got so sick of that word?).

Year-over-year analysis is great for understanding market appreciation over time, but not for understanding today’s sales prices. And it is the current prices that matter to today’s home buyers and sellers.

The relationship between supply and demand impacts today’s sales prices. Home prices are going up. (Pro tip: the relationship between supply and demand always impacts sales prices)

Unfortunately, today, everyone is an expert, and everyone has an idea of what is going to happen. And sadly, very few are using MATH to figure out where we are going. Instead, they are using emotions, Youtube, and social media. None of those are the best sources for real estate info.

In May 2022 the Greater Phoenix monthly median sales price reached $480,000. Today it is $445,000. While we remain under the peak we reached in May 2022, prices have increased from the bottom reached in December 2022 of $415,000. The monthly median sales price is up 7.2% year to date.

Math doesn’t change but when the criteria are changed, the numbers change. Consumers pay attention to what is happening month over month. A buyer is not concerned with the median amount spent a year ago, but they want to know what people spent last month. The same is true for sellers.

All of the price declines took place in 2022. 2023 is a year of positive growth. It was only recently that national housing analysts noticed this trend. While Case Schiller is super accurate, the info is super old (runs about 3 months behind). Today’s buyers and sellers are not interested in what happened months ago, they want to know what is happening now in order to make the best choices.

To Mrs. White, my 5th grade teacher, you were right, math is good.