Looking at housing, things look good and the market is attempting to normalize, but we do not see the whole picture. Wall Street, federal policy, a worldwide pandemic, labor and supply chain shortages also impact housing. But there is still more to consider: the intense and seemingly ever-increasing battle between the Department of Justice (DOJ) and the National Association of Realtors (NAR).
Despite the normalizing of the market, it is not normal. Demand has actually increased recently which is unusual because this is the time of year demand typically declines. After a 44% inventory increase over the past three months, inventory seems to be leveling out again and the increases have flattened. Leveling out at 7,400 listings is less than ideal. The size of the Greater Phoenix market calls for 25,000 listings and we haven’t seen 20,000 active listings since 2016.
Inventory levels are up but not enough. Home price appreciation is starting to slow but not by very much. Mortgage rates remain low, but did everyone refinance last year? Conditions are improving but the market isn’t healthy, yet, but it is on its way. Remember when 8% appreciation was a lot? 2018 and 2019 each had 8% appreciation. That feels like a lifetime ago.
Residential real estate pulled our economy out of the shortest recession in history. As last year’s market frenzy cools, the severe imbalance of supply and demand lessens and prices continue to increase, just at a slower rate. According to the 2020 US Census, housing units increased by 6.7% while population grew by 7.4%; both were declines from previous decades, but it doesn’t change the fact that demand (population) outpaced supply (housing units). Over the past 10 years, Maricopa County’s population increased by 15.8% and housing units increased by 8.3%.
As many suspected, affordability declined in Q2 2021 and the US as a whole and Greater Phoenix fell below the ideal affordable range of 60-75 for the first time since late 2018. Through Q2 2021 in Greater Phoenix a household earning the median income ($79,000 annually), can afford 56.4% of what is for sale. A year ago, it was 70%.
Long before residential real estate pulled us out of the shortest recession in history, Wall Street and Silicon Valley were plotting ways to infiltrate housing. While big money and new technology provide powerful incentives, it is very difficult to replace a well-informed, well-connected, local real estate professional.
In the past, the Phoenix housing market tended to run about 8-12 months ahead of the rest of the country. Over the past 18 months, our market has pretty much been on pace with the rest of the country until very recently. I would say that our market is running about a month ahead of the rest of the country so be mindful of national headlines, it is old news in Phoenix.
The market is softening = slowing = normalizing = moving closer to balance which are all good things even though it feels weird. After the wild ride of 2020 and the nearly non-existent inventory levels of Q1 2021, the real estate market is working out its kinks. I have mentioned it before and will say it again, it is impressive what a person can get used to. We got used to 10 or 15 buyers for each listing. We even (kinda) got used to only 4,000 active listings (when we should have 25,000). Now we have to prepare today’s buyers and sellers (and ourselves) for another new normal, a much healthier one.
Today is all about the AZ market. On Tuesday, Lawyers Title hosted a presentation with Tina Tamboer with the Cromford Report. She always shares pertinent and timely information. Below I have combined a lot of her information from her presentation, along with additional information from my research.
The real estate market continues to shift and change, slowly moving towards normalization. Prices continue to increase, demand is slightly subsiding, and inventory is growing (and has a LONG way to go). The intensity is cooling (from 500 degrees to 350 – its still HOT), and fatigued buyers are writing fewer offers before one is accepted. The headlines attempting to explain the still very hot, yet cooling market seem to be causing more confusion than clarification.