We have seen a dramatic increase in supply with gains of 32% between April and May in the greater Phoenix area. A combination of factors typically will go into the increase in supply. One factor is that many people are realizing the gains in equity in their existing home. Another is that people that started a new construction home as much as a year or more earlier are seeing the large cash position upon recent completion of those homes. In fact the monthly average sales price per square foot is $302.64 versus $243.36 last year which is a gain of 24.4%!
While there is positive news on the home equity front listings under contract are down more than 6% since last month with closed sales down 9% from April of 2021. Overall demand is getting weaker and there are a few factors playing into this. The monthly average median sales price has grown 24.9% to $466,000 versus $373,000 from last year. Affordability is becoming an issue for many Arizona residents. Price points coupled with current interest rates in the mid 5% range is creating difficulties for buyers.
While we do not have a crystal ball to indicate what will ultimately happen in this market we can review the past and trends. Between 2005-2008 there were many key factors that dominated the market and ultimately led to increased regulation. First, there were many purchases with 100% financing which gave homeowners no equity from the start. Secondly, loans were short term with interest only and some had adjustable rates. Third, there were many unstable buyers with stated income loans with potentially no credit checks. The market was also fueled by flip investors that had no intent to live in nor rent homes that created many vacancies. Finally, new home developments were outpacing the population growth for a period of about 10 years.
In contrast, current appreciation is fueled by buyers with significant down payments creating high equity from the outset. Loans are primarily principal and interest payments with a set term and fixed rates. Buyers are more stable with great credit and high income. There is more of a “real” demand with buyers that intend to occupy or rent the home to fill voids in vacant homes. Finally, new development is struggling to keep up with demand and pace of home building has been low for the prior 10 years. All of this seems to indicate more of a leveling in a still strong sellers market that may see some price reductions on “overpriced homes”.
What are some strategies to navigate this market? That is the question. I work with each buyer and seller to develop an individual strategy based on their ultimate goals. Here are some strategies I have recently worked with. First, if you are a buyer looking in a competitive price range it is important to revisit homes that are on the market for longer than 7 days. There is a possibility that there is room to negotiate with the seller’s agent. I build rapport with the other agent in order to find out what the seller is willing to consider in order to craft the best offer. Second, do you see a home but feel it priced just out of reach? This is another avenue to consider if the home may be priced high due to the seller not realizing market conditions and there may be flexibility. Third, do you have a lower down payment and the interest rate priced you out of the market? With a changing market conditions seller concessions may be possible. This will help defray some of the closing costs and allow you to buy down the rate. Finally, it is important that you meet with your agent and they have both the knowledge of the market and understand your situation. If the agent is unable to build rapport or listen to your needs this can pose an issue when negotiating.
Sellers also have options in a changing market. It is important that your home is presented on the market in a professional manner. This means that your home should be clean and staged properly to attract attention. A professional marketing suite of services should be used to attract attention to your home. List price is important to draw attention away from the increasing number of homes entering the market. Having an agent that follows up with showings and has the ability to build rapport will create more opportunities to maximize your price and keep your days on market low. In a changing market with more supply, the homes that show the latest trends and have updates will attract attention and the higher price points. It is key that professional photos (not cell phone), virtual tours, and video are utilized where appropriate. Highlighting community and area features will also be important to capture a higher audience.
Contact me with any questions about market conditions and the proper plan for a buyer, seller, or buyer/seller. It is important that you have the right representation to capitalize on your investment.