Market Summary for the Beginning of June

Market Summary for the Beginning of June

Here are the basics – the ARMLS numbers for June 1, 2023 compared with June 1, 2022 for all areas & types:

• Active Listings : 11,730 versus 9,439 last year – up 24% – but down 6.2% from 12,503 last month
• Pending Listings: 5,696 versus 6,887 last year – down 17% – and down 8.5% from 6,224 last month
• Under Contract Listings : 9,028 versus 10,249 last year – down 12% – and down 9.4% from 9,969 last month
• Monthly Sales: 8,082 versus 8,728 last year – down 7.4% – but up 21% from 6,687 last month
• Monthly Average Sales Price per Sq. Ft.: $283.47 versus $303.39 last year – down 6.6% – but up 1.3% from $279.76 last month
• Monthly Median Sales Price: $434,000 versus $475,000 last year – down 8.6% – but up 2.1% from $425,000 last month

This time last year, the market was in full retreat, but pricing was just a few days away from its peak of $306.46 per sq. ft., reached on June 10. Closings were still plentiful, driven by the demand from institutional investors and iBuyers who were just about to curtail their buying spree.

So much has changed in the last year. The gut-wrenching slowdown that took place in the second half of 2022 is now a distant memory and the market is slowly and cautiously recovering to a semblance of normality. Closings in June were unusually strong – up 21% from May, but these were driven by contracts signed in April when interest rates were more attractive than they are right now. A spike in mortgage rates at the end of May meant we entered June with a weak count of listings under contract, down over 9% from the beginning of May. This means we should expect relatively unimpressive closing counts for June.

It is common knowledge that demand is sensitive to interest rates, but thinking that higher interest rates lead to lower prices is simplistic and wrong. In the current environment, higher interest rates dramatically reduce the desire to pay off low-interest loans and so dispose of property. Those who bought at the peak during the first half of 2022 may be underwater, but unless a dramatic change in their circumstances makes their financial situation desperate, they are unlikely to be motivated to sell and convert that loss on paper to a hard loss of real money.

The weakness of supply is the main factor to consider when studying the current housing market. Despite the low number of homes going under contract, the number of homes for sale (without a contract) dropped another 6% and is now below 12,000. This is an unhealthy supply and it is well-nigh impossible for prices to decline when supply is so weak and trending lower.

If supply were to rise, then a cooling trend could start to build. The monthly releases of building permit data suggests that future supply will be strong for rental multi-family property, but single-family homes to purchase are being planned in ever smaller numbers. The recent decision to restrict future permits because of water concerns means that situation is likely to remain in place for a long time. The market will see less volume than we have become used to, but prices will be reinforced by the chronic supply.

In the very long term (over decades), a shortage of water could cause net migration to drop and even turn negative. This would generate more supply and cause downward pressure to build up on prices. But that event is very unlikely within our existing time horizon. Without such a macro-level change in circumstances, the supply of single-family homes and condos for sale looks set for long-term scarcity.

Unless we get a significant reduction in mortgage rates, the affordability of homes will remain a major problem. This will constrain sales volumes, but it is very unlikely to put downward pressure on pricing. Instead we are much more likely to see a long-term price appreciation trend setting in once more, with the chronic shortage of supply the over-arching unsolved issue.

TITLE FRAUD IS ON THE RISE: Last week, the Maricopa County Recorder’s Office launched a new service, Maricopa Title Alerts.  Here is the link to help protect your home:

Maricopa County Recorder’s Office Title Alerts service sees 15,000 sign-ups | KJZZ