𝗧𝗵𝗲 𝗩𝗮𝗹𝗹𝗲𝘆'𝘀 𝗥𝗲𝗮𝗹 𝗘𝘀𝘁𝗮𝘁𝗲 𝗛𝗼𝘂𝘀𝗶𝗻𝗴 𝗖𝘂𝗽𝗯𝗼𝗮𝗿𝗱 Getting Bare
Most are now aware that the low supply of housing inventory is currently the driving force in the valley’s real estate marketplace. According to the Cromford Index, supply is down a whopping 42% from the peak of October 2022. Where have all the sellers gone? Answer: they are staying home and hanging on to their low interest rates. When will that all change? Either when market conditions (interest rates, economy, shifts in pricing) prompt change or with life changes (divorce, marriage, illness, job loss/change, relocation). Moves can only be put off for so long – whether buyer or seller.
To that point, we saw a sudden drop in demand as interest rates spiked in 2022. Yet even with rates currently only moderately lower than their peak – demand has picked up. Buyers needed time to adapt to the change in rates. Eventually, time wins over inertia and the need to move forces action. This rise in demand is continuing to put pressure on prices to rise, albeit more gently than in years past.
While demand tends to be volatile – supply is generally not. Large jumps in supply typically only come from market manipulation or catastrophe. Nearly everyone shivers at the mention of the 2008 market – a shining example of catastrophe if ever there was one. The valley currently has the lowest number of delinquency rates and foreclosures in history. No catastrophe lurking around the corner for now.
The point is this – supply is scarce at the moment and getting scarcer. The supply needed is not on the immediate horizon. That means prices are rising as they must when demand outpaces supply. But as usual, this is more nuanced as explained by Michael Orr of the Cromford Report:
Those who predict more drops in sales prices will have to explain where a vast new supply is going to come from. Prices only drop when there is a glut of homes coming to market and not enough buyers. In the current circumstances, this is looking very unlikely.
Prices remain far higher than they were before 2022, and have rising [sic] from below $267 in early January to above $281 in mid-May. The rate of increase over the past 4 months could be described as modest, but that would be a little unfair. A 6.6% rise between week 2 and week 20 is equivalent to an annual appreciation rate of 18%.
Do we expect this more-than-modest rate to continue? No. From May through September the weather in Central Arizona gets a little toasty but the housing market usually gets cooler, at least where average $/SF is concerned… the average $/SF tends to go flat or even decline during this period in most years. The main exception was 2020, which was due to the sharp rebound after the initial COVID panic during the spring.
In most years with a healthy CMI, like 2023, we expect the majority of the upward price movements to occur between January and May and between October and December. Our tentative expectation is that prices will remain roughly flat (or dip slightly) from now until October and then rise again during the fourth quarter, as long as nothing dramatic occurs to change our assumptions.
This projection means that we expect to overtake the 2022 price line during September or October and finish the year well ahead of December 2022. It is unlikely that in 2023 we will exceed the peak of May/June 2022, which was fueled by over-excitement among the institutional buyers and iBuyers… All this assumes conditions remain largely similar to today. The further out we look, the less we can rely on this assumption. Anything more than 2 months into the future should be taken as conjecture rather than a forecast.
𝗠𝗮𝗿𝗸𝗲𝘁 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀:
- Delinquencies are at all time lows. Therefore foreclosures are at all time lows
- Prices are not going down
- Builders are not building in sufficient quantity to fix supply shortage
If you are a buyer – it is time to buy. Ignore the doom and gloom of the media and pundits – we have a supply problem that cannot be solved this year. If you are a seller, remember that eventually supply will show up. Take advantage of an empty cupboard.
Russell & Wendy Shaw
(mostly Wendy)
When you become a homeowner, you’re taking on not just the cost of your mortgage and down payment, but you also have to budget for those expenses you might not expect. The repairs you may need to do to your home through your ownership can be nearly impossible to predict and often tough to avoid.
The Best Deals Go Fast!
Okay, let’s address the obvious first. The biggest house has more square footage than the smaller one. Duh. But that’s not what we’re going to talk about today. As it relates to appraised value is the message here.
If you’d like to be involved in real estate investing, it’s a bit of a tricky time right now. Traditional methods of investing in real estate aren’t necessarily going to make a lot of financial sense during a time when interest rates are incredibly high and might even rise from here, inventory is low, there’s significant economic uncertainty, and prices are still elevated.
