Many surprising changes have occurred in the market over the past month.
First, we see fewer active listings at the start of September than we had at the start of August. After a rise of almost 25% during July.
Another surprise is the strength of the pending sale counts.
Ordinary home buyers are losing some of their motivation, thanks to prices that are vastly higher than last year. Despite low interest rates, affordability has slipped below the normal range for Greater Phoenix.
Home sales counts are still lower than last month and last year, but by much smaller margins than in July.
The monthly average $/SF dropped for the second straight month, but the fall was just 0.5% each month and we do not think this will be repeated in September based on the contracts that have been signed during August. However, it clear that the runaway appreciation we saw in Jan through May has been halted.
Other interesting indicators show mixed signals:
- The contract ratio jumped from to 155.4 to 175.1, indicating that the market has heated up over the last month
- The average closed $/SF was 0.68% higher than the list price, down from 1.47% last month – indicating that the market has cooled over the last month.
If it were not for the activity of investors, the market would have cooled during August. This would have been following the trend established since April. However, investors have purchased so many homes over the last month that they are significantly distorting the market dynamics. These homes are mostly going to be put back on the market, so we should certainly see increased supply over the coming weeks.
To achieve these huge increases in purchase volumes, investors have made offers well above the pricing that we saw from them prior to the third quarter of 2021. Since appreciation has been much weaker during this same period, it remains to be seen how they will be priced for re-sale. It is possible that either gross margins will have to fall or time on market will have to rise. Normal buyers no longer have the appetite that we experienced during the first quarter and early second quarter, so they are going to be more sensitive to pricing. Achieving sale prices well over cost could prove quite tricky.
Investors intending to rent out their properties are a different matter, and the rapid rise in rents over the past year has justified their spending. Indeed, far more homes are going from Investors straight to the rental operators than we saw prior to July 2021. This takes homes off the re-sale market for a long time and reduces supply.
Investors, too, can decide to stop their buying spree at a moment’s notice. The market is therefore more precarious than if demand were primarily growing through owner-occupiers.
Only time will tell what the true effect Investors are making in our market today.
Here are some market statistics for you:
- Active Listings – 6,873 versus 8,028 last year – down 14.4% – and down 3.3% from 7,105 last month
- Under Contract Listings – 12,032 versus 13,042 last year – down 7.7% – but up 8.9% from 11,044 last month
- Monthly Sales: 9,051 versus 9,213 last year – down 1.8% – and down 1.0% from 9,146 last month
- Monthly Average Sales Price per Sq. Ft.: $249.31 versus $194.97 last year – up 27.9% – but down 0.5% from $250.66 last month
- Monthly Median Sales Price: $401,000 versus $325,000 last year – up 23.4% – and up 0.3% from $400,000 last month