AUGUST 2021 – PHOENIX ARIZONA REAL ESTATE
The number of homes for sale continues to move higher. We would usually consider a 24.7% increase in one month to be an exceptional growth rate. However, we are coming from a historic low number of listings and the number of active listings without a contract is still down 75% from what would be considered normal. We are witnessing new listings arrive at a faster rate than we usually see at this time of year, especially those priced between $400,000 and $1 million. This is helping buyers, but there are still far more buyers than homes for sale.
In contrast to what you might be reading or watching describing demand as exceptionally strong; demand is only slightly above normal and has been getting weaker over the last several months. This is obvious both from the current pending home sale count (down compared with last month and last year) and from the monthly sales counts (down compared with last month and last year). If demand were strong, then all these numbers should be responding to the increase in supply. They are not.
Most majority of market commentators have not grasped that demand is not the issue. Interest rates are not the issue either. Everything today is about supply. Even after a rise of almost 25% there is nowhere near enough supply to take the stress out of the market.
The current buyer pool has also changed since the start of the year. Owner-occupiers are down, while second-home buyers are up, particularly those from out-of-state. Also, more active are investors of all types.
Over the last year, prices have not been rising because of strong demand or low interest rate, as often stated by the media. They have been rising because of extremely poor supply. Buyers do not pay more for a home because they can. They pay more because they have too. Multiple bids make them pay more unless they drop out. Low interest rates merely allow them to compete. If there were more homes for sale, they would get the home for less than the asking price. During July the average buyer had to pay 1.4% over the asking price.
New home builders currently experience elevated demand because so many buyers have given up on trying to find a re-sale property. But the demand they perceive is due to the low supply of re-sale homes, not some unusual buildup of buyer demand. The new and re-sale markets are not separate because almost every buyer can switch from one to the other based on personal decisions. Buyers are spilling over to the new home market that would normally have chosen a resale home.
The market remains hot but has been cooling for 4 months, prices have been leveling off over the past month. This is consistent with the seasonal trend that weakens prices during the third quarter in most years. It is caused a by a slowdown in high end sales during the hottest months (May through September). We did not see that effect last year because of the lock-down, but this year we expect the third quarter to be nothing like the explosive second quarter. There is still no long-term downward pressure on prices and this pressure is unlikely to emerge until supply rises much higher than current levels.
Market Summary for the August
- Active Listings – 7,105 vs. 8,477 last year – down 16.2% – but up 24.7% from 5,699 last month
- Under Contract Listings – 11,044 vs. 12,332 last year – down 10.4% – and down 2.9% from 11,378 last month
- Monthly Sales: 9,131 vs. 10,544 last year – down 13.4% – and down 10.3% from 10,179 last month
- Monthly Median Sales Price: $400,000 vs. $315,000 last year – up 27.0% – and up 0.8% from $397,000 last month