The Metro Phoenix housing market has heavily favored home sellers since the start of the decade as more people moved to Arizona and the pandemic scrambled the status quo. The S&P CoreLogic Case-Shiller Index’s most recent release shows that home prices in Phoenix rose 17.1% from August 2021 to August 2022. In the past few months, however, the dynamic has started to shift. Andrea Crouch, president of Phoenix REALTORS, notes that prices are beginning to go down.
“It’s simply a supply and demand issue,” she says. “The iBuyers have evacuated here, so that’s left actual owner-occupants to be the buyers, but the increase in interest rates has made it more challenging for them. That’s the reason we’ve seen that dip, but the bottom is not going to fall out by any stretch. It’s just turning into a more normal market, which is just fine.”
One of the indicators that tracks whether the Metro Phoenix housing market is tilted towards buyers or sellers is the Cromford Market Index. Rich La Rue, a broker with HomeSmart, explains that the index takes into consideration business done through the day prior.
“Today’s [Sept. 6] chart is at 105.3,” he says. “100 is considered a perfectly balanced market, but really anything from 90 to 110 Cromford considers balanced.”
In the two months since speaking with La Rue, the Cromford Market Index has slid to approximately 92, approaching buyer’s market territory. As the Greater Phoenix housing market returns to a semblance of normalcy, what does that mean for buyers and sellers as 2023 approaches?
The Phoenix housing market advantage
Stories abound of how in the last two years, would-be buyers faced fierce competition as homes would receive dozens of offers above asking price within days — sometimes hours — of being listed for sale. Trevor Halpern, CEO of Halpern Residential at North&Co., says that intense demand and low supply of homes dramatically increased the power of sellers, but the negotiating disparity is now waning.
“Both buyers and sellers have a reasonable shot at succeeding in this marketplace,” Halpern says. “When [the market is] balanced like this, everyone knows that they’re going to need to come to the table. We see some winners and some losers on both sides, as opposed to six months ago when the buyers were always on the short end of the stick.”
For sellers, Crouch advises that homeowners adjust their expectations to match the change in bargaining position. The days of every home getting multiple offers just because it’s for sale have passed, but she says that people can still fetch a solid price if the right steps are taken, such as having high quality photos of the entire property.
“We’re back to having one opportunity to make a good first impression, so you should make sure your home is show ready and have a trusted real estate professional who will guide you through preparing your home for sale,” Crouch notes.
Since people are no longer willing to pay tens of thousands of dollars over asking price like they were a year ago, La Rue suggests that sellers consider offering concessions such as a home warranty or allowing for an appraisal contingency.
One of the best things buyers can do, according to La Rue, is to get preapproved for a loan because sellers are always looking to reduce uncertainty when putting their house under contract. In a rising interest rate environment, he adds that buyers can flex their bargaining power by asking for an interest rate buydown.
“A simple 2-1 buydown costs the seller 3%,” he says. “I’m using rough numbers here, but what that means for the buyer is instead of having a 5.5% [mortgage] loan the first year, they’re paying 3.5%, then 4.5% the second year and 5.5% for the remainder of the loan.”
One of the reasons that buyers and sellers are on more equal footing comes down to the supply of homes. According to Realtor.com’s residential listings database, the Phoenix Metro area has risen from 4,688 active for-sale listings in January 2022 to 16,778 as of September 2022 — a 257% increase. The boom in homes available has occurred because of the rising cost of borrowing money, Halpern notes.
“When interest rates rose dramatically over a compressed period of time — from about 3% into the 5% range within 60 days — it was like buyers went on strike. Sellers panicked because they were thinking, ‘We’ve hit the [market] peak so we need to sell right now,’” he says.
Simultaneously, demand sputtered since buyers who were qualified at lower interest rates could no longer afford the monthly payments for the homes they were considering purchasing, so they backed out. This pushed the average time on market up to 40 days, which Crouch says is still relatively low compared to years past.
“When sellers had to sift through 30 offers trying to figure out which one was going to get all the way to closing, buyers had to act so quickly they didn’t have a chance to think,” she says. “The chaos wasn’t good for anyone.”
Tucker Blalock, managing broker & co-founder of The Brokery, has noticed that buyers don’t feel the need to make an offer immediately anymore. “People will come into one of our houses and love it, then say, ‘I’ll get back to you next week.’ There’s no sense of urgency,” he says. “Buyers are exhausting all their options before making a decision now, rather than jumping on the first one they see.”
Even though more homes are being listed, Halpern says that the pace has settled into a more normal range, and that concerns about institutional investors flooding the market with “shadow inventory” are largely unfounded.
“We’ve seen blips of movement, with units changing hands between hedge funds and big companies such as Zillow, but we haven’t experienced a massive dump of properties within our marketplace that would affect pricing on any large scale. They would have to list thousands of homes suddenly to do that,” Halpern says. “Unless [these entities] can figure out an exit that makes sense for their investors, they’re not going to do that because Wall Street will beat them up for it.”
Looking to 2023, no one can foresee whether home prices will rise or fall, but Blalock advises that people should focus on the primary function of their home and try to ignore the instinct to time the market — something he and Halpern both agree is unwise if not impossible.
“Don’t think that the real estate market moves like the stock market. While it has been more volatile over the past couple of years, things will normalize as they have over the past few months,” Blalock concludes. “Keep a longer-term approach, especially when it comes to your primary residence, which should be looked at as somewhere to live and enjoy, not strictly as an investment. If you’re comfortable with the payments you’re making on a monthly basis, there’s no reason to fret.”