During a meeting last week, one of our team members brought out a copy of The Real State newsletter from June 2014. It was like pulling the lever on a time machine to a decade ago—and an excellent reminder that, in every market, there will be challenges working through the system. In the current environment, inflation, interest rates, and low supply are the dominant themes in Phoenix housing.
Looking back to 2014, the pain from the Great Recession a few years earlier had started to fade, but housing demand was still weak and buyers had a slight negotiation edge after a balanced market earlier in the year. Median home prices had risen almost 78% since the lows of the housing crisis.
In 2014…
- Mortgage rates were around 4%; currently, they remain at around 7%.
- There were 22,000 active listings in Greater Phoenix; currently, there are about 16,000—and that represents an increase of 56% since last June.
- The monthly median sales price was $195,350; today, that number is $455,000.
Locked-in Homeowners, for Different Reasons
Oddly enough, like the current market, there was a sense that homeowners were locked in place. June 2014 had the lowest new listings since 2001. The reasons back in 2014, however, included: 1) a high percentage of homes being rented and providing cash flow to their investor-owners, who had no desire to sell and 2) homeowners who were waiting to sell because they were underwater—they owed more on their houses than they were worth. About 20.6% of homeowners were underwater at this point in 2014.
That’s a far cry from why homeowners are staying put now: persistent high interest rates and historic appreciation levels. According to real estate data firm Attom, more than half of Arizona homes are considered “equity rich,” meaning the owner holds at least 50% equity. That is significantly higher than the national average of 44%. In addition, the Attom report found the portion of mortgaged homes that were “seriously underwater” (i.e., loan balances are at least 25% more than estimated market value of the home) in Arizona is just 1.6%.
Midyear Pulse Check
Halfway through the year, the Greater Phoenix market has maintained balance, with demand 23% below normal and supply 25% below normal. It seems clear that rates still need to move closer to 6.5% for demand to improve in any meaningful way—although the Federal Reserve remains cagey about whether a rate cut might happen in September.
If history is a guide, we should see supply begin to rise again in September. In the meantime, the number of price reductions is up 81%. More than 61% of supply listed between $300K-$1 million posted a price reduction over the past 4 weeks; last year that measure was 52% in June. 41% of active listings over $1 million included price cuts, up from 33% last year.
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