The Federal Reserve held the fed funds rate steady at their July 31 meeting, but that did not stop mortgage rates from dropping since last month’s recap of the Phoenix residential market. The July CPI inflation report came in lower than expected at 3.0% and mortgage rates fell to 6.81% by the end of the month—which represented a four-month low. Then, in the wake of a worse-than-anticipated jobs report on Friday, August 2, stocks plunged in the following days across all the major markets while the 30-year average mortgage rate fell even closer to 6%—the lowest levels since spring 2023—during the first full week of August.
The Fed, of course, is not the only factor in determining mortgage rates and expectations for a cut in September may already be baked into the cake. Optimism for further mortgage rate decreases, however, is being fueled by pessimism in the job market. As Wall Street gets nervous about unemployment numbers creeping up, possibly triggering a recession and a decline in the stock market, some investors will opt for the safety of bonds. If that trend manifests, bond rates could decline along with mortgage rates. The next meeting of the Fed is September 17-18—although some market observers are clamoring for a rare emergency rate cut before then.
Beyond the mortgage rates themselves, Phoenix remains in an inventory-driven market, staying mostly stable with pockets of increased new listings in some areas. In neighborhoods with low inventory and high demand, buyers remain willing to step up and make a deal happen. From a seasonal perspective, the start of the school year means families are getting settled in rather than thinking about making a move; meanwhile, the luxury buyer base will not become active again till October rolls around. Once interest rates decrease sufficiently—and they will at some point—we can expect more inventory to hit the market, particularly from homeowners who have been locked in, unable to make a move up or laterally.
What else are we observing in the Greater Phoenix residential real estate market? Here’s a quick peek at the highlights:
- Supply is up 61% over last year now but has remained stagnant for 10 weeks.
- List prices decline every year from May through July due to high cancellation rates in the luxury market, which has an outsized impact on overall average list prices. For homes under $1 million, the price needle has barely budged and the pool of active listings is constantly turning over. For every listing with a reduction or cancellation, another brand-new high-priced listing appears to offset it.
- Demand continues to struggle, but further rate drops could make a difference during the remainder of summer. For example, the unseasonal bumps in contracts in August 2021 and 2022 were both fueled by brief declines in mortgage rates.
- Not-so-perfect buyers—those with contingent home sales, utilizing downpayment assistance, low- or no-downpayment loans, or wishing to assume an existing sub-5% FHA or VA mortgage—are finding more sellers willing to consider their offers. (A year ago, they would’ve been rejected outright.) Sales with seller concessions had 51% market share of all sales in both June and July, up from 43% last year, with a median contribution to the buyer of $9,600.
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