Real Estate

Housing market situation gets ‘desperate’ for buyers

BY PAUL MARYNIAK

Executive Editor

The word du jour for the Valley’s housing market is “desperate,” according to a leading analyst of the Phoenix Metro region.

“This market desperately needs more homes to buy,” the Cromford Report said last week, adding that “without a signifi cant increase in the number of homes for sale, any hope of halting the brisk rate of price increases is likely to be crushed.”

And brisk it is, according to the Cromford Report’s rating of home prices in the Valley’s 17 major cities that is based on a variety of factors to create an index in which the higher the number above 100, the more the market is tilted in sellers’ favor.

In 11 of those 17 cities, Cromford’s market index was above 400 with Fountain Hills leading the way at 703. Chandler was at 426.

Even more startling, according to the most recent Cromford Market Index, eight cities saw their market position increase by more than 20 percent in a month. Those cities included Tempe, Goodyear, Surprise, Phoenix, Gilbert, Avondale, Queen Creek and Scottsdale.

Stating “the momentum in favor of sellers is growing,” the report noted “some increase in the number of homes available to rent.”

But those are houses that big investors took o the market and converted into rental. Additionally, it said, many brand-new homes are being purchased to either convert into a rental or to immediately fl ip for a profi t.”

Simply put, it added, “demand is not the controlling factor.”

“The market is showing almost no sign of turning in favor of buyers,” the report said. “The bad supply situation is getting worse. Or at least worse from a buyer’s perspective.”

“In January we should be seeing a lot of new listings piling up ready for the surge of buyers arriving after the Super Bowl is done,” it continued. “But we are not getting more supply, it is already going lower than at the start of the year.

“This is quite a shock, but not exactly unprecedented. It happened in January 2021, but that was a precursor to a spring of absolute madness and frenzy. This is telling us that the bull market in housing has a lot of legs in it yet.”

The Cromford Report only a year ago expressed concern about housing inventory and cited several examples of how the situation has worsened: Paradise Valley plummeted to “an all-time low of just 93 single-family homes for sale,” almost half the number available in January 2021.

“Scottsdale is down to 344 single-family homes for sale. There were 569 this time last year,” it continued. “Mesa is down to 314 single-family homes for sale There were 483 as recently as Oct. 3. Phoenix is down to 777 single-family homes for sale. There were 1,095 just one month ago.”

It’s not a matter of huge demand, either, although the Cromford Report said it was high.

“What is unusual about the current housing market is the chronic and extreme shortage of supply,” it said. “When buying a house, it feels like ‘high demand’ because there are far too many buyers for every house. The fact is this is due to there being so few houses available to buy. The number of buyers is only somewhat above average.”

There are some bright spots – in Pinal County, it noted, adding, that there, “supply is still very low, but not as low as in Maricopa County.”

Prices also are refl ecting the tightening supply, according to the Cromford Report, which noted that the average sales price per foot in December was $267.31 – a 26.4% increase over the $211.44 per square foot in December 2020. The median sales price of a house in the Valley was $425,000 in December – a 28% increase of the December 2020 median price of $332,000.

“The downward trend in supply that started in late October accelerated throughout December, taking us to the lowest number of active listings at year end that we have ever recorded,” it added.

This home on E. Oakwood Hills Drive, Sun Lakes, recently sold for $3.95 million. The eight-bedroom, nine-bath home, built in 2000, has 9,748 square feet and a stunning array of amenities that include a 1,1000-bottle wine cellar with an adjacent dining room, a 12hoot walk-in refrigerator, theater room, mother-in-law quarters, game and a sitting room with a 250-gallon salt water fi sh tank overlooking a lake. (Special to SanTan Sun News)

Rising mortgage rates add to buyers’ woes

SANTAN SUN NEWS STAFF

Buying a home just became a lot more expensive – and it’s expected to only get worse in the coming months.

Mortgage interest rates surged to their highest point since March 2020 – the earliest days of the coronavirus pandemic – indicating that the heady era of locking in rates in the 2% range on a traditional home loan appears to be defi nitively over.

“That’s a triple whammy hitting potential homebuyers,” said Len Kiefer, deputy chief economist at Freddie Mac. “People are looking at higher prices, there’s slim pickings in inventory and now we have higher mortgage rates.”

Plus, many buyers are already grappling with rising rents, soaring infl ation, and bidding wars pushing record-high home prices up even further. And it’s just the start of what real estate experts believe will be additional rate increases at a time when the housing shortage is expected to keep home prices high.

While rates haven’t even risen a full percentage point, from a low of 2.65% in early January 2021, the impact that higher rates can have on homebuyers quickly adds up. The di erence of just 0.8% will tack an extra $130 a month onto the mortgage payment of a median-priced home of $375,000. (This assumes the buyers put 20% down and took out a 30-year loan.)

Will home prices fall in response to higher mortgage rates?

Most experts believe that won’t happen because there are still hordes of buyers competing for homes during a severe housing shortage. Unless an infl ux of homes hits the market, prices will remain high and rising.

Instead, the pace of price growth could slow down, argue some real estate experts.

George Ratiu, manager of economic research at Realtor.com, believes prices will continue to rise, but in the low single digits instead of the 15% annual rise seen last spring.

“With higher rates, there will be fewer buyers who can qualify for a mortgage this year,” said Ratiu. “This is going to slow down demand and take pressure o fast-rising prices. The buying and selling process will begin to look more normal. We can expect to see less competition and more price reductions.”

One of the biggest culprits behind the rise of mortgage rates is infl ation, which hit 7% last month – its fastest rise since 1982.

“If infl ation continues to grow at the current pace, rates will move up even faster in the following months,” said Nadia Evangelou, a senior economist and the director of forecasting at the National Association of Realtors.

However, the Federal Reserve is taking steps to curb infl ation, which could keep rates at least somewhat in check.

The other reasons rates are up are more complicated.

Lenders need money to make new loans. So. to free up capital, they’ll often bundle up the loans they’ve made together and sell these mortgage-backed securities on the secondary market to investors. They’re viewed as safer investments that won’t generate the big profi ts investors can reap in the stock market.

When the economy is shaky, investors often move money out of the riskier stock market and into bonds, driving up prices. Since mortgage rates generally move in the opposite direction of bond prices, “when investors sell bonds, rates rise,” said Ratiu.

Lately, investors have been more bullish on the economy, so chasing higher returns they’re pulling money out of bonds and putting it back into the stock market. In addition, the Federal Reserve is winding down its purchases of mortgage bonds.

The result: Bond prices are falling and mortgage rates are rising. Rates are expected to keep increasing as infl ation sticks around and the Fed won’t be helping to prop up the mortgage bond market.

While this is unwelcome news for buyers, real estate experts urge buyers to remember that, in historical terms, rates are still low. They hovered in the mid-4% range in 2018 and bounced around in the 5% and 6% range in the aughts, starting the millennium with rates over 8%. In the early 1980s, rates hit about 18%. Realtor.com provided this report.