Affordability is determined by 3 things: family income, 30-yr mortgage rates, and sales price. Price is not the only factor that needs to change to push affordability back to a normal state. For example, for the current median sales price of $418,000 to be considered affordable to a family making the median income of $88,800 in 2021, mortgage rates would have to drop to 3.35% or, the median income would have to increase to $119,000 per year. Both of those scenarios are too extreme to expect in a short amount of time. However, it’s reasonable to believe they will meet somewhere in the middle in 2023.
We can see that mortgage rates have a stronger chance of reversing affordability issues faster than any other factor and can mean the difference between a 20% drop in prices and a mere 3% drop. The only experts who can accurately predict the direction of sales prices are those who can accurately predict mortgage rates. However at this stage, mortgage rates are still volatile and hard to predict.
If rates rise, prices will have to drop more to reach optimum affordability. If rates drop, prices will not have to drop nearly as much. The best advice for buyers is to stay engaged with where rates are on a daily basis and be fully educated on lender programs and seller incentives available so that they can be the first to act when the property and the payment is right for them.
Welcome to an official Buyer Market in Greater Phoenix, albeit a weak one, for the first time since 2010. As expected, the city of Phoenix finally succumbed to a Buyer Market mid-November, thus classifying the entire market as such. (The northeast cities of Paradise Valley, Scottsdale, Fountain Hills and Cave Creek are all still either Balanced Markets or mild Seller Markets.) While market indicators were plummeting from an extreme Seller Market to Balance between March and June, the trip from Balance to a Buyer Market from July to December has been more like a gentle glide.
Median sale prices began showing a decline after May and as of this date are down 12%, essentially erasing appreciation gained since November 2021 and resulting in a 1.6% negative year-over-year median change.
From here on out, expect reports of negative annual appreciation rates every month as each measure will now be compared to the first half of 2022 price measures which were extraordinary.
Moving into 2023, even if mortgage rates stay the same, it is expected that contract activity will increase seasonally as it does every year. Rate buy-downs will remain a key factor in buyer incentives unless rates decline. However, after a long 4th quarter sellers should be able to enjoy more traffic, fewer days on market, and serious buyers in the first half of 2023.
Commentary provided by Tina Tamboer, Senior Housing Analyst with The Cromford Report
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