April month end tid-bits
The market continues to improve.
- Sales volumes remain much lower than a year ago, largely because institutional investors and iBuyers (companies such as Opendoor or Offerpad that act as a cash buyer) are missing in action on the buying front. A year ago, they were competing frantically, which they probably now regret. However, sales in March are up 32% from February and only down 25% from March 2022.
- iBuyers create 2 transactions instead of one, so transaction volumes will fall when they stop (or almost stop) buying. Demand from normal buyers weakened in March, mostly due to higher interest rates. But these interest rates are lower again in early April, and the drop in demand has been overwhelmed by the sharp drop in supply.
- The balance between supply and demand has been moving consistently in sellers’ favor since mid-November. This confirms we are in the rebound phase of the correction that dominated the second half of last year and created an atmosphere of fear throughout the market. That fear can now be replaced with relief as one market signal after another turns positive and resumes a normal trend.
- Despite the doomscrollers on social media and elsewhere, today’s market is healthier than it was in April 2019, which at the time we were perfectly comfortable with. Casual observers tend to worry about factors which can cause weakness in demand, then forget to balance that with factors that can cause weakness in supply. Right now, supply is weakening much faster than demand, so interest rate movements are no longer the key thing driving the market. Supply is just as important as demand.
- The USA is unusual in having a very large percentage of its existing mortgage loans at fixed interest rates. In most countries, most mortgage loans have adjustable rates. This means loans written more than a year ago look very cheap compared with new loans. If they have a primary residence, selling that home means killing a very cheap mortgage and giving birth to one with a more expensive new rate. Most people do not want to do that.
- In 2022 we saw a flood of supply from investors, speculators, panicking iBuyers and the like, but this wave has exhausted itself. We are back to a chronic shortage of homes to buy. We have less than 14,000 available, which is about 40% below normal. Demand is indeed weak, but it is only 18% below normal. Do the math.
- Add in the panicked buyers who purchased homes in 2021 feeling like a gun was held to their heads, sometimes sight unseen who after living in the home a year or two feel like they made a mistake. Now getting out involves a reduction in what they paid, and a quite different interest rate and buyer environment. If expectations are in alignment with the current market, demand is out there.
- Foreclosure activity remains minuscule. There is little sign of much new supply coming from that direction anytime soon.
- New construction permits for single-family homes are currently low, so there will be limited new supply from builders for a while.
- Sellers have recently been offering generous incentives including substantial interest rate buy-downs. Those incentives are likely to reduce in value as sellers start to realize they have the upper hand in negotiations in the balancing market.
Commentary contributed by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2023 Cromford Associates LLC and Tamboer Consulting LLC
May 1 market snapshot The Verdes since last month:
Active listings: 22 up from 20
Under contract: 15 down from 21
Sold: 100 up from 86
Days on market: 43 down from 77
Months of Supply: 2.81 down from 3.41
May 1 market snapshot Fountain Hills since last month:
Active listings: 123 down from 128
Under contract: 86 up from 57
Sold: 36 down from 45
Days on market: 70 up from 57
Months of Supply: 2.76 up from 2.75