What market conditions favor buyers or
sellers? We watch the market month over
month with the number of homes selling, how many days on market, and is
appreciation going up or down? Which factors would favor the market to improve
for a seller or a buyer?
The following conditions would favor a
seller:
o
Number
of homes for sale slowing: Lower number
favors a seller. Less supply.
o
Number
of sales last month going up: Higher
number equals less supply.
o
Days
on market going down: Supply depleting faster.
o
Prices
going up: Obviously favors sellers.
o
Selling
for close to list price: Favors the seller.
The following conditions would favor
buyers:
o
Fewer
properties going under contract: More supply and choices.
o
Days
on market going up: More choices as
properties hang around.
o
Appreciation
and prices going down or slowing: Reductions in prices.
o
Success
rate of listings getting sold getting less: More leverage for buyers.
Many buyers lament over coffee that despite
the slowdown in the economy and the cost of borrowing money going up why have
prices of homes that ran up so high a year ago not come down more? Because supply/inventory is still very
low. Buyers have real power when they
have choices. Sellers have the upper
hand when they do not have choices.
Tina Tamboer market analyst for the
Cromford Report this May reports the following:
For Buyers:
The sharp decline in supply for
Greater Phoenix is a good reason for buyers to have a sense of urgency about
purchasing a home. Since the beginning of 2023, supply counts have been
declining at an average rate of 246 listings per week and since the peak in
October, total supply is down 42%. At this rate, the effects of the massive
supply surge last year will be erased and the year-over-year change will be
negative within 6 weeks. In fact, the Valley could see extremely low supply
similar to 2021 and 2022 within 7-8 months if a significant source of supply
doesn’t emerge.
While permits for new
single-family homes dropped by 74% over the last half of last year, they have
doubled since December. While that sounds encouraging, the build time for a new
home is estimated at about one year. So, as the builders move through their
permits and inventory from the first part of last year, there are fewer permits
from the latter half to significantly boost new supply for sale going forward
this year.
While prices are rising and
recovering from the 2022 decline, they’re not spiking right now. This is good
news. The appreciation rate since December is considerably more modest than
what the market saw from 2020-2022, which is significantly more sustainable.
Mortgage rate predictions,
meanwhile, are trending down. This month, organizations such as the Mortgage
Banker’s Association, Freddie Mac, Compass Bank and the National Association of
Realtors all declared expectations that rates may drop into the mid– to low– 5%
range by the end of the year. A decline in the conventional rate to the 5%
range could spur a surge in both supply and demand.
For Sellers:
Unaffected by mortgage rates, the
market over $1M has seen its 2nd best year in Greater Phoenix so far. May is typically
the peak of the market for buyer activity in the top tier price ranges, and
after local temperatures top 100 degrees, we tend to see a noticeable slowdown
as they flee to cooler climates. Expect to see a spike in luxury homes
cancelling or expiring their listings temporarily in June and then re-activate
them in the Fall.
If your home is under $600K, you
will want to keep an open mind about FHA buyers. Effective January 2023, the
loan limit for FHA was raised to $530K and effective March 2023, FHA announced
they were reducing the mortgage insurance premiums on their loans from 0.85% of
the loan amount to 0.55%. On a $400,000-$500,000 loan, the monthly savings is
about $100 off a buyer’s payment. Combine that with a 30-year fixed rate that
runs from a quarter to a half point below the conventional rate, and that can
knock off another $100 from the payment. With a possible $200 savings every
month, more well-qualified buyers are choosing FHA over conventional financing.
