May month end tid-bits
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:
- Number of homes for sale slowing: Lower number favors a seller. Less supply.
- Number of sales last month going up: Higher number equals less supply.
- Days on market going down: Supply depleting faster.
- Prices going up: Obviously favors sellers.
- Selling for close to list price: Favors the seller.
The following conditions would favor buyers:
- Fewer properties going under contract: More supply and choices.
- Days on market going up: More choices as properties hang around.
- Appreciation and prices going down or slowing: Reductions in prices.
- 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:
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.
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.