We are starting to see more and more trends that indicate we are heading toward a balanced market.
For instance, Days on Market (number of days a home is listed for sale before going under contract) has surpassed 20 days for the first time this year. In January it was at 19, then dipped to about 16 in March and then 24 in May. Although the number of days on market is increasing, we won’t be considered a balanced market until we see the days on market somewhere between 120-135.
Another trend we are seeing is a shift in available inventory with our luxury market showing the biggest increase in inventory. Homes priced between $1,500,000 and $2,000,000 increased in inventory by 86% from April to May. Homes under $400,000 remain tight on availability with only a 1% increase in inventory from April to May.
The population of Buyers has also been changing a bit. Buyers purchasing property as a primary residence have declined almost 20% since last year (April 2021 to April 2022). Second home or vacation home purchases have declined about 8% in the same period. On the other hand, investment property purchases (homes intended to be rentals) have increased almost 9%.
This population mix is interesting for a few reasons. People who want to purchase a primary residence may need to sell their current home to be able to afford their next home. Many people who want to move are wary their home may sell quickly, leaving them little time to select their replacement property. With an increase in inventory, on the horizon, sellers may find more comfort in selling their home, knowing they will have more options of what they can buy.
With the increase of Investor purchases, the indication is that investors want to purchase sooner than later as prices are expected to continue to rise, although at a much more modest rate. There is also an expectation that the demand for rental homes will rise for a few reasons. As interest rates increase, some Buyers will be putting their purchase plans on hold, as they can no longer afford what they were hoping to buy, so we’ll have people remaining in rental properties for longer than desired. Our job market also remains strong with new job growth, which means more relocation and more demand for rental homes.
Whenever we start to talk about a shift or change in the market, it seems the immediate reaction is concern that home prices may drop, but instead there are reasons to be optimistic. My personal take is that we’ll see prices flatten as a reaction to the increased interest rates and values in our market will stabilize.
Although the signs of a shift continue, we are still a ways away from balance. This remains a Seller’s market, but it’s great to see added inventory and more choices for Buyers. While the supply and demand imbalance heads in the direction of balance, we are seeing that home prices continue to rise, though at a much slower and modest rate than we’ve seen over the last year.
The Greater Phoenix Area real estate market remains strong with several key factors that remain in place. We are the number one relocation destination in the country due to our climate, our job opportunities increasing, our cost of living remaining relatively low compared to other parts of the country, and we recently saw that Arizona had 8 of the 10 most recovered cities in America from the pandemic. Arizona continues to draw relocation buyers, second home buyers and retirement buyers.
The last year has been full of crazy headlines, record-breaking sales and stories. That said, I believe it’s healthy to see things slow down a bit. While it’s great to see our home values increase, it’s healthy to see the pace of the increase slow down. The reality is that we can’t sustain rapid paced growth for the long haul, so it’s good to see things head towards normalization. Our normal market has always been a great market too.