Sunday, June 26, 2022 / by Bryan Baylon
The last 2 months have been dismal for the Greater Phoenix housing market, with demand fading sharply and supply growing at one of the fastest paces we have ever witnessed. Either trend would have been negative but with both coming together we have had a very chilly wind blowing through the market.
For many weeks, we have been looking for some convincing sign of the relaxation of one or both of these trends. We have not found any. Instead, over the last week, the situation has turned significantly worse, at least from a seller's viewpoint. And it is worse from both a demand and a supply perspective.
There were just 1,558 accepted contracts during last week, down from 1,898 the week before and 2,274 during the same week in 2021. This makes it by far the least productive week in more than 2 years, if we exclude the week between Christmas and New Year, when most people are not signing contracts. It is even lower than during the first covid-19 wave in April 2020. That is worth thinking about for a moment. We now have fewer people signing a purchase contract than during a period when almost everyone was advised to stay at home for the sake of their health. This sort of collapse in demand is very unusual and with another round of interest rate rises likely within a few short weeks, it is difficult to imagine it improving in the near term. We have a full-on buyer's strike developing.
At the same time, more homes are being newly listed for sale than at any time since 2011. The active listing count (without a contract) rose 12% last week. We saw a 10% increase the week before, so the rate of increase in supply is accelerating, not slowing. We have 1,464 more homes for buyers to chose from than a week ago and 133% more homes available than there were 12 months ago. Over 200 a day is an excessive growth rate. We are witnessing a full-on seller's stampede.
We are not seeing forced selling, like we experienced during the foreclosure wave of 2007 to 2011. This is people electing to sell because they fear a fall in home prices. That fear is likely to be self-fulfilling. When so many attempt to make it to the exit door ahead of everyone else, people get hurt. The stampede for the exit is now large enough that it is certain to do significant damage to home values. We do not pretend to know how much prices will fall in numeric or percentage terms, but the latest data suggests that it is already impossible for home prices to rise under the current market conditions. As people get more anxious to dispose of their housing assets, price cuts are growing in number and size. The very top and bottom of the market are least affected, but the mid-range, where the vast majority of transactions occur, is experiencing a big freeze.
When a buyer's strike and a seller's stampede occur at the same time, the market stalls in mid-flight. A price correction becomes inevitable. The Federal Reserve has stated that they want to see a "reset in the housing market", and it looks increasingly likely that their wish will come true.
Market incites provided by the Cromford report.