AZ Market Update

Sep 29 - The number of cities with an improved CMI over the past month has increased to 6. Glendale, Mesa and Gilbert have joined Scottsdale, Tempe and Chandler but Paradise Valley has turned around and headed down again. Fountain Hills is down by the highest percentage, with Surprise and Goodyear just behind.

A mixed picture but the average monthly change in CMI was just -1.5%. This is the smallest monthly deterioration since the downturn started in March and another improvement on the week before when the reading was -2.5%. The deterioration has slowed markedly during the past six weeks but it has not stopped completely. The average decline over the last week was 0.7%, but this is not good news as it is larger than the last 2 weeks.

The situation in Phoenix, Scottsdale, Glendale and the inner Southeast Valley (Tempe, Mesa, Chandler and Gilbert) is noticeably better than in the areas further out. The inner areas are seeing demand fall less and supply grow slower.

Interest rates are now far higher than they were at the start of September and we anticipate weak contract signings as a result. However the supply of new listings keeps getting weaker and it appears higher rates are discouraging sellers almost as much as buyers.

The biggest problem this creates is a lack of transaction volume. This is not good for agents, brokers, mortgage lenders or title and escrow professionals. Appraisers, insurers and home inspectors will also be facing low volumes compared with the last 10 years. Their mood is likely to be very downbeat.

However the downward pressure on pricing is far less than it might be if new listings were flooding the market. iBuyers are still facing excessive inventory and selling it off cheaply, but compared with the overall market, their holdings are far lower than the huge foreclosure wave that hit us between 2007 and 2011.

This might not seem too positive a picture, but remember that we are at the despair phase of the housing cycle. Even the tiniest signs of progress will be swamped by negativity during this phase.

Sep 15 - Sellers can again celebrate - the number of cities with an improved CMI over the past month has doubled again since last week. Scottsdale and Tempe have joined Chandler and Paradise Valley.

The average monthly change in CMI was -5%. This is another improvement on the week before when the reading was -9%. The deterioration has slowed markedly during the past four weeks and CMI readings are barely falling now. The average decline over the last week was only 0.1%.

The same 4 cities remain over 100. They are all relatively expensive parts of the market and all in the Northeast Valley. This market remains much stronger than the market has a whole.

Goodyear has slipped into a buyer's market below 90, so we now have a majority of cities in a buyer's market, even though the market as a whole is balanced. The contrast between the top and bottom cities is unusually large.

The bottom 3 cities continue to deteriorate for sellers because supply is high and still increasing.

Sep 8 - Sellers can celebrate - the number of cities with an improved CMI over the past month has doubled. Chandler has joined Paradise Valley, though its rise over the past 31 days has only been 0.3. Scottsdale almost made that same group be missed by only 0.2

The average monthly change in CMI was -9%. This is another improvement on the week before when the reading was -15%. The deterioration has slowed markedly during the past three weeks and CMI readings are falling much less quickly now. The average decline over the last week was only 0.2%.

Only 4 cities remain over 100. They are all relatively expensive parts of the market and all in the Northeast Valley.

If we focus on the change in CMI over just the past week, then more cities edged higher:

  • Chandler up 3.2%
  • Paradise Valley up 2.2%
  • Scottsdale up 1.9%
  • Tempe up 1.5%
  • Gilbert up 0.9%
  • Phoenix up 0.6%
  • Glendale up 0.3%
  • Mesa up 0.1%

There is no doubt that conditions are stabilizing, at least for now. The worst areas for CMI falling in the last week were:

  • Goodyear -3.0%
  • Fountain Hills -2.5%
  • Cave Creek -1.8%
  • Avondale -1.7%
  • Surprise -1.6%
  • Buckeye -1.3%
  • Maricopa -1.1%

The new found stability is because demand is very low but creeping higher while supply has almost stopped rising in most but not all areas.

Sep 1 - The average monthly change in CMI was -15%. This is another improvement on the week before when the reading was -20%. Although we are still seeing a deterioration for sellers over the last month, most of that happened in the first two weeks (that is, the first half of August). The deterioration has slowed markedly during the second half of August and CMI readings are falling much less quickly now. The decline over the last week was only 1.2%. We also have our first city showing an improvement for sellers over last month - Paradise Valley. Carefree also looks healthier, but is far too small an area to generate the numbers we can use to create a CMI.

Only 4 cities remain over 100. They are all relatively expensive parts of the market and all in the Northeast Valley.

If we focus on the change in CMI over just the past week, then a few other cities edged higher:

  • Scottsdale up 1%
  • Chandler up 2%
  • Tempe up 0.1%

Falling most in the last week were Goodyear and Avondale, both down 4%.

The luxury market remains under-supplied and although the market is far weaker than it was 6 months ago, it remains healthy because there is less supply than demand, even with the much higher mortgage rates. It is also true that the very low-end of the market has weak supply so prices are firmer for the few homes still under $300,000.

It is the mid-range between $300,000 and $1.5 million that is seeing the most difficult conditions for sellers, particularly in the more-far-flung areas where new homes are available in larger volumes. The weakest markets are in Buckeye, Maricopa and the San Tan Valley. The latter area has no consistently defined boundaries with subdivisions being incorporated into the town of Queen Creek one by one. For this reason, we include San Tan Valley in Queen Creek for statistical purposes. To do otherwise would introduce statistical errors we cannot tolerate.

Supply is only rising slowly and is even falling in a few areas. Demand remains weak, but has picked up over the past three weeks. It remains sensitive to interest rate changes, so this revival in demand could easily peter out if rates jump higher again.

Overall, the picture is less gloomy at the start of September than we expected at the beginning of August. For that we can all be thankful.

Aug 25 - The average monthly change in CMI was -20%. This is another improvement on the week before when the reading was -25%. Although we are still seeing a deterioration for sellers over the last month, most of that happened in the first two weeks (that is, late July and early August). The deterioration has slowed markedly during the middle of August and CMI readings are falling much less quickly now. The decline over the last week was only 2.5%.

A few cities are even seeing their CMI rising in the last few days, including Paradise Valley, Chandler and Tempe. This is the first significant silver lining to the dark clouds that have hung over the market since April.

Demand has picked up in some areas, in the shape of increased numbers of listings going under contract. This is most noticeable in Chandler, Mesa, Phoenix, Tempe and Paradise Valley but has also occurred to a smaller extent in Glendale, Gilbert and Surprise.

In addition to improving demand, new supply has weakened to below normal. Only a few weeks ago, new listings were arriving at a very fast pace, but this seems to have subsided now.

Some areas remain heavily balanced in the buyer's favor, but overall, the market looks ready to settle into a more stable situation if current trends persist.

Paradise valley has overtaken Fountain Hills to make number one in our table. The top 4 slots are occupied by the 4 most expensive of the 17 cities.

Aug 11 - The average monthly change in CMI was -29%. This is another slight improvement on last week when the reading was -31%. Once again it is a large deterioration in a very short time, but there are more signs that the trend is slowing at last. Supply is growing more slowly and in a few areas has stopped growing entirely, at least for a moment. Demand is still very weak, but in a few areas it is stabilizing or even increasing slightly.

In the last week we saw an average change in CMI of -5.7%, and all 17 cities still declined. But if the negative weekly decline continues to reduce, we will eventually find one or more cities showing some improvement.

We have 6 cities in a buyer's market - Surprise, Tempe & Gilbert have joined Buckeye, Queen Creek and Maricopa. The reduced number of buyers now have a strong negotiating advantage with a large number of active listings to select from. However this negotiating power is not yet universally reflected in weaker closed prices. In particular, Queen Creek (which includes San Tan Valley) is maintaining strong closed price numbers, especially considering how unbalanced demand and supply have become. This is unlikely to last.

Above these 6 we have Chandler, Peoria, Glendale, Phoenix, Mesa and Avondale in a balanced market where the buyers and sellers have no particular advantage. This leaves 5 cities that are statistically in the seller's market zone with a CMI over 110. Only one of these is a large market - Scottsdale. One of them (Cave Creek) saw a relatively modest decline in their CMI over the last month of 9%.

The bottom 13 cities saw CMI declines of 24% or more but now there are none worse than -38%. The housing market is still deteriorating for sellers but it is getting worse at a significantly slower rate.

The top four, Fountain Hills, Paradise Valley, Scottsdale and Cave Creek are in a stronger position with supply still less than demand. However, Scottsdale prices have reacted more swiftly than the low-priced areas and averages and medians are weaker than you might expect. This pattern does not apply to Fountain Hills, which is not only still over 200 but is seeing very few signs of price weakness.

Aug 4 - The average monthly change in CMI was -31%. This is a slight improvement on last week when the reading was -32%. Once again it is a very large deterioration in a very short time. New listings have slowed down to a normal level. However a normal quantity of new listings is far more than the market can cope with, when demand is as weak as it is at the moment. Demand is falling at a slower rate and is even rising in a few places. However it is currently so far below normal that in most areas it will take a large increase to get back to the level where it can absorb a normal quantity of new listings.

We have 3 cities in a buyer's market - Buckeye, Queen Creek and Maricopa - the same as last week. In all three, the reduced number of buyers now have a strong negotiating advantage with a large number of active listings to select from.

Above them we have Gilbert, Tempe, Surprise, Chandler, Peoria, Glendale, Phoenix and Mesa in a balanced market where the buyers and sellers have no particular advantage. This leaves only 6 cities that are statistically in the seller's market zone with a CMI over 110. Only one of these is a large market - Scottsdale. Two of them (Fountain Hills and Cave Creek) saw relatively modest declines in their CMI over the last month of 15% or less.

The bottom 13 cities saw CMI declines of 29% or more but at least there are none over 40%. The housing market is still deteriorating for sellers but it is getting worse at a slower rate. This is particularly true of Phoenix itself. The next stage we are looking out for is for one or more of these cities to stop deteriorating and edge higher. This means their arrow circle will turn green and point upward. April 21 is the last time we had one or more cities showing green.

Gilbert, Tempe and Surprise look ready to become buyer's markets within days, while Avondale and Goodyear are likely to move into the balanced zone shortly.

Jul 28 - The average monthly change in CMI was -32%. This is an improvement on last week when the reading was -34%. It is still a very large deterioration in a very short time. New listings are still coming at us faster than last year, but not as fast as they were three weeks ago. Demand is still weak and showing only a few modest signs of stabilizing.

We now have 3 cities in a buyer's market - Buckeye, Queen Creek and Maricopa. Here buyers now hold a distinct negotiating advantage and have a total of 2,243 active single-family detached listings to choose from. This compares with 675 just three months ago. Because the majority of these areas cater largely to first-time buyers who are less experienced, it can take a few weeks for these buyers to realize how strong a hand of cards they hold.

Above them we have Gilbert, Tempe, Surprise, Chandler and Peoria in a balanced market where the buyers and sellers have no particular advantage. However astute sellers will realize that the situation is very fluid and slipping away from them. At the current rate of change, Gilbert will become a buyer's market by the end of the first week in August. Tempe is only a day or two behind Gilbert, while Surprise, Chandler and Peoria will probably become buyer's markets by mid-August.

Glendale, Phoenix and Mesa are seller's markets but within a couple of days will enter the balance zone between 90 and 110. At the current rate of change they will become buyer's market before the end of August. Goodyear and Avondale are 2 weeks behind these but unlikely to be still seller's market by the end of next month.

The 4 cities at the top of the table are in a different situation. The luxury market over $1.5 million is seeing far less of a surge in supply and although the market is deteriorating through weakening demand, the deterioration is much slower. However in Scottsdale, the less expensive end of the market is behaving similarly to the rest of the Greater Phoenix area.

Prices have looked wobbly for the last 2 months, but as buyers start to flex their muscles, we should be prepared for more serious consequences. While we cannot forecast accurately several months out, it would be reasonable based on current trends to expect significant declines in average prices, median prices and average $/SF by the end of 2022. Current trends can (and often do) change, so this is not baked in, just a reasonable base case.

We would not be surprised if the growth in supply started to slow down, but what is going to re-start demand? The most obvious answers are that either interest rates have to come down or home prices have to come down. Either or both of these can increase demand so we can get back to a balanced market again.

Jul 21 - The average monthly change in CMI was -34%. This is the same as last week and the week before. The week before that it was -35%.

The deterioration in the market for sellers continues with almost as much speed as ever. There has been a slight reduction in the rate of arrival of new listings, but it is still much higher than last year at this time. Demand has not stopped falling and listings under contract are exceptionally low for the time of year. Even our best performing city, Paradise Valley, has slumped 11% over the last month, but it may yet overtake Fountain Hills and grab the top spot, since Fountain Hills fell 18%, the second best result. Cave Creek is third and fell "only" 21%, which looks good by comparison with the other 14 cities which range from -30% (Avondale) to -44% (Glendale).

Buckeye is now a buyer's market by a large margin and Queen Creek is almost as bad for sellers. Maricopa is not quite there yet but it will be a buyer's market in 2 or 3 days. Gilbert, Tempe, Peoria, Chandler and Surprise are all going to be balanced markets within a few days and on their current trajectory they could be buyer's market by mid August. The largest market by far, Phoenix, looks like it will be balanced before the end of July and a buyer's market before the beginning of September. Glendale and Mesa are just a week or so behind.

The high end market is still holding out much better than the mid-range.

Only 3 cities are now over 150. A month ago we had 14. The market has changed dramatically for the worse over the past 4 or 5 weeks.

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