September Market Report

What a difference a year makes! The real estate market looks very different for buyers and sellers as we enter the final quarter of 2022.  For buyers, the good news is that price reductions are on the rise. When mortgage rates hit 7% about a week ago, a whopping 4,427 price reductions were recorded in the Greater Phoenix housing market. This represents nearly a quarter of all active properties in the MLS. More than half of those price reductions were by $12,000 or more. 

Sellers are becoming more accommodating on more than just price. In September, 1,372 sellers provided closing cost assistance to buyers, with the median concession equating to $7,000. Last June, only 316 closings involved closing cost assistance - that's a 334% increase! Online sellers, such as Open Door, seem to be particularly aggressive in offering concessions, with 77% of their sales involving closing cost assistance. 

According to Tina Tamboer, Senior Housing Analyst with The Cromford Report, "Closing cost assistance is expected to continue to rise into the 4th quarter as mortgage rates continue to stay high and stifle demand for the time being. Aside from paying the buyer’s costs for title insurance, pre-paid taxes, insurance, lending fees, and other closing costs, seller-paid concessions can also be used to buy down a buyer’s mortgage rate, if applicable, and ease the pressure on their monthly payment." 

While the higher interest rates are not a boon for buyers, as sellers become more flexible in negotiations, buyers may be able to offset some of the pain of interest rates with other benefits.

For sellers, the hike in interest rates has suppressed buyer activity to levels not seen since 2008.  This just really isn't a great time to sell, if you don't have to. Don't mistake this for 2008, though. Back then, the mortgage meltdown forced sales en masse. The good news for the market is that sellers today are not in a similar position, and have a choice on whether or not to sell. In fact, many have already retreated to the sidelines - we are currently seeing the fewest new listings come to market this time of year since 2001! 

Fewer listings right now are actually a good thing.  In order to maintain some semblance of balance, we don't want supplies to spike, which would put increasing downward pressure on prices. With listings slowing in tune with the reduction in contracts, a delicate balance is achieved. 

"Prices hit their peak in May, shortly after mortgage rates hit 5% and before they peaked over 6% in June. Once that happened, buyer demand dropped dramatically and the reflection in prices started to show a trend downward. Now rates are near 7% and sale price per square foot is down 9.6% over the course of 4 months, currently measuring less than 1% higher than January 2022 and representing the elimination of appreciation achieved from January through May," says Tamboer for Cromford Report.

For buyers who bought in 2022, losing the most recent price appreciation may be a bit disappointing. The good news is that two-thirds of the current sellers in the MLS have owned their homes for at least two years. Even though prices are currently down, home values are still up 40.3% (price per square foot) between September 2020 and September 2022. With median sales prices in the Greater Phoenix area are up $112,000 in that two-year time period, sellers still have significant equity to manage buyer demands for accommodations. 

Going into the 4th quarter, we are expecting the Days on Market (DOM) to continue to increase. This is normal for this time of year, as we head into the holiday season. Historically, DOM averages around 44-56 days, with many listings going even longer. There isn't any reason for concern, as we would consider this to be a very normal seasonal change. 

"The key words for sellers in this 'new' market are condition, price, concessions, and patience," says Cromford's Tamboer. All data is courtesy of the Cromford Report.

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