Phoenix, Scottsdale, Paradise Valley Real Estate Market Report- 10/31/22

No matter if you are a homeowner or not, if your goal is to buy or sell a home in the near future, you need to stay informed with the most thoughtful and accurate information about the market.  As most of my clients know, I’ve been sharing my thoughts and the thoughts of other industry leaders on where the market is and where is it likely going.  One source I’d like to highlight today is the monthly report from The Information Market by Tom Ruff and published by ARMLS Copyright 2022.  There is also commentary by Tina Taboer of the Cromford Report.  Her analysis is extremely invaluable to the leaders of real estate market.

You can choose any of the following: an “optical illusion”, maybe a “mirage” since we live in the desert or, like
the recent political advertisements, “deceptive”. Whichever wording you choose, October’s reported home prices
are not as they appear. The prices of the past month’s closed sales do not reflect the contracts homebuyers are
signing today, but instead reflect the signings in August and September. In October, ARMLS reported a median
sales price of $438,000, a modest decline from September’s metric of $439,000. However, prices are falling much
faster than these numbers suggest, as seller concessions mask the “actual” prices. Here are October’s key metrics
as reported by ARMLS:
• Monthly Sales volume down 36.6% year over year.
• New Inventory down 18.6% year over year.
• Pending Sales down 45% year over year.
• Total Inventory up 96.6% year over year.
• Total Inventory up .9% month over month.
The Federal Government has been raising rates to slow inflation, with housing being a primary target. With
the latest sharp increase, the 30-year fixed mortgage rate has surpassed 7%. This latest rate increase will be
visible in November and December’s closings. Also, as the Federal Government slams on the brakes, buyers and
sellers have shied away, translating into fewer new listings, fewer sales and lower prices. To explain our current
market conditions and sentiment, let’s turn to Tina Tamboer of The Cromford Report as she splendidly unwraps this
anomaly from both a buyer and sellers’ perspective, while also shining a light on seller concessions.

Tina’s Take
One by one, most cities in greater Phoenix succumb to a buyer’s market as 44% of October sales involved a
seller-paid concession to the buyer.
For Buyers:
Greater Phoenix as a whole has been in a balanced market since August but is expected to glide into a
buyer’s market by mid-November. Buckeye, Maricopa, and Queen Creek entered a buyers’ market in July. Surprise,
Chandler, Gilbert, and Tempe followed in August. Goodyear, Peoria, and Avondale joined in September with Mesa
and Goodyear falling in line by October. Phoenix is expected to succumb this month within a matter of days. The
only holdouts remain in the Northeast Valley cities of Paradise Valley, Fountain Hills, Cave Creek, and Scottsdale.
The 2022 peak of price was achieved in May, which was the result of contracts accepted in late March and April.
Starting in June, sales prices revealed their decline in response to mortgage rate increases. At the end of October,
the decline in average sales price per square foot since May was recorded at -9.1%, but still positive year-over-year
at +5.7%. The largest declines happened between June and July at -4.5% and between August and September at
–3.6%.
Mortgage rates have stabilized between 7.0-7.3% for the past 6 weeks, all of October and November-to-date,
and continue to keep buyer demand low for now. This provides an opportunity for buyers as more sellers agree to
contributing to closing costs and rate buy-downs. October sales saw 44% of sales involve a seller contribution to
the buyer at closing, with a median contribution of $7,400. Closings in the first week of November showed a median
contribution of $9,000.

The tricky thing is that these seller-paid concessions are not recorded with the sales price. It’s common to
see a buyer offer a higher price in exchange for closing cost assistance or a rate buy-down. This tactic can make
the sales price measures appear to drop slower or even stabilize as the cost to the seller increases underneath that
number on the settlement statement.
The flaw in waiting for the market to bottom out before purchasing is that no one knows they’re buying at the
bottom when they buy there. The bottom, or top, of the market does not become apparent until 3-4 months after
the contracts were written. By the time most buyers figure out that the market hit rock bottom, they’re too late to the
party.
For Sellers:
While the environment has turned quickly away from a seller’s market to an impending buyer’s market, and
the cost to sell has increased significantly for sellers, most are still walking away from the closing table with a profit.
While most reports are focused on short-term price drops since May, or smaller year-over-year appreciation
rates, appreciation rates for homeowners who have owned their home for at least 2 years are still impressive.
Approximately 65% of MLS listings, excluding new construction, have been owned for 2 years or more. Appreciation
rates based on sales price per square foot through the MLS are: 2 years: +33.6%, 3 years: +59.9%, 4 years:
+68.1%, 5 years: +84.8%.

Fewer sellers are opting to sell in this market. Since the tipping point in June, weekly accepted contracts have
fallen 36%, counterbalanced with a 34% decline in weekly new listings. Historically, October typically adds about
10,000 new listings to supply, but this October was the lowest recorded at just 7,334 new actives plus 188 in Coming
Soon status, a record low for the month. This has caused supply to stagnate over the past 4 weeks and is a small
relief for existing sellers. When supply self-regulates in response to lower demand, it puts less downward pressure
on price. Not to say prices will not decline, they will, but it would be worse if supply were also rising. Contracts
written in November and December will close in January and February next year. As Greater Phoenix glides into a
buyer’s market this month, year-over-year appreciation rates are likely to turn negative in 2023.
Generally speaking, neither sellers nor buyers prefer to engage in real estate during times of uncertainty.
Dramatic fluctuations in mortgage rates combined with insecurities surrounding inflation and unemployment have
pressed pause on housing decisions for many sellers and buyers alike, for now. If mortgage rates drop, they’ll get off
the fence.