During the first 3 weeks of January, home sales in metro Phoenix were down 14% compared to the first 3 weeks of 2018. The number of homes listed for sale in the MLS that went under-contract during those 3 weeks fell 12% compared to 2018, according to The Cromford Report.
First 3 Weeks January – 2019 versus 2018
- Closed Sales – Down 14%
- Number of Homes Going Under Contract – Down 12%
- Total Number of Homes Under Contract – Down 17%
That last number (total under contract) means that homes sales will be a lot lower for the next couple of months compared to 2018.
And that was despite the 30-year fixed mortgage interest rate falling from 4.94% in early November to 4.45% in mid-January, although it probably takes a while for the lower rates to have an impact on sales. Maybe sales will pick up.
On the other hand, I keep expecting the number homes hitting the market to increase but it hasn’t happened so far. New Listings are actually running 4% LESS than last year.
Somehow, it seems both buyers and sellers became discouraged at the same time.
Under-$250,000 Buyers Priced Out
Sales in the under-$250,000 range fell 24% but sales in the $250,000-$500,000 range didn’t make up the slack, they fell 4%.
It looks to me this morning as if a lot of people in the under-$250,000 price range have been priced out of the market. They can’t find what they want at a price they can afford so they’re not buying.
2 Responses to 17% Fewer Homes Under Contract!
John, thanks for all the great articles.
The lack of new listings is a bit of a head-scratcher at first glance but I believe makes sense when you consider who the buyers and sellers are these days. I think most first-time homebuyers were priced-out long ago and similarly I don’t think investors are dramatically increasing their holdings at this point, so we’re mostly left with “exchange” buyers. Generally we think of them as move-up buyers, but actually applies to down-sizers and even “lateral” movers who just want something different at a similar price (say, different location within the valley or whatever).
These customers are both buyers and sellers at the same time. So when they become discouraged buyers they also don’t sell/list. And one of the drivers of this is what I call “low-rate paralysis”. These potential buyers/sellers have locked in low mortgage rates at some point in the past few years and any exchange is going to bump up interest paid substantially. So in a certain sense, they may want to move, but their low-rate mortgage is too valuable to give up, so they stay where they’re at. To lesser extent this may apply to (leveraged) investors as well. They may be considering selling but don’t want to give up the low-interest rate.
In this way, I could see an extended period of much lower sales without dramatic upticks in inventory. And prices will likely track inventory more than sales, so prices could remain flat. But if inventory does start to pick up, it’s look out below because I’m not sure that there are a lot of marginal net buyers waiting in the wings. Inventory could pick up if investors decide it’s time to start reducing their holdings, recession starts affecting employment and of course new construction which, though still historically low, is at its highest point since the crash & still increasing as far as I know.
Excellent! I’ll summary your ideas.
Low inventory is because;
– Most first-time buyers priced out
– Investors not increasing their purchases.
– Exchange buyers are discouraged because of “rate-lock”
The Cromford Report has data on this. Investor purchases in 2018 were like half of the peak in 2013. Right now, I expect investor sales to increase a lot in 2019. Maybe more investor sales than purchases.
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