- Here’s my latest think piece, “The Volatility Mismatch Theory of Housing Supply and Demand, and House Price Volatility.”
- And my latest analysis of Case-Shiller data.
In metro Phoenix, from May 2020 to May 2022, the median sale price of single-family houses in non-distressed sales increased exactly $200,000 – from $315,000 to $515,000.
The Market Shift Was FAST
The number of single-family houses hitting the market (new listings) in the Phoenix MLS in February 2022 was the lowest for a February in at least 20 years. In May, the number was the second-highest for a May in the last 10 years.
I’m still in shock at how fast the number of houses for sale skyrocketed in the second half of 2005. I assume it was investors jumping out. This time I think we’ve had an even higher percentage of landlord buyers (I don’t have that data handy). Is jumping out the new jumping in?
Landlords were still driving the Phoenix market in April.
Pinal County (far east and south suburbs of metro Phoenix) The number of single-family houses for sale (active listings) last week was almost triple 2021 (+184%). Also higher than 2020 & 2018. Will surpass 2019 in July. Supply for sale is kinda back to normal in Pinal County.
That increase in listings of single-family in Pinal County is about half because of more houses hitting the market (new listings) and about half because of fewer sales. There has been an increase in sales of investor flips and new houses. Probably where the extra supply is from.
Mike Orr at The Cromford Report is one of the best analysts of the Phoenix real estate market. He leans bullish so when he gets this negative it means the current data is clearly negative.
“We admit to being surprised at how quickly the market is cooling. We expected a downward trend but did not anticipate it would be so dramatic.”
“The last time we saw a similar frenzied market cool down very quickly was in April to November 2005. This is a more striking reversal than we experienced that year.”
“Be nice to buyers.”
Does the Internet Make Booms & Busts Bigger?
I’ve been toying with the idea that all the information we have available now via the internet might have made the boom faster and taller.
Now, would all that available information make any “correction” happen faster, steeper, too? I hope not.
Price Expectations – Higher Prices Lead to Higher Prices
With the Fed talking more and more aggressively about raising rates, I’m feeling more and more confident in my forecast that house prices plateau this summer.
A big driver of the price increases has been the price increases. When house prices have been going up for a while, the most optimistic buyers think prices will continue increasing so they’re willing to overpay now when they expect bigger profits later. But the longer prices are flat, the more the upward momentum fades, and the less willing the most optimistic buyers are to overpay.
As upward price momentum fades, house prices are stranded at a high level that isn’t justified without as much upward price momentum, and without such high expectations for future prices. House prices are more sensitive to bad news.
If prices start to fall, the most optimistic investors have the most debt so their equity falls the most and many aren’t able to buy houses anymore. The most optimistic buyers are quickly shut out of the market if prices fall because they have the most debt.
The potential buyers remaining are less optimistic and they aren’t willing to pay as much as the most optimistic buyer previously paid. So prices fall more.
I think it’s ignored how important upward price momentum is. Expectations of future prices are a fundamental driver of current price increases… or decreases.
Click on the graphs to go to the full-size, interactive version.
Let’s zoom in on New Listings and Solds.
This information can vary a lot in different parts of metro Phoenix. Your real estate agent can find the data for your specific city or zip code at The Cromford Report.