I’m removing the “strongly” from my forecast in September, “My conclusion is that home prices will increase strongly in 2019.”
I’ve been reading a lot of stories for the last few months about Seattle (especially) but also Los Angeles cooling off. I’ve been on the lookout for weakness in the Phoenix market.
We didn’t see any signs of cooling in the metro Phoenix real estate market until October. The change is nothing big but you need to watch it.
Phoenix
It looks like the Phoenix real estate market will still be tight in 2019 but not as tight as in 2018. Supply and demand are looking to be more like 2017 or 2016 but with the momentum cooling instead of heating up.
What happened? This is what I found looking at the Cromford Report and the local MLS.
Demand
Demand was down a bit this October compared to October 2017.
- The sales were down about 6% (if you adjust for having one fewer business day this October compared to last).
- And the number of homes that are sold but the sales haven’t closed yet (pending sales) is also down a bit. That makes it likely that sales will be down in November and December too.
Supply
- New listings hitting the market actually went down a bit!
The supply of homes for sale would been a bit higher if the number of homes hitting the market was the same as last October.
This Month’s Puzzle
That low number of new listings puzzles me. If home prices were high enough to discourage buyers, I would have expected that prices were high enough to encourage sellers.
Maybe sellers know the market isn’t as hot as it was last spring and they’re waiting thinking the market will be hotter in January. That’s my guess today, anyway, sellers are waiting for the high season to begin in January.
If you’ve got a better explanation for the low number of homes hitting the market in October, please let me know in a comment below.
I’ll be watching the new listings hitting the market. They always jump big time in January. If they jump bigger time than usual, I would expect Phoenix home prices gains in 2019 to be even smaller time than I expect right now.
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3 Responses to Phoenix Real Estate Market – October Demand Down a Bit
Hi John.
Thanks for the great analysis (as always). I can’t say one way or the other if listings will increase overall in January. But I can share my thoughts as an investor. I own several homes in the PHX-Metro area which I bought between 2010 and 2012. I was considering selling one in 2019 as I was thinking maybe the market will peak next year. But, now I am holding off and will re-evaluate in 2020. I am doing this because I think our market has “room to run”.
With 2.8 months of inventory, businesses continuing to relocate to AZ (I see articles almost every week discussing a new company coming to AZ or expanding their existing operations), wage growth in AZ amongst the highest in the country, the low cost of living we enjoy (taxes, insurance) and the nice climate we are in a very good situation right now.
I can only venture a guess here, but I would think others are thinking the same way, whether they are investors or living in their homes. If you don’t need to sell now I think the overall market moves higher and you can get more money down the road for your property. So, this can hold back inventory, which I think has happened previously over the years in this up-cycle.
It is tough to gauge what the economy will do going forward. Some are predicting unemployment to decrease to near 3% over the next 1 – 2 years. If so then wage pressure should go up and that means potential buyers have more money to buy houses at higher prices. But, interest rates will also go up so it may be “a wash” or the increase in the costs from the higher rates will wipe out the income gains. As long as the Fed dampens the pace and number of rate rises I think we are fine in AZ for 2019 and 2020.
I see continued strong demand in 2019 and then for 2020 either the same strong demand or a strong, but a bit more muted demand.
That is my “two cents”.
Steve
Great comments Steve!
You said, “I would think others are thinking the same way, whether they are investors or living in their homes. If you don’t need to sell now I think the overall market moves higher and you can get more money down the road for your property”.
That would explain my puzzle of the low number of new listings. Potential sellers expect continued strong appreciations so why sell now? That’s gotta be part of it.
The thing I didn’t mention in the post was the demographics angle. Older people don’t move nearly as often as younger people and the percentage of older people is increasing. I should dive into the demographics angle sometime and figure out how important it is.
Increasing interest rates will discourage new buyers. Older people aren’t able to sell their large homes at a good price. Larger homes do not seem to have increased in value like smaller homes.
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