What happened to the Phoenix Real Estate Market in September 2021? - Merrill's Market Madness #68

Good morning everyone and welcome to a new edition of Merrill's Monday Morning Market Madness coming at you with an update regarding the Phoenix metro housing market. What are our current stats? What are our current trends? What do we expect to see moving forward based on the numbers, not the media, and you know talking about affordability, talking about you know how this September of 2021 compared to previous Septembers. So I’ve got some really good content for you. If you own a home or you're thinking about buying a home or anything like that I think you will find this information very helpful and educational although maybe a little geeky and numbers based if you're not a numbers person you know and you need a more simplified version of this to let me know the numbers we're going to be discussing today are also quite broad you know I’m literally looking at our entire MLS which not only encompasses the whole Phoenix metro area but it even encompasses sometimes listings out sometimes listings in. Payson and Tucson get listed on our MLS so this is like the entire MLS so the numbers are a little broad but overall the trends are very accurate because the vast majority 95 of all the listings are in the Phoenix metro area so if you are you know interested in what the specific numbers are for your house or for your neighborhood I’m always more than happy to run these numbers. I actually really enjoy it one of my favorite parts of my job is knowing that I am very very knowledgeable about the housing market more so than most real estate agents and I really studied these numbers on a daily basis.

So let's dive in right now I’m gonna start with the number I always start with which is how many active listings do we have in our market right now? We have 7,950 active listings in our MLS, which is still slightly higher than we have been seeing the total number of active listings is increasing very slowly last Monday there were seven thousand eight hundred and twenty-three the Monday before that there were seven thousand six hundred and nine the Monday before that there were seven thousand six hundred and thirty-two so basically over the course of the past month we've been gaining we've gained 326 active listings in our MLS which means on average we're gaining about 12 active listings per day 12 more listings are coming on the market each day than that are coming off obviously.  It's not every day more homes tend to come unmarked on market on Thursdays and Fridays than on Mondays  so we might look at these numbers tomorrow and be like hey that did that trend, didn't hold true but over the course of the past month homes continue to sell I mean homes continue to come on the market at a very slightly faster pace than they are selling the downside is that you know 12 a day is nowhere near enough to cover our deficit 7 000 8 thousand active listings is still so low so dramatically low compared to the size of the Phoenix metro area that we expect that we'll continue to stay in a seller's market for a very long time when I first got started in real estate  in you know 2010 and 2011 we had somewhere around 22-23 000 active listings and home prices had started to increase at that time and then throughout most of the 2000 teens we had I don't know 17 000 15 000 more than twice what we've had and home prices have been increasing that whole time so only seven or eight thousand active listings is still a very dramatic deficit and we expect that  we will, I predict that we would need somewhere around the neighborhood of 25 to 30 000 active listings before we would start to see home values stabilize probably 35 000 possibly before they would actually start to really fall at a consistent level.

Now have a lot of clients who start to say well I’ve been seeing a lot more price reductions and that kind of thing, yeah some homes are not selling. There are sellers right now who really want to push the limits because all they've been hearing is how hot the market is and how crazy the market is well as we head into the fall sometimes sales slow down a little bit so sometimes sellers are putting their home out at a little bit too aggressive of a price and then they're needing to lower it but just because we're starting to see a few more price reductions doesn't mean that average prices are falling it just means that some sellers started too high with their price in the first place. We have a very high number of pending listings still  just under 12 11 959 pending listings very very high number for this time of year and over the past 30 days there have been 8 816 listings that have sold so that gives us a month's supply of inventory of 0.9 now in you know March or April or may we were as low as like a 0.4 so that sounds like a lot you know the the month's 5 inventory has increased all the way to a 0.9 however to reach a balanced market we need a month's supply of inventory somewhere around four months we're 0.9 so still very very strong very very strong sellers market now one number that really caught my eye was the total number of homes that we had closed in the month of sSptember saw 9385 closings which is like just it just felt really high so historically in our market May and June so we see usually around 10 000 listings will close in May and usually around 10 000 listings close in June and that's the peak right kind of like a the pitch of a house the the months around that the sales start to fall off right so April and July might see closer to 9000 and then march and  August are like 8 000 until you get to the slowest months of the the year which is December and January where we historically see around 6 000 closings in each month so 9385 is a very high number for September so let me just compare that to the last 10 September last year 2020 was weird because almost nothing sold in May and June well may because of covid and you know people weren't leaving their houses and so that last year's numbers got skewed so last year we actually saw 9600 closings in September the market was still you know people were making up for lost time last year but the so throw out last year the rest of the previous Septembers 8024 7070 7500 7400 6900 6200 6300 6400 those are the last 10 Septembers so you know on average around 70 300 homes typically sell in September and we saw 9 300. So demand is still despite you know everyone kind of you know or at least I’m hearing a lot of talk and concern around affordability and well we're still seeing an awful lot of homes selling a very very high number of closings for the month of September so a few more interesting stats for September the average price of all the homes that sold in our MLS in the month of September was 490 465 dollars the average price of this of the homes that sold in September of 2020 was thousand one hundred and fifty-eight so that is an increase of nineteen percent year over year on average homes sold for one hundred and one percent of the list price so on average homes are still going slightly above the asking price if someone lists their home for 300 000 on average they're getting 303. yes, there are homes that are going below there are homes that are going for way more than that it really has a lot more to do with how competitively the listing is priced than it has to do with the sales to list price ratio.

 I talk to clients all the time and I say listen what it's really about is the comps like forget the list price right the list prices are relevant as far as I’m concerned what is the house worth compared to what our other similar homes in the area selling for. So if you work with me that's something that we will work together on is looking at those comparable sales and deciding what we think is a fair price for the house sometimes it's above what people are asking sometimes it's below what people are asking, all right?  The average days on market for the homes that sold in September was only 29 days compare that to 2020 which again the market in 2020 was absolutely on fire by the way the days on market in September of 2020 was 44. so actually right now, homes are selling faster than they were one year ago and then this number really stood out to me as well the average price per foot of the homes that sold in September.

Now, of course, this is you know your home could be very dramatically different than this depending on how big how small how nice how this is everything this is you know seven thousand dollar trailers on leased land and multi-million dollar mansions on acreage okay but the average price per foot of everything 248 dollars and 28 cents the average price per foot of the same you know if September of 2020 was 194 dollars a foot so so homes have increased by 48 plus a 54 dollars per foot over the past year on average.

Now I’m going to go ahead and share my screen with you because there is a couple of things I want to just show you real quickly see here share that all right I often like to talk about mortgage rates this is a public site you can go on to Freddie mac.comms and it takes a look they updated I believe twice a week yeah this was last updated on 10-7 it seems like they updated I think on like Tuesdays and Thursdays or Tuesdays and Fridays or something like that but  average rates right now are at 2.99 if I zoom in on this chart a little bit you can see we were staying for a very long time at this 2.86 2.88 we did see a little jump up to 3.01 and a slight dip down to 2.99 i'm looking at the blue line by the way which is 30-year fixed-rate mortgages so slight jump but but still pretty similar to where we have been most of the year right around three percent if you zoom out on a longer time scale you know historically speaking rates are still at or near extreme all-time lows so yeah, so right now rates are you know continue to be amazing.

Now I also wanted to show you this is a really interesting piece of information that I received and it is projecting what home price this is a national report by the way I expect that here in Phoenix we will see even greater increases than this because our market has been a little hotter than the nation as a whole but this is a kind of a survey of kind of some of the top most important people in the real estate industry the mortgage bankers association is predicting that in 2022 home prices will increase eight point four percent okay freddie mac 5.3 percent fannie mae 5.1 percent and the national association of realtors which is notoriously conservative on these forecasts 3.1 so the average of all four of their predictions is 5.5 so if you have been holding out for home prices to suddenly drop know that a lot of really important big people are saying now we're gonna see an average increase of five and a half percent next year so that means it it based on our current average sales price of 490 000 by the end of 2022 you're out your average price if their projections are to be trusted will be 517 thousand four hundred and forty dollars which would be a year over year increase of twenty seven thousand dollars okay so if you have an average price home you're going to probably gain around twenty seven thousand dollars in equity over the next year now again this is national and I predict that that these numbers are low for Phoenix you know because again we have a pretty severe inventory problem we're growing faster than a lot of the country there are places a little crazier than us Idaho for example is a little crazier than we are some parts of Texas are a little crazier than we are but we're probably ranked in the top 10 hottest markets in the nation I predict that we will see average price increases of probably more like eight to 12 percent so I think this number is a little bit low but i just want to have you think about something here real quick and i'm done sharing my screen here so let me stop sharing and let's see here I there we go what if we're wrong right like what what if i'm wrong about what if the national association of realtors and fannie mae and freddie mac and the mortgage bankers association what if they're all wrong about average price increases and the market does fall well? In my opinion, the only thing that's really going to cause home prices to fall is if interest rates go up dramatically and no one is really predicting that to happen okay? right now, rates seem quite stable as you saw earlier we haven't really seen a dramatic swing in interest rates all year long again it moves you know a quarter of a percent up and down a little bit but for the most part rates have been extremely stable for all the entire year all right now let's say that rates go up to an average of four percent so we're at an average of three percent right now four percent would still be historically speaking an amazing interest rate well let's just assume that you have a five hundred thousand dollar mortgage I used that number because we're almost at a five hundred thousand dollar average sales price at three at a three percent rate your principal and interest payment on a 30-year fixed-rate mortgage I’m taking out taxes and insurance and HOA.

There are too many variables on all that mortgage insurance just a 500 000 mortgage at three percent principal and interest payment on that it's 2 108 okay well if rates rose to four percent you would only be able to spend four hundred and forty thousand dollars for the same payment, okay, so if you want that twenty one hundred dollar payment the amount that you would be able to mortgage drops by sixty thousand dollars just a one percent increase in interest rates and again four percent would still be considered a pretty great rate so look so let's say again we're wrong and home prices fall you're gonna need them to fall by sixty thousand dollars just to get the same payment that you could get today at a three percent rate so I think that's pretty unlikely. Now, if rates go all the way to five percent which again I think is unlikely then you would only be able to mortgage 392 thousand dollars for that same monthly payment more than a hundred thousand home prices would have to drop on average by more than one hundred thousand dollars to be able to get the same monthly payment that you could get today at three percent so you know affordability is still actually pretty good with rates being as low as they are yes home prices are higher and it feels very expensive but from a monthly payment standpoint it's really doable right now and by the way, if you have a lot of equity in your house you know we or maybe you don't need to tap the equity in your house hopefully you don't need to tap the equity of your house I think it's an amazing time to invest.

My wife and I we're personally buying two investment properties right now that we have under contract and so this is me putting my money where my mouth is saying that I believe the market is going to continue to go up and improve i don't think we're going to see average prices increase by another 20 over the next year but the point is rents are sky high right now rental prices are very very high and that's not projected to go down anytime soon I personally am very concerned about inflation all the government money printing and all that stuff that's going on and at the end of the day if there's a lot of inflation that means that home prices and rent prices will continue to rise and so I believe that right now is an amazing time to invest because you get to get in at a price that's going to go up over the next 12 months rents are going to go up over the next 12 months and you get to buy it at an interest rate in the threes for a non-owner occupied  is unbelievable  so if you have thought about investing but you've got a little bit cold feet or you are unsure you know let's get together and talk about what it could look like for you and what some of the good options are for investing right now there's lots of different things different investors are looking for cash flow and equity and and multi-family and and it depends on how much money you have to put down lots of different things but would love to be able to help you with that if it's something you've been thinking about doing so Ihope you found this episode helpful i know it was a very long one uh and you all have a great day and let me know if I can do anything for you.

What does this mean to you? If you're even a little bit interested in learning more about participating in the Phoenix housing market as a seller, buyer, or investor... you NEED to know this stuff! Or at least work with someone who is obsessed with the market stats. Reach out to me today so we can start working on making your real estate dreams a reality!