It always seems like it was just yesterday that we were talking about last year or the last quarter. Here we are, and it’s already April and approaching May, which means we now have enough data to give us a good idea of where this year is headed. We talk all the time about the balance of the market, and this month’s edition will be no exception. In February, I broke down the comparison of active listing supply year-over-year, and thought this month we would look at the other side of the equation, comparing demand to last year. As I started digging into the data, however, I realized that talking about demand alone wouldn’t really give enough of a full account of where we find ourselves as we enter the 2nd quarter of the year. We’ll get into the numbers a bit later, but the long and short of it is that demand isn’t actually too far off from where it was last year, and with many cities, it’s actually slightly above last year. This is why we need to look at balance, because even though demand has been stable, albeit very low, the significant rise in supply has continued to push balance further in favor of buyers. This shift in balance will ultimately lead to lower home values in the coming months and may force some homeowners with insufficient equity to stay in their home, even if they want or need to sell.
When discussing demand, we are primarily talking about data trends in sold listings and listings under contract. With that being said, however, we should also understand the variables that factor into buyers' behavior and their decisions to purchase or not, which, of course, affect the data. The high mortgage rates are certainly the most significant variable affecting demand, which has been the case since the 2nd half of 2022. Inflation has come down below 3%, and the Fed Rate has been 4.5% since the last December cut. With all of this, the mortgage rates have remained stubbornly high at or around 7%, and buyers remain trepidatious about making such a large purchase with such high payments. In addition, many buyers suspect that home prices will decrease and are hesitant to buy if they feel they are overpaying or could get a better deal if they wait. Despite all of this, as I said above, the demand index is just slightly better than it was last year. For just two examples, last year in April, the demand index for Peoria was 72.6, and this year it is 83.9. Still low, but better. Scottsdale was 75.4, and this year is 86.4. This information alone doesn’t tell us enough, and again, is why balance is a more critical measure, so let’s compare. Last year, the market balance index for Peoria was 141.8 (seller’s market), and this year is just 85 (slight buyer’s market). For Scottsdale, it was 145 and this year is 115 (still a slight seller’s market). I give these examples for different areas of town with different price points, but the trend is the same. Supply has far outpaced the slight increase in demand, and this will likely continue for some time, especially knowing that mortgage rates are unlikely to come down anytime soon.
The market is dynamic, and it changes from week to week and month to month. We have to pay attention to what the data tells us if we are to properly price a home for sale, which requires a team effort between home sellers and their agents. When you’re in a market that is headed up (with a market index above 110), you can get away with pricing high for some period of time. When the opposite is true and home values are headed down (an index below 90), a seller must price in accordance if they are to be successful in selling. Your neighbor's house that sold is a historic data point at best, and it only indicates that the market could bear that price at that time, but it doesn’t mean it could sell for that again even just a few months later. The market index tells us what’s happening today and gives us information to try and forecast what’s ahead. It’s not an easy science to price a home correctly and can be extra difficult in a market like this, but it can be done. So, if you are considering selling your home this year and would like to discuss your specific situation, please give me a call. I’d love to talk nerdy with you :)