Each month, as I sit down to write the commentary for our newsletter, I ask myself what the most significant questions are on the minds of the home buyers & sellers we’re talking to, and what piece of information will be most relevant to help our readers understand our current market. Sometimes, I start feeling like a broken record because of how frequently I write about the supply & demand Market Index, but it’s worth returning to regularly because of how crucial it is to understand the balance of the market. With that in mind and with the risk of sounding redundant, we will again talk about our trusty index this month, but with a slightly nuanced twist. Most people have heard the terms “buyer’s market” and “seller’s market”, but what does that really mean? The easy answer is that the type of market, buyer’s or seller’s, simply describes who has the upper hand in negotiating. That’s the easy answer, but it’s certainly not the whole answer, and with the steady dip further into a buyer’s market, I thought it would be helpful to draw the distinctions a bit more clearly.
To start with, it should be understood that in a seller’s market, with a market index above 110, there is more demand than there is supply. In this kind of market, home prices increase, and the more disproportionate the balance is in favor of sellers, the higher the index, and the stronger the appreciation in value. In a buyer’s market with an index below 90, there is more supply than demand, and in this kind of market, home values decrease. In the last 25 years, the Greater Phoenix area has primarily been in a seller’s market, with only four periods of buyer’s markets, and two of those were very slight and only lasted a couple of months. The most notable and painful buyer’s market was during the Great Recession, which lasted from late ‘05 to nearly 2010. During this period, we saw home values depreciate significantly by an average of -40%. Even by 2010, the majority of sales happening were still foreclosures and short sales, and the market really didn’t fully recover until 2012. As the balance moved more in favor of sellers as the market rebounded, sellers began to have more power again during contract negotiations. This trend continued for more than a decade as supply became more constricted and ultimately crescendoed during COVID because there were so few homes available for sale, and buyers flocked to Arizona. During this time, home values rose to nearly 40% year-over-year, and sellers could ask for almost anything they wanted because they had all of the negotiating power. Many buyers felt defeated as they lost out on house after house, getting outbid by other hungry buyers. This was, by far, the most frenzied seller’s market ever seen… but… as they say, what goes up, must come down, and this leads us back to the buyer’s market we’re in today.
In a market where sellers have had the upper hand in negotiations for more than a decade and with positive appreciation every year, it makes perfect sense that there would be an adjustment period for sellers. The balance has again shifted in favor of buyers, who have far more homes to choose from, more time to shop, and less incentive to offer what the seller is asking. With this comes not only lower home prices, but many more days or months on market, more concessions paid, more contingencies, and less overall negotiation power. The frustration felt by sellers is entirely understandable, but it is also time for sellers to accept the reality of where our market is. We all want our homes to appreciate in value, and we want them to sell quickly and for top dollar, but that is all relative to the market you’re in. All markets are cyclical, and even though the market is currently headed down, that doesn’t mean it will be forever. There will come a day when sellers are back in the driver's seat and their home is worth more today than it was yesterday. That day, unfortunately, just isn’t today. So, if you’re considering selling your home and would like to discuss your specific situation, please give me a call. I’d love to talk nerdy with you :)