As we roll into April I thought I’d give a broad overview of how the beginning of the “spring selling season” is going so far. With the holidays behind us, this is the time of the year when many buyers and sellers decide to make their move, and with this we tend to see a steady rise in our market index through spring and into summer. As I’ve written about many times before, our market index is a very good place to start when trying to understand the balance and trajectory of our market. It is our number one leading indicator and helps us to forecast potential upcoming trends.
It’s been a bit since I’ve given a recap of what the market index is and how it is determined, so I’ll give a quick explanation. Looking at the gauges below, you can see the market index in the middle, which represents the balance of supply and demand. Anything above 110 is considered a seller’s market and below 90 is a buyer’s market, with 90-110 being the balanced range. Put simply, when we’re in a seller’s market with fewer homes for sale than there are buyers, home values rise. In a buyers market where there are fewer buyers than there are listings available, values decrease. The more out of balance in either direction, the more significant the value increases or decreases. Looking at our current index, we can see that the Greater Phoenix Metro area has an index of about 115, which is ever-so-slightly in seller’s market territory. This is being driven by the low levels of supply that we’ve continued to see, even in this rather tepid market. We have roughly 70% of normal inventory levels, and on the other side, demand, which is measured by listings under contract, is at roughly 80% of normal levels. I know this can be a lot to follow, but hopefully it makes sense.
In the chart below to the left, you can see the market index for all of 2023 (pink) and 2024 so far in blue. Through the first half of 2023 the index pattern was fairly typical, with an increase through the first half of the year, and then cooling through the second half. We saw a dramatic decrease in buyer demand as interest rates climbed into the 8% range, which exacerbated the normal seasonal trends. As the positive news of potential Fed rate cuts hit, mortgage rates dropped again and activity marginally picked back up. Moving into this year, our index was again on the rise, but we’ve seen this start to taper off over the last month or so. The reason for this is largely due to the continued lackluster buyer demand. There does seem to be a bit more optimism on the part of sellers, however, which we can see with the increased listing prices. With that being said, though, sellers should be careful to not overprice their listings for too long without adjusting, and they should also be prepared to negotiate their price with a buyer. Values are definitely back on the rise, but the gains are still slight, so stubborn pricing may cause a listing to sit on the market longer, and typically sell for less than if it was priced right to begin with. This is why understanding the index is so important, because it really tells us who is driving the market. With an index of 115, we know sellers do have the upper hand, but not by much. Most importantly, buyers and sellers alike should understand that our overall sales volume is as low as we’ve seen since 2008. While it may be a sellers market, it is an extremely quiet sellers market with a substantially smaller pool of buyers than we’re used to.
As always, we know that the market is dynamic and will continue to change. Staying up to date on the current trends helps a buyer or seller to remain informed and to understand their position in the market. In addition, real estate is hyper-local with a myriad of factors affecting sales and values. Even within the Phoenix area, the smaller cities and even neighborhoods within can behave differently. So, if you or someone you know is considering buying or selling a home in the near future and would like a more comprehensive discussion on the specifics of your situation, please give me a call. I’d love to talk nerdy with you :)