2023 Phoenix Area Home Prices (Scottsdale, Surprise: sales, real estate, rent)

[MN-Born-n-Raised]

Moderator Note: The annual thread for 2022 is now closed and can be found here.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report

For Buyers:

Buyer demand has been more reactive to mortgage rates than normal, but that's to be expected at the rate of increase we've seen this year. In terms of affordability in Great Phoenix, a household making the medium family income should normally be able to afford 60-75 of what's sold. That measure for the 2nd and 3rd quarters of 2022 was only 22%
Some believe it would take years for affordability to return to a normal range unless sales prices drop dramatically, but that's not necessarily true. As rising mortgage rates have quickly pushed affordability down, declining mortgage rates can quickly push it back up.

Affordability is determined on 3 things: Family income, 30 yr mortgage rates, and sales price. Price is not the only factor that needs to change in order to push affordability back to a normal state. For example, for the current median sales price of $418,000 to be considered affordable to a family making a median income of $88,800 in 2021, mortgage rates would have to drop to 3.35%. Or the median income would have to increase to $119,000 per year. Both of those scenarios are too extreme to expect in a short amount of time. However, it's reasonable to believe they will meet somewhere in the middle in 2023.

HUD will not release updated income measures for 2022 until May 2023. However, according to the AZ Department of Economic Opportunity, year over year wage income has shown a 5-6% increase each month through October. If we estimate a total 7% increase in median family income, that results in a median of $95,000 per year. With 10% down, that puts a family's budgeted purchase price of a home around: $335,000 at a 6.3% rate, $368,000 at 5.3% and $406,000 at 4.3%

From this example, we can see that mortgage rates have a stronger chance of reversing affordability issues faster than any other factor and can mean the difference between a 20% drop in prices and a mere 3% drop. The only experts who can accurately predict the direction of sales prices are those who can accurately predict mortgage rates. At this stage, mortgage rates are still volatile and most predictions have been flat out wrong.

If rates rise, prices will have to drop more to reach optimum affordability. If they drop, prices will not have to drop nearly as much. The best advice for buyers is to stay engaged with where rates are on a daily basis, and be fully educated on lender programs and seller incentives available so that they can be the first to act when the property and the payment is right for them.

For Sellers:
Welcome to an official Buyer Market in Greater Phoenix, abeit a weak one, for the first time since 2010. As expected the city of Phoenix finally succumbed to a Buyer Market mid-November, thus classifying the entire market as such. (The northeast cities of Paradise Valley, Scottsdale, Fountain Hills, and Cave Creek are all still either Balanced Markets, or mild Seller Markets.) While market indicators were plummeting from an extreme Seller Market to Balance between March and June, the trip from Balance to a Buyer Market from July to December has been more like a gentle glide.

Price responses didn't wait for the official calling, median sale prices began showing a decline after May and as of this date are down 21% essentially erasing appreciation gained since November 2021 and resulting in a 1.6% negative year-over-year median change.

From here on out, expect reports of negative annual appreciation rates every month as each measure will now be compared to the first half of 2022 price measures. Moving into 2023, even if mortgage rates stay the same, it is expected that contract activity will increase seasonally as it does every year. Rate buy-downs will remain a key factor in buyer incentives unless rates decline. However, after a long 4th quarter sellers should be able to enjoy more traffic, fewer days on the market, and serious buyers in the first half of 2023.

[MN-Born-n-Raised]

Per the message above, in the NE Valley where I reside, I am guessing we are down a little over 10%. And it has officially crossed over to a "buyers market".

Like Tina said ^^, if you want to understand where the PHX RE market is going, focus on the mortgage rates. If and when the mortgage rates drop back down again, I won't be surprised to see a fast upwards reversal in prices.

If I was looking for a home to buy, I might study homes that have been pulled off the market and go in and bypass a 6% RE commission plus offer even lower to compensate for some more drop. Or maybe give a low offer to people who had a deal already failed. Buy a home that you can buy for 25-30% off the high mark. Right now, there is a level of fear among some people that things will tank AND some people will have to move (relocation etc). That's the perfect seller. A buddy of mine just nailed a deal at 30% off peak in Surprise. But he was patient and bought a home that needed a little detailing (carpet, paint, etc).

For those assuming the PHX housing market is going to tank and it is just a matter of time, don't count on it.... It is fair to assume that people might expect more small decline percentages as time marches on in 2023, especially in the more price-sensitive parts of town like the SW Valley. Still, no "crash" as a lot of people are staying put with their cheap mortgage money.

This PHX RE "crash" isn't happening as some people thought. As of now, I am glad I didn't sell and anticipate some sort of massive correction. Because I would have uprooted my life, incurred a lot of selling
and future buying costs, and tossed money out the window in rent. And don't forget all those home improvements you (partially) gave away to that last buyer. I know five people that did what I said: sold and are waiting on the sidelines for this massive crash they have been hoping for. It might happen but that's not what the current crystal balls are seeing.

[Ponderosa]

Real estate pals of mine are taking clients to new homes and not resales. The reason is that new home buyers, using other people's money, are offering incentives that generally include rates below 5% with $0 closing costs and have cut prices a good 10%, throwing in options free etc. Normal sellers can't compete. Advantageous new home pricing over resale was the norm in PHX before the booms. It is a good time to consider a newly built home if one has been longing for that. For sure, there is a, albeit small, window of opportunity for first time buyers that has opened up.

[Ponderosa]

Originally Posted by MN-Born-n-Raised

Per the message above, in the NE Valley where I reside, I am guessing we are down a little over 10%. And it has officially crossed over to a "buyers market".

Like Tina said ^^, if you want to understand where the PHX RE market is going, focus on the mortgage rates. If and when the mortgage rates drop back down again, I won't be surprised to see a fast upwards reversal in prices.

If I was looking for a home to buy, I might study homes that have been pulled off the market and go in and bypass a 6% RE commission plus offer even lower to compensate for some more drop. Or maybe give a low offer to people who had a deal already failed. Buy a home that you can buy for 25-30% off the high mark. Right now, there is a level of fear among some people that things will tank AND some people will have to move (relocation etc). That's the perfect seller. A buddy of mine just nailed a deal at 30% off peak in Surprise. But he was patient and bought a home that needed a little detailing (carpet, paint, etc).

For those assuming the PHX housing market is going to tank and it is just a matter of time, don't count on it.... It is fair to assume that people might expect more small decline percentages as time marches on in 2023, especially in the more price-sensitive parts of town like the SW Valley. Still, no "crash" as a lot of people are staying put with their cheap mortgage money.

This PHX RE "crash" isn't happening as some people thought. As of now, I am glad I didn't sell and anticipate some sort of massive correction. Because I would have uprooted my life, incurred a lot of selling
and future buying costs, and tossed money out the window in rent. And don't forget all those home improvements you (partially) gave away to that last buyer. I know five people that did what I said: sold and are waiting on the sidelines for this massive crash they have been hoping for. It might happen but that's not what the current crystal balls are seeing.

The "crash" hasn't happened because the economy is still going great guns. A concerted propaganda effort for the midterms has many convinced the economy was in the hole, but good growth in the third quarter was upgraded again and the predictions are for even better in the fourth quarter. The Fed engineered recession is, so far, being held at bay. If it hits, the crash will surely follow. I hope the Powell is getting the message that these rate increases are not what is fixing the inflation problem and he needs to slow down/stop before he blows it all up.

[john3232]

I recommend this fellow who does a good job explaining our local housing market:

https://www.youtube.com/watch?v=5BHmH1Rkq84

[Potential_Landlord]

Originally Posted by john3232

I recommend this fellow who does a good job explaining our local housing market:

https://www.youtube.com/watch?v=5BHmH1Rkq84

Thanks for sharing! "A balanced view for a balanced market."

[DetroitN8V]

Originally Posted by jdahunt

I think there is a huge amount of manipulation going on to try and prop up the market prior to the midterms that will stop afterwards.......I expect it to then start getting very ugly.

This didn't age well at all.

[Potential_Landlord]

Originally Posted by Ponderosa

The "crash" hasn't happened because the economy is still going great guns. A concerted propaganda effort for the midterms has many convinced the economy was in the hole, but good growth in the third quarter was upgraded again and the predictions are for even better in the fourth quarter. The Fed engineered recession is, so far, being held at bay. If it hits, the crash will surely follow. I hope the Powell is getting the message that these rate increases are not what is fixing the inflation problem and he needs to slow down/stop before he blows it all up.

The 2-year Treasuries yield typically leads the FED and it's coming down and is within the Fed fund rate window. IMO a clear indication where the Fed (and interest rates in general) are headed=== NOT up. Thus housing affordability will get better and RE stabilized.
There is one sector where I think there is overbuilding in Phoenix: the multi-family market. I don't see an immediate issue here. The building process is still slow. No spike in completions. But I think rent growth will disappoint going forward. As we approach the end of the consumer spending cycle in late 2020s I think this will be the area of opportunity. I see some real pain coming for MF landlords. Hopefully in commercial RE as well. I am ready to pounce on the opportunities, probably around 2027. Until then I'll be patient and pursue other opps.
Looking back I completely missed the bigtime opportunities in our RE market before the pandemic hit. I hopefully won't miss the next window.

[Potential_Landlord]

Originally Posted by DetroitN8V

This didn't age well at all.

Actually the pre-midterm phase is typically the worst part of the presidential cycle. It gets better thereafter. For example year 3 is the best in the stock market. There has never been a recession in year 3. If you are bearish 2023 you bet against a lot of history.

[john3232]

Originally Posted by Potential_Landlord

Thanks for sharing! "A balanced view for a balanced market."

The market still favors buyer but this may change somewhat next year. According to Rick McHone. the interest rate sweet spot for buyers is around 5.5.

If inventory doesn't spike early next year and mortgage rates continue to tread downward we likely won't see a big jump one way or the other.