A 2022 Phoenix metro housing market recap!

Top Housing Market 2021 Phoenix, AZ No. 6

Tom Ruff sums up the entire 2022 year of STAT!


We began 2022 with the lowest number of active listings on record. And, while we all knew the 28% year-over[1]year increase in the median sales price was unsustainable, we also knew there was nothing holding back continued price appreciation in the short term. We broached new conversations centered around inflation and the potential impact of rising interest rates, as well as expanded our ever-evolving conversation on heavy Wall Street monies in our market and their impact. We believed interest rates would soon become a hot topic. We knew change was inevitable, but we couldn’t say when.


The 30-year fixed-rate mortgage moved higher. It rose to 3.69%, 22 basis points higher than February 2020 and 96 basis points higher than February 2021. We knew higher prices and higher interest rates would impact affordability, and as homes became less affordable, we knew demand would waiver. We repeated the words unsustainable and affordability. We were aware change was in the air but could not say when it would arrive. Conversations around inflation and the potential impact of rising interest rates grew louder.


In March, I revisited data that I had found disconcerting: Wall Street monies flowing freely in our market. Public records data was telling us our market was and had been driven by non-primary buyers purchasing with cash. Non primary buyers accounted for 36% of all homes purchased in February 2022, while 29.2% were cash, sellers were receiving cash offers well over list price. Since the beginning of 2021, institutional buyers had acquired, through purchases and building, over 9,000 homes in Maricopa County. Most of these purchases were SFR in the $250,000 to $500,000 price range. Their model was buy/build, hold and rent. Although the re-sale and new homes markets continued to show very little sign of weakness, the same could not be said of the rental market. The first empirical evidence of a market shift was reported in this issue of STAT. It was based on a study done by Tina Tamboer, who studied the rental market. She found a discernible change in rental inventories and pricing. Our conclusion, the strong buying activity from institutional investors over the past year was beginning to saturate our rental market. Just as we were reporting Tina’s findings, the federal government stepped in and raised interest rates again.


In this issue we presented a series of bullet points, any one of which, standing on their own merit, would have made for an entire STAT report. Some of the metrics suggested tailwinds to the housing market, while others suggested headwinds. All together, they told us our market was windy, very windy. We referenced rising inflation, a declining stock market, low unemployment, and massive investments by Intel and TSM. We asked our readers to consider each individual metric and how they might impact our market in the short term as well as the long term. We expected prices would continue to rise, at least through June, as supply remained scarce. We also made the worst forecast in STAT’s history, an NBA championship for the Suns.


Over the past few years, like a broken record, STAT had described a local housing market on fire. We routinely referenced interest rates as the wildcard. The seller’s market became so extreme we ran out of superlatives. In one issue, we went as far as using malaprops just to humor ourselves and break the monotony. We concluded each issue with a familiar refrain: “Sellers’ markets don’t last forever, the market will eventually shift, but we don’t know when.” That “when” had become “now”.


Housing makes up approximately 40% of costs in the CPI. The central bank views the rapid rise in home prices as the primary cause of inflation. Their primary weapon for fighting inflation is raising interest rates. The Federal Reserve intensified its fight against high inflation by raising its key interest rate by three-quarters of a point, the largest bump since 1994. Our market was quickly shifting. While we were still in a seller’s market, prospective buyers and their budgets were taking a big hit and buyer confidence was dropping quickly.


After two straight years of strong sales activity and rapidly rising home prices, our market cooled rapidly. A balanced market could be seen around the corner. There may still have been a buyer or two out there that had not received the memo, but for the most part, the days of multiple offers and bidding wars had ended. “For Sale” signs began to multiply. Another sudden increase in interest rates paired with record high prices sent many potential buyers to the sidelines. In June, we saw a 20% year-over-year decline in the number of homes sold, as reported by ARMLS. The recent changes in monetary policy were accomplishing their desired goal of curbing housing inflation. We knew then, when July’s closing numbers were reported, the impact of these changes would be clearly visible and undeniable to everyone.


STAT walked its readers down an imaginary path through the nostalgically remembered past, also known as memory lane. We traveled back through another dimension. Charts and graphs were used to enlighten your mind. We journeyed through a wondrous land where home price boundaries were limited only by the seller’s imagination. A land where you didn’t even need to place a signpost in the ground. Using snippets from prior STATs, our travels took us from Jan. 1, 2022, through July 30, where we found ourselves at the door of a balanced market. A market where strange words like incentives, concessions, price drops and buydowns were now a part of our daily vocabulary. To some, this new dimension came to be known as the Twilight Zone!


Our market at this point was best defined as balanced. We’ve often heard a balanced market defined by the number of homes for sale, but in essence, a balanced market is determined by the relationship between supply and demand. Supply is low, but demand is equally low. The relationship between supply and demand was perfectly portrayed by the Cromford Report and their three indices: Cromford Supply Index: 76.5, Cromford Demand Index: 80.5, Cromford Index: 105.2.


Transactional volume and prices were now almost entirely influenced by one single metric: interest rates. Having worked in the mortgage industry in a previous life, I had learned most consumers interested in buying wanted to know two things: “How much is my monthly payment, and do I qualify?” For many applicants, the answer to the first question was too much, and the answer to the second question was no. There is a common axiom in our industry. Real estate is local, that is true. But I’d like to add, the federal government dictates interest rates. Today’s rates and prices have put homeownership out of reach for many. As an offshoot of these market conditions, agents were having a hard time determining the price at which to list the property. Home prices were expected to fall through the remainder of the year.


The 30-year fixed mortgage rate surpassed 7%. We knew this rate increase would further exasperate home closings. As the Federal Government continued to slam on the brakes, both buyers and sellers shied away. This meant fewer new listings, fewer sales and lower prices. We also offered a lengthy discussion on concessions and how falling home prices were being understated.


November’s STAT was a time for setting the table, literally and figuratively, as we began to prepare for our annual year in review. We also reported that in terms of the median sales, our market was now reporting negative year-over-year price growth. Couple negative price growth with a 45% year-over-year decline in sales volume, and, at least in terms of our housing market, we were in a recession.


Full report!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.