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Phoenix Real Estate Report

phoenix real estate market update
1. How fast are homes selling? Average number of days on market is 68 (up 34 days from last year)
2. How many homes are for sale? We currently have 19,960 properties for sale (up 125% from last year)
3. What is the average sales price? Homes across the city are selling for $516,338 (down 3% from last year)

December’s supply was down 30% from December 2021 (with 4,963 homes listed for sale last month) and December’s demand was down 45% from December 2021 (with 5,145 homes sold last month). Average home values are now down 3% in the last year and we have 3.8 months of inventory, which is about quadruple the amount from this time last year. Under 2 months supply is a seller’s market, 2 to 4 months is a balanced market, and over 4 months is a buyer’s market.

What’s going on? We began 2022 with one of the strongest Januarys in history, only to close with one of the weakest Decembers on record. Depending on the month, 2022 experienced a seller’s market, a buyer’s market and a balanced market, with each phase heavily influenced by mortgage rates. Our market transitioned from bidding wars to seller concessions. The year also marked the end of the longest home price boom in history. We enter 2023 in a market defined by declining sales, declining inventory and declining prices.

Let’s recap 2022 briefly:
January – We had the lowest number of active listings on record. While we knew the 28% year-over-year increase in the average sales price was unsustainable, we also knew there was nothing holding back continued price appreciation in the short term. We knew change was inevitable but we couldn’t say when.

February – The 30-year fixed-rate mortgage moved higher to 3.69%, almost 1% 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.

March – Non-primary buyers accounted for 36% of all homes purchased in February 2022, while 29% were cash, and sellers were receiving cash offers well over list price. The strong buying activity from these institutional investors over the past year was beginning to saturate our rental market. Then federal government stepped in and raised interest rates again.

April – Some metrics suggested tailwinds to the housing market, while others suggested headwinds. We referenced rising inflation, a declining stock market and low unemployment. We expected prices would continue to rise, at least through June, as supply remained scarce.

May – Over the past few years, we described our housing market as on fire. We routinely referenced interest rates as the wildcard. The seller’s market became so extreme that we ran out of superlatives. We reminded that: “Sellers’ markets don’t last forever, the market will eventually shift, but we don’t know when”. In hindsight, that “when” had become “now”.

June – Housing makes up 40% of the CPI (consumer price index). 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 and the Fed intensified its fight against high inflation by raising its key interest rate by 0.75%, the largest bump since 1994. Our market was quickly shifting.

July – 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. 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.

August – In our newsletter, we took a trip down memory lane, to a wondrous land where home price boundaries were limited only by the seller’s imagination. A land where you didn’t even need a “For Sale” sign. A market where strange words like incentives, concessions, price drops and interest rate buydowns were now a part of our vocabulary.

September – Our market at this point was best defined as balanced. A balanced market is determined by the relationship between supply and demand. Our supply is low but demand is equally low.

October – Transactional volume and prices were now almost entirely influenced by one single metric: interest rates. Recent rates and prices have put homeownership out of reach for many. Home prices were expected to fall through the remainder of the year.

November – The 30-year fixed mortgage rate surpassed 7%. We knew this rate increase would further impact 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.

December – We reported that in terms of the average sale, 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 in terms of our housing market we were in a recession.

What can we expect? How our market evolves in 2023 will be determined by only one metric: Mortgage rates! We are still dependent on the whims of the Federal Reserve. If they continue to push the Federal Funds Rate higher in an attempt to curb inflation, then mortgage rates could move higher too, putting a quick damper on any recovery in demand. However, if the 30-year fixed mortgage rate stays between 6-6.75%, then we should have confidence that the housing market can operate normally at this level. Prior to 2009, anything under 7% was considered a low interest rate and rates under 5% were unheard of. To achieve confidence, we need several months of interest rate stability. This is by no means certain to happen, but it is possible. Once the fear is removed, we should see more signs of a recovery in demand and volumes will rise back towards a more normal level.

Data from ARMLS® COPYRIGHT 2023.

Freon Phase-Out

end of freonYou probably recognize R22 by its common name: Freon. This refrigerant has been used in households for over 60 years to allow our air conditioners to cool our homes. During the 1970s, scientists discovered a link between hydro-chlorofluorocarbons (HCFCs) and depletion of the Earth’s ozone layer. With this link began the phase out of R22, an HCFC product, in 2010. R22 is an HCFC refrigerant that use gases to produce cool air by compressing warm air sources into liquid through HVAC coils. Freon has been an industry standard in refrigerants since the 1950s due to its efficiency.

How will this affect homeowners?
Although production of R22 will cease, there is expected to be plenty available and approved for use through December 31, 2029. Between 2020 and 2029, servicing systems with R22 will rely solely on recycled or stockpiled quantities. Homeowners are not required to stop using R22 air conditioners, nor are they required to replace existing equipment. However, homeowners should keep in mind that as supplies of R22 becomes limited over time, they may experience an increase in prices.

Phaseout dates to know:
Under the Clean Air Act of 1990, the U.S. began to outline a phase out for the use of R22 that would unfold slowly over the course of 20 years.
January 1, 2020 – there will be a ban on production and import of R22. Service of product will rely on stockpile.
January 1, 2030 – there will be a ban on remaining stockpile and import of all HCFCs.

What can homeowners do now?
The phase-out of R22 has been lengthy to allow homeowners to replace their air conditioner as they naturally age, and replace them with new energy-efficient equipment that uses EPA-approved
refrigerants, such as R410A which is a non-ozone-depleting refrigerant alternative refrigerant. It is flourine-based and contains no chlorine. R410A is also noncorrosive, nonflammable, and neutral to the environment. It is manufactured and sold under many names such as, PURON®, GENTRON AZ-20®, and SUVA®.

Purchasing a home warranty plan for the property is likely the most cost effective way to deal with the R22 Freon phase-out and conversion to R410a that we are facing. It can save you thousands when entire systems need to be replaced.

Refinance FHA loan to Conventional loan

FHA refinance to conventionalI often have past clients who purchased their home in Phoenix with an FHA loan ask me about the current estimated value of their home because they are considering refinancing an FHA loan into a conventional loan. Why should you also look into this? To save money every month!

Homeowners who purchased a house using an FHA loan most likely put 3.5% of the purchase price as a down payment. In order to make the lender comfortable with a reduced down payment, this buyer was required to carry mortgage insurance for the life of the FHA loan. How much does mortgage insurance cost? It’s calculated as a function of the size of the loan and the borrower’s credit score (FICO) but typically runs about $200 per month for an FHA loan of $275,000 with a FICO of 700. The monthly mortgage insurance premium declines as the loan balance is paid down, but still amounts to $30,000 for the life of the FHA mortgage in this example!

To qualify for a conventional loan, borrowers must put down 20% of the purchase price of the home. If they go the FHA route of 3.5% down, they will need to contact their lender when they believe they have now built up 20% or more equity in the home. How do you build 20% or more equity? By either paying down the loan balance so the loan to value ratio is less than 80% (it started out at 96.5% in FHA scenario) and/or by having the home value increase. With Phoenix home values up substantially in recent years, if you purchased your home with an FHA loan, odds are you are in a great situation to refinance out of your FHA loan into a conventional loan.

I urge you to contact your lender to inquire about making this change to save thousands of dollars. If you are unsure of your home’s current value to assist in determining if your loan to value ratio is below 80%, request your no-cost and no-obligation Phoenix home value estimate from me. I do not need to visit your home and you will receive your report from me within 24 hours to present to your lender to see if you qualify for an FHA refinance.

Calculating Phoenix Home Value

Calculate Phoenix Home ValueEstimating the value of a Phoenix home is a science more than it is an art. Factors like average days on market, availability of other competing homes for sale and seasonal demand fluctuations should all be taken into consideration – but more so when determining the pricing strategy for your home, not calculating its market value.

Phoenix home value is calculated using a fairly strict set of criteria, including using:
– similar size homes (generally not more than +/- 15% in square footage difference)
– similar age homes (generally not more than +/- 10 years difference)
– similar neighborhoods or subdivisions (appraisers typically will not cross a major road or highway to find comps)

Phoenix home value is impacted by differences in:
– quality of home construction
– quality of improvements made
– size of lot
– lot views and/or privacy
– number of garage parking spaces
– number of bathrooms
– having a pool and/or spa
– having a fireplace

Once an opinion of fair value has been reached, how do you determine pricing strategy?

Within each neighborhood there are typically 3 price ranges:
– high (homes that bring the most $/sqft)
– low (homes that bring the least $/sqft)
– mid (homes that fall between high and low)

Most value ranges vary by more than $10/sqft so it is important to select the appropriate price range for the home and then to correctly position the home within the appropriate range. Having your home well positioned within the correct range doubles your chances of getting the home sold. Keep in mind that selling a home is both a price war and a beauty contest.

As you have probably realized by now, figuring out a home’s realistic market value and proper pricing strategy goes way beyond finding out what a neighbor sold their house for and multiplying that $/SQFT ratio by the total SQFT of living space in your house. Submit your property details if you would like me to provide you with a no cost, no obligation, value estimate for your Phoenix home.

Opendoor Reviews Offerpad Reviews

Opendoor reviews Offerpad reviewsLooking for Opendoor reviews or Offerpad reviews on Yelp? Good luck.

On February 11, 2019 Inman News reported that Yelp made finding these reviews almost impossible, by removing them from Yelp’s online search tool and from Google search results. The review pages are still accessible with direct links so consumers can still read old reviews and post new reviews – you just can’t search for the review pages any more since Yelp has stopped them from turning up in searches. When the review pages became unsearchable, Opendoor had a 3.0 star rating from over 180 reviews, while Offerpad had a 1.0 star rating from only 1 review. Interestingly, Opendoor has received financial backing from Yelp’s CEO as well as two former Yelp board members though they state the Yelp policy change has nothing to do with this relationship.

Why are reviews so important to a business? Consider when you make a small purchase decision, such as buying a new toaster or going out to eat. How often do you read reviews before making your choice? Let’s be honest, most of us hardly doing anything today with a little research first, which includes reading customer reviews and looking up star ratings. Would you buy a toaster with a rating of 3.0 stars in their reviews? Would you eat at a restaurant that only gets 3.0 stars from hundreds of patrons? And we’re talking about spending less than $100 in each of these situations. Consider then that selling a home is one of the biggest and most important financial transactions of many people’s lives. So if you won’t eat at a Chinese buffet with a questionable 3-star rating, would you sell your home with a company that gets the same rating?

Here is a link, which is also fully searchable on Google, to my rating and reviews from Zillow: Andrew Robb reviews.

Andrew Robb - RE/MAX Fine Properties, 21020 N Pima Rd, Scottsdale AZ 85255