They say, “As California goes, so goes the nation,” but when it comes to 21st Century U.S. real estate, perhaps the bellwether is Phoenix.
The Arizona metropolis was ground zero for the housing bubble and the subsequent foreclosure crisis — after which institutional investors began gobbling up distressed properties there. More recently, Phoenix was the hub of iBuying and the fastest rising home prices in the country.
Today in the Valley of the Sun? Inventory is shooting up — as are the number of cash buyers.
The Arizona Regional Multiple Listings Services and Information Markets, a company wholly owned by the Arizona MLS, shared with RealTrends a treasure trove of data on a market that has rapidly shifted in the past few months amid the 30-year mortgage interest rate almost doubling, perpetually rising consumer prices and public markets spooked by the possibility of a recession.
The number of active listings on this MLS — which includes Phoenix plus a half-dozen surrounding cities such as Scottsdale and Tempe — has climbed 149% in the past four months. As of June 20, the number of homes marketed on the MLS was 12,539 compared to 5,022 on Feb. 7.
Listings have shot up dramatically while the overall number of home sales has declined gradually. The total number of homes under contract slipped 18% to 9,898 as of June 20.
And, for the month of May, sales of homes in the Greater Phoenix area declined 5.1% month-over-month and 9.3% year-over-year to 8,278 homes.
“We’re still in a seller’s market, but the change has been dramatic and swift,” said Chey Tor, an agent at RE/MAX Ascend Realty in Scottsdale, Arizona. “If this trend continues, we will be in a true buyer’s market by the end of summer.”
A major caveat to that, though, is price. Average new list prices continue to skyrocket — up 24% to $647,500 in May 2022. Actual sales prices are not escalating as fast as they were during parts of 2021. However, they climbed 17% year-over-year in May to $589,100.
The Federal Reserve, of course, is trying to fight this inflation, raising the recommended overnight lending rate between banks 3/4th of a percent last week. The move may raise the yield on mortgage bonds, and subsequently mortgage interest rates, which are already hovering near 6%.
But Tom Ruff, the president of Information Markets, sees other market factors beyond the economy writ large.
One is the number of institutional investors, companies including Pretium Partners, Roofstock and Invitation Homes, which made up 7.5% of all Greater Phoenix area purchases in May, according to a review of Maricopa County records.
These buyers, Ruff said, buy homes below the median sales price, hold onto the abodes and rent them out, in turn raising Phoenix’s price floor. Put another way, corporate landlords made almost 15% of all purchases for less than the $589,100 May median sales price.
“I’m concerned about the effect institutional investors have on affordability,” Ruff said.
Not included in these institutional investors are what Ruff terms “fix n’ flip” companies, including iBuyers’ Opendoor and Offerpad, which made up 6.6% of the May sales market. Instant homebuyers have an outsized influence in the Valley of the Sun. Opendoor has one of their three office hubs in Phoenix and Offerpad is based in nearby Chandler.
Counting iBuyers and institutional investors, cash buys made up 33% of the Greater Phoenix market this May, compared to 28% last May.
The Phoenix numbers come as U.S. home sales declined both month-over-month and year-over-year, according to the National Association of Realtors. Lawrence Yun, chief economist at NAR, sounded a note of optimism Tuesday, saying the slowdown may be less reason to panic than a sign of normalization.
“Home sales have essentially returned to the levels seen in 2019,” Yun said.