"The cooling trend is getting even more powerful"
Submitted Tues, 06/07/2022
It's the start of June 2022 in Arizona and it's hard to image anything cooling down in the Arizona heat, but the housing market my be doing just that!
In the June 5th Mesa Tribute1, Executive Editor Paul Maryniak covers the details of recent data from the Cromford Report2 – a leading analyst of the Valley's housing market.
There is some good news for Buyers, who may now have more leverage than they have had around the skyrocketing March and April period. Although it is still a sellers market, prices may be on the verge of softening as confidence shifts to the buyers advantage.
For June, Cromford Indexed the overall market at 272 compared to a 406 indexing in mid April, and a 385 at the start of May. Values below 100 indicate a buyer’s market, while values above 100 indicate a seller’s market. A value of 100 indicates a balanced market.
Key Takeaways:
- “a clear weakening trend has started.”
- The simple math: Supply has increased + Demand has decreased = sales volumes declining
- Average per-square-foot price showing signs of retreating
- Those who refinanced and took a little too much cash out over the last two years are more exposed than most.
The report goes over some areas that are normalizing faster that others.
The largest downturns have been showing in Chandler, Queen Creek, Cave Creek, Gilbert and Avondale. The Mesa area declined over 25%. A sharp slowdown is expected in the Greater Phoenix Area. The smallest declines were found in Paradise Valley and Fountain Hills. The lowest index marker was Buckeye at 166 indicating the overall market is still titled toward sellers.
A main concern is how quickly the market is cooling, with some comparison to the pre-crash market period of 2005 - this period is a much sharper reversal. Noting a similar downward trend that started last summer, “at the moment, we have a more positive situation with a much higher percentage of homeowners having significant equity. - They should be motivated to protect rather than abandon that equity.”
Is today’s housing market in the same predicament that it was over a decade ago, when the 2007-08 crash caused the Great Recession?
The short answer is: no. America’s housing market is in far better health today. That’s thanks, in part, to new lending regulations that resulted from that meltdown.
🔗 June 20, 2022 - Here's why this housing downturn is nothing like the last one
Finally, Maryniak reports that Cromford had a word of caution for sellers: “It remains easy to sell a home at the moment but if this cooling trend stays in place, selling will start to get much more difficult by August.” Some sellers will risk overpricing their homes in the current market conditions.
November 22, 2022:
🔗 Opinion: Homeowners should prepare for an ugly 2023, but it’s unlikely we’ll have a repeat of 2008
Opinion by Erik Lundh, principal economist at The Conference Board: A much-feared correction in US home prices is underway.... 13
Sept. 8, 2022:
🔗 Mortgage rates hit 5.89% — the highest level since 2008
The Federal Reserve is signaling it plans to keep interest rates higher for longer... 12
July 20, 2022:
🔗 Mortgage demand drops to a 22-year low as higher interest rates and inflation crush homebuyers
Mortgage demand hit the lowest level since 2000, according to the Mortgage Bankers Association’s seasonally adjusted index.. 11
July 11, 2022:
🔗 Homebuyers are canceling deals at the highest rate since the start of the pandemic
The share of sale agreements on existing homes canceled in June was just under 15% of all homes that went under contract, according to a new report from Redfin. 10
June 16, 2022:
🔗 Mortgage rates hit 5.78%, the biggest weekly jump since 1987
Rates have risen sharply since January, pushing the cost of financing a home up significantly. Surging rates have the effect of putting the brakes on the housing market. 6
🔗 One more sign the housing market is cooling off
Homebuilder sentiment declined for the sixth month in a row in June, according to the National Association of Home Builders. Applications to purchase new homes in May fell 4% from April, and 5% from a year ago. “Should home completions ramp up, buyers will see some relief in the form of increased housing supply,” she said. “Despite lower near-term housing demand, the need for new construction remains pressing to close the sizable decade-long housing supply gap and create a more favorable environment for buyers.” 7
🔗 What the Fed rate hike means for you
Rates have risen sharply since January, pushing the cost of financing a home up significantly. Surging rates have the effect of putting the brakes on the housing market. 8
- Borrowing costs are going sharply higher – It is no longer insanely cheap to take out mortgages & home equity lines of credit. Rate hikes have already driven up rates and slowed down sales activity, weaker demand could cool off prices.
- High inflation – will likely force the Fed to raise interest rates several more times in the coming months.
- Investors are expecting the Fed will raise the high end of its target range to at least 3.75% by the end of the year, up from 1% today.
June 15, 2022:
🔗 Mortgage rates in 5% range for several years from now?
Former US Treasury Secretary Larry Summers, who predicted US inflation would rise, predicts that the US will likely see a recession in the next two years because of an "overheated" economy, and says he expects interest rates will continue to rise. 4
🔗 Fed raises key interest rate by 0.75% as it hardens fight against inflation.
The central bank delivered its biggest interest rate hike since 1994 as the latest inflation data shows consumer prices are still climbing at a record pace. The three-quarter-point hike brings the federal funds rate to between 1.5% and 1.75%. 5
- Expected effect of these changes: consumers will spend less and slow demand for goods
- The consumer price index, a key measure of inflation, came in at 8.6% last week on a year-on-year basis — hotter than expected. That triggered volatility in the stock market early this week.
- The Fed's actions have caused stocks to fall and made borrowing much more expensive, especially in the housing market, where mortgage rates are now the highest in over a decade.
- Borrowers are advised to focus on paying down debt. A more promising environment is developing with respect to savings. For stock investors - stay the course.
June 8, 2022:
🔗 Mortgage demand falls to the lowest level in 22 years amid rising rates, slowing home sales
"Applications for a mortgage to purchase a home fell 7% for the week and were 21% lower than the same week one year ago." 3
Citations and Further Reading:
- 📰 June 5th, 2022 - Mesa Tribute Page 3: Valley housing market cooling fast, analyst says
- 📰 The Cromford Report website: The Cromford Report website
- 📰 NBC News June 8, 2022: Mortgage demand falls to the lowest level in 22 years amid rising rates, slowing home sales
- 📰 CNN Business News June 15, 2022: Former US Treasury Secretary Larry Summers predicted US inflation would rise. Hear what he thinks about a recession...
- 📰 NBC Business News June 15, 2022: Fed raises key interest rate by 0.75% as it hardens fight against inflation.
- 📰 CNN Business News June 16, 2022: Mortgage rates hit 5.78%, the biggest weekly jump since 1987
- 📰 CNN Business News June 16, 2022: One more sign the housing market is cooling off
- 📰 CNN Business News June 16, 2022: What the Fed rate hike means for you
- 📰 June 20, 2022 - Here's why this housing downturn is nothing like the last one
- 📰 July 11, 2022 - The Deal Is Off: Home Sales Are Getting Canceled at the Highest Rate Since the Start of the Pandemic by Lily Katz and Ben Walzer
- 📰 July 20, 2022 - Mortgage demand drops to a 22-year low as higher interest rates and inflation crush homebuyers
- 📰 Sept. 8, 2022 - Mortgage rates hit 5.89% — the highest level since 2008
- 📰 November 22, 2022 - Opinion: A much-feared correction in US home prices is underway...