How Recent Volatility Is Affecting Arizona Real Estate

With the recent stock market volatility and impact of social distancing, a recession is imminent. But fear not, recessions are a normal part of our growth cycle. In our business, we expect overall volume to decrease if supply and demand decrease in tandem. 

We are optimistic that this disruption will be short lived with minimal impact to home values for a few reasons. First, we have to consider the nature of this recession compared to our last where there were systematic flaws in the economy. Homeowners today have substantially more equity built up in their homes versus 2007. Additionally, our local economy is far more diversified than it was just a decade ago. We know certain industries like hotels, airlines, and restaurants will be affected more, but they too will recover. 

So how will recent events impact real estate in Arizona? We said yesterday that we should see some effects of the pandemic very soon and this morning I am seeing the first small signs of a change in the market.

1. Some sellers have started to take their homes off the market to avoid the risk of having potential buyers in their home.

The total number of listings in Phoenix in Temporarily Off Market status (TOM) is 1,127 with 10,992 active with no contract and 5,077 active with UCB or CCBS status. The TOM count was 1,065 a week ago so we have seen an increase of 5.8% over 7 days. Not huge yet but if this trend continues at this pace we will start to see a significant drop in available supply. The ratio of actives (excluding UCB and CCBS) to TOM is 9.75 to 1. This time last year the ratio was 15.7 to 1. However we were at 9.8 to 1 in early January before the pandemic had really registered in the public's mind. This is definitely a new figure to watch. We may also see some unseasonal growth in cancellations.

2. The count of listings under contract shows signs of stabilizing instead of growing fast

Last year the number of homes under contract grew 12.9% between February 16 and March 16. In 2020 the same growth is only 9.7%. This is a subtle change but it is the first sign we have seen of demand starting to wane. This despite mortgage interest rates that make homes more affordable than last year. Most of the slow down happened in the last 7 days. We saw no growth in the number of listings under contract over the past week whereas during the same period last year we saw a growth of 3%.

We have not seen a slow down in closings as of yet. You would not expect that since the contract would have been signed many weeks ago and the number of people cancelling signed contracts is likely to be small at the moment. It is possible that this could change.

So we have signs of a falling trend in supply and also signs of a falling trend in demand. Which one proves to be stronger in the medium term we do not yet know, but the combination will affect volumes of business negatively. There is no sign as yet that pricing will be affected, but pricing is currently on a strong upward trend and this may falter if demand drops more quickly than supply.

Bottom line, this one is going to sting and feels like it will last forever, but we will recover. And this recovery is likely to be much more expedited than our last one.