PHOENIX — As the Fed continues to raise interest rates, local experts say it’s cooling the red-hot Phoenix real estate market.
Christopher Martinez moved from Seattle to Phoenix back in May.
After renting for a period, he bought his very first home in a market where sellers were getting 10% above list price.
“The minimum bid was pretty much that high!” Martinez said.
Competition for a home was so crazy at the time that his realtor made six offers in a single day, running simultaneously. If you got a hit, he says you couldn’t afford to hesitate or the house would be gone.
“When I got a call back, I had to respond within a day,” Martinez said.
Sindy Ready is the Treasurer of the Board of Directors for the Arizona Association of Realtors and has been in Valley real estate for 22 years.
“We’re definitely not in a bubble, we’re not going to crash,” she said.
But Ready says the Fed rate hike has changed the market drastically over the past three months.
“About three months ago, interest rates were in the high threes, and now they’re in the mid-fives up to sixes, and rumors are that they’ve gone even higher,” she said. “It has slowed down the market and where it has caused a change is in our inventory.”
“Three months ago, we were at an inventory level of about 3,500 to 4,000 total homes on the market for the entire valley, and that’s condos, mansions, everything,” she added. “As of this morning, we are up to 18,700 homes on the market for the valley.”
Ready says that’s still very low compared to normal inventory levels.
“In a normal market, we would see about 35,000 homes every day. We’re still short. We still don’t have enough homes for the number of people who want to buy in the area.” she added.
Ready says the slight increase in inventory, however, has caused sellers to level out their prices.
“This is not a situation where it’s going to drop drastically in price, it’s going to be small corrections,” she said.
The price adjustment, she says, will give buyers more options.
“We are back in a situation where there may be some room to negotiate a little.” Ready said, “In the old market a few months ago, every time one house sold, the next one would sell another $10,000 higher, and then another $10,000 higher, and it was getting crazy.”
“So it’s not that the market is going down, it’s correcting itself. We’re in a more normalized market where it’s still good for the sellers, but the reality is that the buyers have a more normalized scenario. Someone who isn’t a cash buyer might actually be able to buy a house. Before it was like, okay, I’ll pay the price you want and I won’t ask for any repairs. Whatever the seller wanted, the seller got. Now it’s a situation where the buyers have a little more say in what they do with their sales,” Ready said.
Instead of dropping prices drastically, she says sellers will find other ways to close.
“Buyers are struggling, because of the higher interest rates, they can’t buy as much house. So if, instead of dropping the price, the seller offers to help cover some of the cost of buying a lower interest rate through a lender, then it helps them, and for a seller, it’s about what they net,” Ready said.
Ready says the tremendous growth in Phoenix still outpaces supply, so newer buyers like Martinez shouldn’t worry about their value tanking.
“We’re becoming known as a tech destination. Up in the north end of town with the Taiwan chip factory going onto the 303 and I-17, it affects the whole north end of town. We’re very fortunate to live in this area and it’s still a great opportunity to own real estate,” she said.
Despite prices dropping since he bought, Martinez says he’s happy to be a Phoenix homeowner.
“I feel very comfortable that Phoenix as a market, or just as a growing city, is going to be a very safe place to own real estate,” Martinez said.
Ready is confident that the market will remain strong.
“It used to be back today we would be thrilled to see a 6% appreciation on our home as opposed to the last several years where we’ve seen 29% every year or 31%,” she said.
“Don’t be afraid to be in the market right now. I think it’s a good opportunity and there are a lot of choices out there from a buyer’s perspective. From a seller’s perspective, just know that you’re not going to push the market, but you will still get a good return on your investment,” she added.
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