Arizona 2024 Summer Housing Forecast

Phoenix Home Appreciation, Cromford Market Index, Interest Rates, & Buyer Advice

As the market has changed a lot in the last couple of years, from the crazy highs of 2020, to the really rough year we had about a year ago, and now things have kind of leveled out, lots of interesting things to talk about in terms of housing.

Phoenix Home Appreciation

This is what’s been happening, looking back at the past and what’s been happening in terms of housing appreciation. Lots of people have been, especially YouTubers, for like 10 years now, talking about how the market is going to crash, and they just keep being wrong. It hasn’t happened at all. Here are the Case-Shiller numbers. These are national numbers for the top cities in terms of appreciation over the last year. Now, these are a little bit dated. The Case-Shiller numbers are always like three or four months behind, but they serve to prove a point, which is that homes are still definitely appreciating. Phoenix has done really well as well, 4.6%, which is a little bit above what you would expect for an average market, 14th overall in the nation. I posted this a while ago on social media, and it’s still true. Those people waiting for the market to crash will be disappointed. It just has not happened, and I really don’t — spoiler alert — I don’t expect any crashes anytime soon, but I do want to let you know that I do think things are slowing down. Some of this appreciation does seem to be halting a little bit, so we’ll talk about that today and what I think is going to happen in the future.

One of the big indicators of what’s happening moving forward is the inventory, right? So, how many homes there are for sale versus how many people are buying those houses. The inventory number is if we stop listing houses today, how long would it take for us to run out of properties, right? That’s how many months of inventory we have. So I’m going to walk you through Phoenix.

The supply of property is beginning to increase in Phoenix. So we’re about two and a half months worth of inventory in Arizona as well, and that I expect to continue. A normal supply would be in the neighborhood of about five months. So we’ve been under-supplied for quite a long time in Phoenix, but that’s going to increase over time. I think we’re going to see that start to normalize and get back to right where it should be.

Phoenix Home Price Drops

One thing that’s interesting we’re starting to see is the price drop situation. So more homes are having price drops, and that’s beginning to increase. Now, this is a look since 2020. That big spike you see in price drops was when the interest rates first started to get higher when we had a situation where everyone kind of got caught by surprise that the interest rates went up so high. And in particular, all the iBuyers, so all the investors who were buying houses cash and then flipping them instantly, really took a bath, and they dropped prices very quickly to accomplish getting their home sold, and that really caused a ton of price drops. So that was like an unusual spike there. So if you get rid of that weird spike, what you can see is that the price drops are higher than they’ve been since early 2020. So we are starting to see more price drops, and this is obviously an indicator that the market is slowing down because more and more of our listings are going, look, it’s not selling, let’s just drop the price, let’s drop the price so that we can get it sold. So that is another indicator that we’re really starting to see the market soften.

Cromford Market Index for Phoenix

This is an index called the Cromford Market Index. So this is a measure of supply and demand. This is for Phoenix. I find that this index is very predictive of Phoenix. What this does is predicts what’s going to happen in the market. So a rating of 100 is a normal market. That means there’s a little bit of upward pressure on prices. So we would typically see about 3% or 4% appreciation in a normal market. And you can see the pink line was last year where we did see, you know, the index got up to in the mid, you know, 150, 160, 170 range. So there was a little bit more upward pressure on pricing, like during COVID when things went crazy, it was like up to 400. So 150 isn’t that crazy, but it’s really kind of fallen and normalized now to where we’re seeing like 120. That’s a situation where there’s just not a lot of upward pressure on pricing. It’s kind of a normal market. Nothing crazy whether it’s up or down. We expect to see appreciation normalize.

Pent Up Demand in Phoenix – Annual Sales Rate

What we do have is pent-up demand, and you can see it posted in this Wall Street Journal link here. It’s been the lowest amount of home sales in 30 years was 2023. Meaning, that’s not a market issue, that’s a transaction issue. It means that a lot of people don’t want to sell their house. Those of you who are around in 2008 remember you drive down the street, and every house was for sale. I mean, it was crazy. It’s the opposite now. It’s kind of hard to find a house for sale, and it’s been especially hard in the last year or two, but we’re starting to see that wobble a little bit, meaning that pent-up demand, all the people who really want to buy a house and really want to sell a house but are stuck because of high interest rates, are starting to realize like this is not going to change. Everyone’s starting to predict and understand and realize that we’re not going to go back to 3% interest rates anytime soon. This is the new normal, you know, 7% interest rates. Maybe we’ll get down into the sixes in the next year or so, but nobody’s anticipating it getting much below that anytime soon or really much above eight, eight and a half.

And so here we are. If you want to buy or sell a house in the next, call it three, four, five years, this is about what you should expect, and most people are not going to wait around to make their big life move. If they want to move across town for a new school or maybe move out of state, maybe get a bigger house, those kind of things, you can only delay those decisions for so long. And so what we’re going to have very likely is the number of transactions, which is what this chart shows, increase. You can see for the last several years, it’s been just crickets, just so few homes, which is really killing realtors and title companies, escrow companies, lenders. A lot of people have gone out of business because there’s just not enough deals to go around. Those are the people who are most affected by that. But that’s starting to perk up a little bit, and we anticipate that turning around at some point. You know, I would be surprised if there was a big shift this year, but next year we might really start to see more and more transactions happen as people adjust to the new normal.

Buyer & Sellers When Interest Rates Drop

I do think when rates drop, what’s going to happen is both buyers and sellers are going to jump in the market. I don’t anticipate rates going down and then all of a sudden all the buyers get excited and start buying houses and that makes prices go up crazy. I don’t see that happening because I think there’s also a lot of sellers who want to sell and have it. So I think what will happen is as interest rates go down, which is going to happen, I mean the Fed has already said several times we’re going to eventually we’re going to drop rates, we’re just waiting for inflation to cool off and we’re starting to see signs of that happening. Then both supply and demand will increase, meaning the market’s not going to change much, meaning there’s not going to be a whole lot of, you know, price increases or decreases. That’s not going to be a huge shift. I think prices will go up more a little bit, but it’s mostly going to cause there to just be more activity in the marketplace. Good news for realtors if you can hang in there till this happens, I think you’ll be in good shape. Same thing with lenders.

The Market Cycle

Here’s where we are in the market. So this is very consistent. It’s been this way for all time, right? It’s people get excited and then euphoric and crazy, and then it goes sideways and everyone’s panicking and the world falls apart, and then it goes right back up again. The market is very cyclical that way, and we’re kind of in the section where it’s moving from skepticism to hope. Like, ah, you know, maybe this is the new normal. Maybe everything will be okay. You know, people are starting to get interested in the real estate market again and maybe a little more even excited about it. So that’s great, but I don’t think we’re going to see sort of the optimism, enthusiasm, the euphoria. I think we’re a little bit away from that. I would imagine the rest of this year will be mostly people just sort of waiting around to see what happens in the Phoenix market.

Phoenix Buyer Advice

So here’s what this boils down to for advice, and then I’m going to give some specific tips for people who are considering buying and some specific tips for people who are considering selling. For buyer advice, my suggestion for people is to get in before rates drop and then refinance, right? Because I think what will happen is as interest rates drop, there will definitely be more buyers who enter the marketplace. I also think there’ll be more sellers, as I mentioned a minute ago. That part I’m less sure of, but I think that’s what will happen. What I’m certain of is that more buyers will enter the marketplace as rates drop. So why not start now? If you’re just waiting to buy a house for rates to go down, I would not suggest doing that. My suggestion would be go get yourself a house and then refinance when rates go down. Now, rates may not go down anytime soon, but at least you’ve locked in the interest rate. They can’t go up on you. It can’t get worse, it can only get better. And so that’s my suggestion is if you’re waiting around to buy, don’t wait anymore. Just get in the game now as a buyer. The one advantage you do have in waiting is I do think inventory will continue to tick up, meaning there’ll just be more selection, more properties for you. You might be looking around going, there’s nothing that I want here. If that’s the case, I mean, don’t buy a house you don’t want. But I would get in the game, start looking because there are more and more properties coming on every day, and it wouldn’t be a bad idea for you to beat the rush and get into a house before the buyers really jump back into the game.

Real Estate Agents

I saw this post in the LA Times and thought it was funny. They were fishing for people who had bought a house a year or two ago, hoping that they could eventually refinance and decrease the rates. And they put here that real estate agents were pushing people to do this, and I put a social media post out because I thought this was funny. Of course, we were pushing people to buy a house two years ago and then refinance when rates go down. That’s just good advice. The people who bought a house two years ago are really glad they bought a house two years ago. So, home prices just keep going up and interest rates have continued to go up. Interest rates were then lower than they are now, and prices were lower. So yeah, we’re absolutely of the mindset that especially over the long haul, you only have a losing proposition by waiting. Your only downside is that home prices go down if you buy a house today and, you know, as opposed to a year from now. But historically, that’s a bad bet. Home prices do go up over time. We have little dips here and there, but they don’t last very long. So, if you want to buy, buy. I don’t think there’s any reason at all to wait.

Comparing Home Prices Over Time (Orange Line) vs Interest Rates Over Time (Blue Line)

In fact, here’s a chart that proves that point. On the right-hand side, I’ve got the orange line, which is home prices over time, like over long periods of time. This is since the ’70s. And then the blue line is interest rates over time. So, interest rates go up and down all over the place, right? We all have the, you know, our parents or grandparents who tell us the stories of their 18% interest rate or 20% interest rate, right? We haven’t seen that in a long time, but the interest rates we’re experiencing now are very normal. They’re not especially high right now. They’re just high compared to what we’ve been experiencing for the last, you know, decade and a half. So, are you better off buying and potentially refinancing down the road? Yes. Historically, that’s a better move. You can also see the gray bands there, and those gray bands represent recessions. So anytime we have a recession, interest rates go down, and that’s by design. The Fed is pulling the levers to make that happen. If the market is getting worse, they want to lower interest rates to pep up the market a little bit. So are we due for a recession? I don’t know. People have been talking about that, me included, for a couple of years, going, yeah, we’re probably due for a recession. It still hasn’t happened, but it seems likely that in the next, you know, year or two, we will see a recession, just meaning GDP will decrease quarter over quarter. We’ll start to see negative growth. That seems very likely, and when that does happen, then we will see interest rates drop. So I think interest rates dropping is inevitable, but when, that’s a bit of a guess, right? If I had to guess, I would say late this year, early next year, but that can keeps getting kicked down the road because the economy just doesn’t seem to want to slow down. So what we tell people is, yeah, rates are historically low, and if you’re renting, any interest rate is better than 100%, right? If you’re renting a property, you’re just paying somebody else’s mortgage, so always better to be owning than renting. And people who own a home statistically are like 50 times — their net worth is 50 times higher than people who don’t own a home. So always great to own a home. And if you’re in an area like San Diego, I have some friends who I really sympathize with, who it’s just so expensive they can’t buy a home. My suggestion to those folks is get yourself a rental property. You can buy homes in Arizona, for example, much cheaper. We can help you do that. And at least get in the game, get a property, go rent it out, get some equity. You got to do something with that money to keep ahead of inflation, and buying a rental property might be a good fit if you just can’t afford what you want in an expensive marketplace. Buying now removes your risk of higher interest rates, of higher prices, that kind of thing.

We also have a lender for life program that our lender does, where once you buy your house, he’ll refinance it for free at any point during the life of that loan, which is really great.

We also have a great tool we use, we call it our rate relief program, which is really a 2-1 buy-down. So the way this works is we, when we’re helping people buy properties, we can negotiate from the seller — the market’s cooling off, this is getting easier to do — we can negotiate from the seller, hey, it’s, you know, we want to get a credit, a seller credit from the seller to help make the mortgage more affordable. So you’re buying a million-dollar house, you might say, okay, let’s get $20,000 as a credit from the seller. And that money, as you can see in the diagram here, gets moved from the seller’s pocket into the lender’s pocket, and it artificially makes the interest rates go down for the first two years. So basically the seller is prepaying some of your mortgage payment too. Now, this doesn’t make your mortgage any cheaper over the long haul, it just makes it easier to adjust to, and we’re able to ensure that your payment in year one and two is pretty significantly cheaper than it would be if we didn’t do the rate buy-down. It just makes it a lot easier to adjust to. Your lender is still going to require that you can qualify for that payment that’s going to happen in year three so that you know you can afford the house. But it’s a nice way to ease into it, and our hope is that in the next two years, interest rates do go down so you can refinance. You get the artificially lower interest rate today and for the next two years, and eventually we hope the rates — we’re pretty confident the rates will drop in the next two years, and you can refinance. If not, no big deal. You did pre-qualify for what the full payment will be, so this is a great way to reduce that payment shock and get into a property cheaper and to beat the rush of getting into a property before the buyers get excited about lower rates when that happens.

We also do have an affordable more advantage program. So this is a $7,000 homebuyer grant, and this is free money you don’t ever have to pay back. It is a governmental program a lot of people don’t know about. You have to have a 620 credit score. Somebody who’s buying the house has to be a first-time homebuyer. Not everybody, but as long as one of the buyers is a first-time homebuyer, you can qualify for this. It’s a great program. There’s no income restrictions or anything like that. You do have to live in certain parts of town. It all depends on where you currently live, and that’s sort of a complicated formula for how they figure out who qualifies for this in terms of where you live. But that’s really the only qualification, that and being a first-time homebuyer. So if you or someone you know is a first-time homebuyer looking for a property, reach out to us and we can see if you qualify for this $7,000 grant. Pretty cool program. There’s also talk at the federal government level of a credit. I don’t know if that’s ever going to happen. That seems unlikely to me to happen anytime soon. But this does exist, and this is ready to go today.

So if you are interested in buying a property, if you’re like, yeah, it’s time to get off the fence, reach out to us. You can just email us, or you can drop a comment in the YouTube post here, email us, whatever you want, and we’d be happy to get you access. We have, of course, all the properties that are on the market that you can see there on Zillow. We can help you take a look at those. But we also have our secret seller marketplace. So this is a bunch of people who are considering selling or about to sell properties that we’re about to list, and we’d be happy to share that list with you to get you access to those properties before they hit the marketplace. So reach out if that is of interest to you.

Seller Advice

Let’s talk about sellers. My advice to sellers is don’t sell if you don’t need to, but don’t wait for rates to drop to make your move. I think waiting around for rates to drop is going to take forever, and you might be just postponing your life for no good reason. It could take a lot longer than you think. So if you don’t have to sell, I mean, homes are getting more and more valuable, so, you know, why sell? You got a nice interest rate and homes are appreciating. The market’s not going to crash, in my opinion. So if you don’t have to sell, don’t sell. But if you’ve been waiting around, I would go ahead and start thinking about this, you know, get yourself off the fence. The other thing you could do is potentially buy a home and keep your house and rent it out because you got that nice low interest rate. Rent it out, keep it as an investment. But if you want to move up, get a bigger house, different school districts, whatever, you could do that as long as you qualify for that. And our lender can help you figure out whether you qualify for doing both, keeping your current house and buying a new one.

Next, as far as sellers go, a couple of things we’ve done to help our sellers be more competitive and to take advantage of the interest rate programs I just talked about is all the interest rate programs that we’re using for our buyers, we’re now using for our sellers. So the new home builders have been doing this for a while now. We’re just copying their program where if you go buy a new home, new build, they’re offering lower interest rates like 4-5% instead of 8%. And the way they’re doing that is with buy-downs and/or adjustable-rate mortgages. And so we figured, why don’t we just do the same? In other words, why don’t we market a buy-down to the buyers who are going to buy our properties? And so I’ll kind of walk you through what that looks like. I’ve already explained what a buy-down is. So here’s what we do, like this is an example of our Zillow listings. We talk about our rate relief rebate program, get a 2% seller credit to reduce your mortgage payments. So what this is doing is attracting buyers who are looking at all these listings, trying to figure out the one that stands out to them, and we’re advertising just like the home builders are, hey, look, we’ll sell you this house, and you can get a 5% rate or 4% rate. How do we do that? Well, our lender has a program where he will contribute 1% of the buy-down, and then we, our team, will contribute the other percent. So it costs the sellers nothing, and it allows us to market your property in a distinct way that helps you stand out against all the other properties. So everybody else, if they buy those houses, you know, all these other competitors’ listings, they got to pay 7-8%, whatever the market is. If they buy one of our listings with our clients, then they get a 5% interest rate for those first two years, or 5.5%, something like that. So it really helps your property stand out, and it’s a clever way that we’ve created that costs the sellers nothing to advertise their property in a way that really, really sticks out from the crowd.

We also advertise the grant that I just talked about, so we put these riders on our listings, again, to help our properties sell, help our listings get sold quicker and more efficiently than the others. So if you’re interested in possibly getting your home sold and ready to make that move, same thing, just email us, and we’d be happy to reach out to see if we can’t help you in Phoenix to get your property listed. We can also, let’s say you want to sell, but like you’re not in a hurry, or you only want to sell if you’re going to find that perfect house you want to move into first, or you want to sell, but your price is a little bit above what the market will currently bear, we have our secret seller marketplace that we can put you on, and that’s kind of a quiet listing where you don’t even have to take photos or showings or any of that stuff. We’re basically going to market that property to our current clients in case we’ve got someone who wants exactly what you have. So if you’re a longer-term seller, you’re thinking about selling a year, two years, or six months, or you’re in one of the circumstances I just explained, this might be a good opportunity for you. Reach out to us. We can get you on that secret seller marketplace and maybe tie you up with a buyer who they also aren’t in a hurry, you know, or they do want your particular house, and they’re willing to pay a premium because they want that kind of home or that particular neighborhood, etc. So this is kind of a quiet marketplace that we can add you to without all the hoopla of a full-blown listing and signs and all that stuff. So that’s an opportunity as well that we’d be happy to chat with you about.

So that’s what’s happening in the marketplace. Hope this was helpful for you. If you have questions, please do reach out. I’d be happy to help you with those. And on behalf of everybody at the Gluch Group, thanks so much. We look forward to serving you and helping you buy or sell your next property. Thanks so much.