Monitoring the Real Estate Market: Everything Could Change in Four or Five

Owning a home means a lot of things to a lot of people. It can mean security and stability for some; for others, it’s a license for creativity; and for most, it is part of the path to financial freedom. These amazing benefits and more only come to those willing to be decisive and assume a certain level of risk.

This “risk” comes from the fact that homes are sold as an open market product and are heavily impacted by global and national economic trends as well as local supply and demand economics. The value of your home can, and will, change over time, and that can seem scary. Compound that with the goal of every buyer to “get the best deal” and you can create analysis paralysis. Hindsight is 20/20 and while you may have wished you bought a home five or 10 years ago, the purpose of this article is to look forward and highlight the housing opportunity in the next four to five months, because after that, everything could change.

Supply, Supply, Supply

Why are home prices so high? Supply. Why is housing affordability at record lows? Supply. Why are you having trouble finding the perfect home? Supply. Sure, interest rates haven’t helped, but as we’re now seeing, those come down. We understand that those are temporary, and debt can be refinanced.

Current Federal Reserve Chairman Jerome Powell recently made a similar statement in that the real issue behind housing prices is supply and they, the Fed, cannot fix that. For illustration, where that sits in Flagstaff, the absorption rate chart, courtesy of Northern Arizona Association of Realtors, shows that we actually hit some of the highest months of inventory this last summer than we’ve seen in years. Keep in mind – rate of absorption reflects how many months, based on current market pace, that it would take to sell out of available inventory. This is then a great measure of seller vs. buyer market temperature as experts explain that five-to-six months of supply is an equal buyer/seller market, above six is more buyer market and below four is more seller market. 

Considering where home prices have surged, considering the 25-year mortgage rate highs and considering the global inflation crisis we’re crawling out of, we have not seen a solid buyer’s market here in Northern Arizona. The supply hasn’t flooded the market and the demand has remained paced to market. As a reminder, we hit 13 months of inventory during the bubble burst in 2006-2008 and as you can see, we’re nowhere near bubble levels. 

Don’t Blink During the Fall and Winter

Costs for homes have effectively gone down in a massive way in the last 60 days, but the market hasn’t fully taken note yet. Per Chart 3, you can see that despite being at 24 month lows with current rates, mortgage applications haven’t reacted. On a $500,000 loan amount, the average client is saving between $500 and 600 a month than if they had…