Housing market shifting away from sellers? Not quite - SanTan Sun News SanTan Sun News

Housing market shifting away from sellers? Not quite

May 26th, 2022 SanTan Sun News
Housing market shifting away from sellers? Not quite

By Paul Maryniak
Executive Editor

Home prices aren’t coming down, but sellers’ negotiating power apparently is as the market may be cooling faster than expected, according to the Valley’s leading analyst of the housing market.

“Your negotiation power is dissipating at a rapid rate,” the Cromford Report warned sellers in a post last week. “It will take several months of this trend continuing to reach a balanced market, but this no longer looks like such a far-fetched idea.”

And if you want to understand one of the factors influencing prices, the Cromford Report offers a suggestion: “Demand from investors for rentals now represents nearly 21% of all home sales.”

“The reported intent of buyers has changed significantly over the past year,” it explains. “In Maricopa County, purchases for owner occupation as a primary residence have declined 19.4% between April 2021 and April 2022. Purchases as a second home have declined by 8.1%. In contrast, purchases to turn into a rental have increased by 8.5%.”

And it suggests the actual percentage is likely higher, asserting that it’s likely some buyers are not being truthful in stating the reason for the home purchase on the affidavit of value that the state Revenue Department requires on every home transaction. “This is sure to be an undercount,” it states.

That affidavit asks the buyer to list whether the purchase is being made for a primary residence, to rent to someone other than a qualifying family member or as a second home.

“Just a cursory inspection shows us that many unscrupulous investors are marking their Affidavits of Value as purchases of a primary residence, no doubt to attract lower taxes,” the Cromford Report states. “It is perjury to enter incorrect information on an Affidavit of Value and each of these documents are notarized. However, we are yet to hear of any government agency taking action to enforce the state laws surrounding Affidavits of Value.”

The influence of investors on the rental market has been significant over the last year as real estate investment companies have been paying two, three and even greater times the price of an apartment complex than the seller paid within the last two to five years.

Likewise, large and smaller investors also have been buying single-family homes, keeping inventory low as prices climb.

But one sign of a sea shift in the market – and the reason for the Cromford Report’s pessimistic message to sellers – is  its market index.

That index bases short-term forecasts of how balanced the market is in 17 Valley municipalities by analyzing the trends in pending, active and sold listings compared with historical data over the previous four years. 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.

“All 17 cities are cooling quickly and their CMI is dropping 10% or more over the past month. 9 cities have fallen by 20% or more over the last month and one – Queen Creek – by as much as 30%,” the Cromford Report said.

Still, those markets remain well within what the Cromford Report considers heavily tilted toward sellers in most of those 17 cities. The lowest two are Buckeye, at 188, and Maricopa, at 219, while the two highest are Fountain Hills at 473 and Avondale at 442.

Phoenix is at 369 while East Valley submarkets’ rankings are: Mesa, 366; Gilbert, 363; Chandler, 354; and Tempe, 292.

Stating that its index as early as May 9 “was the first indicator to sound the alarm about the current market direction,” the Cromford Report adds, “We can now see several other early indicators fall like a sequence of dominoes toppling over.”

“Supply is growing in almost all areas thanks to a plentiful and growing flow of new listings, while homes are going under contract at a slower rate than we have seen for a long time.”

“While all the numbers are low in absolute terms, the 2022 line is shooting skywards like a missile. This tells us that supply is increasing very quickly relative to demand.”

Still, it’s too early to say what will happen over the next six months, the Cromford Report warns.

“I am NOT saying this is going to happen in 2022 and 2023, but I am saying this trend needs to be watched very closely,” it states. “A balanced market will have about 120 to 135 days of inventory and if we get more than 150 days we will be in a buyer’s market, one where prices will tend to fall rather than rise.

“My advice is to keep watching days of inventory like a hawk and react appropriately.”