Is the Real Estate Market Heading for a Crash?

Is the Real Estate Market Heading for a Crash?

  • Susan Solliday
  • 07/1/24

As we embrace the summer season, it's evident that our perfect weather has taken its yearly hiatus, and with it comes good things. Traffic dies down. It’s easier to get dinner reservations. Fewer drive-thru coffee jams. A general quietness descends on the Valley as Phoenicians head north and west to escape the heat. With it, our housing market enters a decidedly slower pace. 


Seasonality plays a significant role in real estate, influencing market activity, prices, and demand based on the time of year. Here in the Valley, our market is particularly dictated by the weather and holiday seasons and the summer slowdown is normal and nothing to worry about.

Not to say that our 2024 home buying and selling season was in full tilt, but it’s been a bit of an anticipated disappointment. Not meeting projected expectations and showing little movement in terms of transactions or pricing. As Mike Orr of the Cromford Report aptly summarized, “sellers are nervous, and buyers are unenthusiastic.” 


Over the past two years, we’ve witnessed mortgage rates climb dramatically from a low of 2.65% in January 2021 to nearly 8% in late 2023. This sharp climb in rates created " Rate Locked Homeowners," where sellers hesitated to give up their low rates, and buyers found the new rates unaffordable or at least undesirable. This has left us in a bit of a housing rut, a setback that doesn't appear we'll overcome soon.


As to the future, we’ll dive into Maricopa County’s data to illustrate typical annual trends in sales volume and median sales price appreciation. We’ll also share the latest Fannie Mae Home Purchase Sentiment Index and address the perennial question: when is the best time to buy a home?


Here are some key market insights we saw in May:

  • Inventory of Unsold Homes: The inventory of unsold homes in Maricopa rose. Currently, there are 12,691 homes for sale, which is 21.8% more homes than a year ago. Pre-pandemic levels saw 19,672 homes on the market, but we’re still below those numbers. Higher rates have led to more inventory, yet Maricopa remains constrained with a third fewer homes available than pre-pandemic levels. Additionally, an influx of businesses and corporations is bringing new residents vying for these limited properties.
  • Interest Rates and Inventory: If mortgage rates drop to the low 6s or 5s, demand will outpace supply, further draining the housing pool. Conversely, if rates rise due to hot employment and inflation figures, we’ll see further inventory expansion.
  • Current Market Dynamics: Despite a 21.8% increase in homes on the market compared to last year, we have just 2.4 months of inventory in Arizona. Historically, a six-month supply is linked to moderate price growth, while a lower supply typically drives prices up more quickly.
  • New Listings: There isn’t a surge of sellers flooding the market, nor are we seeing signals of distressed sellers that would lead to a significant price correction. While there are 9% more sellers than last year, the inventory increase remains modest. Quality homes, priced correctly, continue to go under contract quickly, thanks to a cash-rich market.
  • Days on Market and Prices: Homes are now spending an average of 65 days on the market, a 16.7% decrease from last year. Median home prices have seen a 7.9% growth over the previous year, with price reductions becoming more common as demand softens. 
  • Future Projections: We anticipate ending the year with 20% more homes than we had at the close of 2023. While high mortgage rates have driven inventory up, they have also slowed property value rises, suggesting that a drop in interest rates could restore affordability.


Jessica Lautz, Deputy Chief Economist at the National Association of Realtors (NAR), explains: “One thing that seems to be pretty solid is that home prices are going to continue to go up, and the reason is that we don't have housing inventory.”


The inventory of homes has increased compared to recent years, but overall, it remains low. This shortage of homes continues to push prices upward. If homeowners continue to be rate-locked and reluctant to sell, home prices are expected to continue to rise through the second half of 2024, but at a much slower rate. 


If you’re considering buying a home, the positive news is that prices aren’t expected to surge as they did during the pandemic. However, they aren’t likely to decrease either; they’re projected to keep rising, albeit more slowly.


Mortgage interest rates are anticipated to decrease modestly with potentially a dip in September. With an increase in available inventory and an anticipated drop in mortgage rates, more people will have the opportunity to move and that means more competition. Entering the market sooner could be financially beneficial in the long term. Not only less competition but the value of your home is likely to continue to appreciate after your purchase and as rates drop, you can refinance with more favorable terms.


•    ARMLS Market Reports
•    Housing Market Forecast: What’s Ahead for the 2nd Half of 2024


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