July 2022 Phoenix Market Update

Paradise Valley
Phoenix Az
Scottsdale Real Estate
Sir
Sotheby's International Realty
Lre
Private Client Group
Marketplace corrections impact certain sectors of Phoenix metropolitan area housing in different ways Photo of Scottsdale Skyline A picturesque view of the Scottsdale skyline — a coveted ZIP code for many who call the Valley of the Sun home. (File Photos/DigitalFreePress) Data points, insights & observations of Phoenix single-family home valuations By Terrance Thornton | Digital Free Press

As the real estate cool down of summer 2022 defines a new marketplace normal, certain price points for single-family homes in the Phoenix metropolitan area are being impacted differently by recent changes at the Federal Reserve, experts say.

On June 15, the Federal Reserve made the decision to raise interest rates by 0.75% — which experts say is an attempt to stave off more negative inflation rates lowering the value of the American dollar.

For one Scottsdale real estate professional, Sandy Karpen, the change to interest rates is having its desired effect here in the Phoenix metropolitan area but also across the nation. Mr. Karpen is part-owner of RE/MAX Fine Properties and has been selling real estate since 1991.

“The whole idea of the increase in interest rates was to slow down the rising prices and I don’t think Phoenix is unique,” he said in a July 7 phone interview. “I think what we are seeing is happening in every major metropolitan market in the country. The appreciation of 3% to 5% is a normal marketplace and is very typical but when you are getting 30% to 35% year-over-year that is not a natural occurrence of the market.”

But Mr. Karpen is exact in his stance the Phoenix metropolitan housing market is not experiencing similar data points that ravaged the real estate business in 2008.

“It is not going to come to those drastic impacts we all went through during the Great Recession,” he said. “We are just going through the market corrections but I do very much think there is a new normal in town.”

The corrections observed in the traditional single-family real estate market in Scottsdale and central Phoenix are taking buyers out of the market, Mr. Karpen admits.

“That is what the change in the interest rates was designed to do,” he said. “It slowed down the growth of pricing and it also took buyers out of the marketplace.”

But Mr. Karpen says he is not sold on the narrative that swings in valuations and price points is exclusive to a supply-and-demand equation.

 



“I am not convinced we have an inventory problem,” he said. “The inventory was low because they weren’t staying on the market. We have an over-buyer-demand problem and the end result is the same. Now that the interest rates have risen and it has knocked off more buyers for whatever reason. I think some potential buyers could be waiting for prices to come down as interest rates rise.”

— Sandy Karpen

 

 

Phoenix Skyline 1D 1024x681 The Downtown Phoenix skyline. (File Photos/DigitalFreePress.com) A macroeconomic view


Mr. Karpen argues the following Arizona Multiple Listings Service data points suggest the inventory was always there — just not available:

 

  • In 2019, there were 99,000 single-family homes sold in Maricopa County.
  • In 2020, there were 105,000 single-family homes sold in Maricopa County.
  • In 2021, there were 110,000 single-family homes sold in Maricopa County.

 

 

Mr. Karpen says while population growth is leaving limited inventory at certain price points in Maricopa County, homes are staying on the market longer.

“Honestly, there are enough houses and with the price corrections they are staying on the market longer. But what has me unsettled is the ‘X’ factor,” he said.

“We live in a very unique city and relatively speaking we are still a cheaper town in terms of taxes. We are still a final destination. There will not be a mortgage meltdown like before because buyers were either cash or properly qualified. Crazy politics we are all experiencing or something unforeseen is the only factor that has me unsettled.”

Mr. Karpen explains to do business in real estate the only ingredient necessary is the marketplace itself.

“As real estate practitioners — whether it is buyers or sellers — all we need is a market to make a living,” he said. “For example, back in 2011, in the heart of the mortgage meltdown, we sold the most homes in a down market up until 2019. The next best year for volumes of sales was 2011 so we just need a market to work. We all knew it was coming, we just didn’t know when and I don’t think anyone realized how fast it would change.”

ADVERTISEMENT 22805 N Church - Frank Aazami A league of their own

Here in the Valley of the Sun, there is no marketplace more acute to the changing in macroeconomic trends than the luxury real estate game.

Founded in 1976, Russ Lyon Sotheby’s International Realty provides independent brokerages like Frank Aazami at Aazami Associates, which is based in Scottsdale, a marketing and referral partnership for luxury listings.

But Mr. Aazami brings much more to the table.

“Everything is ‘relative’ I suppose — we’re noticing sellers are in search of better advocates, better trusted advisors, one who knows the market and true values and who is sensitive to and probe for what’s really going on in a client’s head,” Mr. Aazami told the Arizona Digital Free Press.

The Cromford Report, which is a repository for real estate data, provides the No. 1 hardest hit single-family detached price range is between $500,000 and $600,000 where the contract ratio has dropped 84% overall.

Furthermore, data shows across price ranges, all have been impacted since April, but the least affected is the range over $3 million, where the contract ratio has declined 43% overall. Below $3 million contract ratios have declined by at least 74% — a colossal drop in just three months and easily the fastest and most significant cooling since 2001, real estate experts say.



“By nature, most of us are inclined to avoid tough conversations,” Mr. Aazami reminds.

 



“It’s as if our salesperson’s No. 1 job is to put a happy face on it — whatever ‘it’ is. That said, like so many things it’s a dance — we want to be positive. Certainly we’re more attractive when we are positive; a trusted advisor can’t simply be a Pollyanna, a recent poll just found 88% now feel the country is going in the wrong direction! People have concerns. Best advisors ask the right questions, educate their clients and problem solve their next move.”

— Frank Aazami
Scottsdale Housing Construction 2 scaled Scottsdale Property Ellington Estate 1 Housing Report Cover Image scaled Phoenix Business Skyline scaled

 

Key data points provided by the Cromford Daily Report on Thursday, July 7, include:

 

• Asking prices for homes for sale have been on a downward trend since peaking just under $365 per square foot on April 27.
• The average list price per square foot for active listings is down 6.6% over the last 68 days.
• The average list price per square foot for listings under contract has failed to break above $315 and has moved mostly sideways since peaking at $314.06 per square foot on May 14.
• The average list price per square foot for listings under contract is down 0.7% over the last 51 days.

For Mr. Aazami, he sees a positive in luxury real estate as many top-tier properties are due to sprout over the next 24 months meanwhile the luxury game is getting more and more competitive as the Valley increases its prominence as a final destination for luxury real estate shoppers.

“To be clear, I’m not talking about leading questions to provoke, but open-ended questions to understand and make the best recommendations,” he said of finding the right property for the right client. “Ultimately, saving them both time and money.”