Arizona Real Estate Market Update: July 2024 Insights and Trends

Welcome to the latest update on the Arizona real estate market for July 2024. Whether you're looking to buy, sell, or invest, staying informed is key to making savvy decisions. Let’s dive into the current state of the Greater Phoenix residential market and what the rest of the year might hold.

Market Overview: First Half of 2024

The first half of 2024 has seen a quieter than usual market in Greater Phoenix. While there's no cause for alarm, closing volumes are notably below average, and buyer enthusiasm has cooled. Supply levels are higher compared to last year but still fall short of the long-term average—and they’re beginning to dip. This balance between supply and demand has created a stable market overall, though different areas and price ranges tell varying stories.

Supply and Demand Dynamics

Supply: Supply is up compared to last year but remains below the long-term norm. There’s more supply on the outer edges of the Valley, while central areas see stronger demand.

Demand: Buyer enthusiasm is softening, leading to lower transaction volumes. However, a slight downward trend in mortgage rates could gradually reignite interest.

Mortgage Rates and Market Balance

Mortgage rates continue to play a pivotal role in shaping the market. While rates have started to inch downward, the market remains sluggish. Despite the higher supply levels compared to last year, the overall balance is holding steady. A drastic market correction seems unlikely, given the low levels of mortgage delinquency, motivated—but not desperate—sellers, and a manageable supply-to-demand ratio.

Distress Levels and Lending Risk

Distress Levels: Foreclosure rates remain impressively low, signaling a healthy market.

Lending Risk: The average credit score of homebuyers is higher than ever, minimizing the risk of lending issues similar to those seen before the 2007 housing crash.

Current Market Status: July 2024

The market remains balanced, but signs of a buyer's market are emerging in certain areas. Over the past month, cities like Scottsdale, Avondale, Queen Creek, and Maricopa have seen their market indexes rise. In contrast, 13 cities have shown declines, indicating growing challenges for sellers.

Cities Shifting in Favor of Buyers

Several cities are now leaning toward buyers, including Tempe, Gilbert, Glendale, Chandler, Fountain Hills, and Paradise Valley.

Buyer Insights: Opportunities in 2024

The latter half of 2024 presents a more favorable environment for buyers, especially with mortgage rates showing signs of stability. Last year, rates soared from 7% to 8% between July and October, pushing many potential buyers out of the market. This year, however, analysts predict a steadier rate environment, which could ease affordability concerns.

Factors Influencing Mortgage Rates:

• Federal Reserve Decisions: The Federal Reserve's actions on the Federal Funds Rate, with a focus on inflation and the labor market, remain crucial.
• Inflation Rates: Inflation recently dipped to 3.0%, better than expected, prompting a decrease in mortgage rates to 6.82%. If this trend continues through the summer, we may not need price drops to see homes become more affordable.

Market Conditions for Buyers:

• Contract Times: Homes are staying on the market longer, with half of the homes under contract last month spending over a month listed, compared to just 21 days a year ago.
• Price Reductions: Price reductions are up 88% year-over-year.
• Seller-Paid Incentives: A notable 51% of sales included seller-paid incentives, with the median concession reaching $10,000 last month, a 5% increase from May.

New Construction: A Buyer’s Best Bet

New construction continues to offer the most attractive incentives and lower payments for buyers. Although there are still good deals in the resale market, new homes are the best option for those looking for favorable terms. This trend is expected to continue, especially with builders pushing to meet their fiscal year-end on September 30, 2024.

Seller Insights: Market Challenges and Strategies

The Greater Phoenix market has remained balanced for the past few months, but buyers are increasingly gaining confidence in negotiations. Cities like Peoria and Paradise Valley have shifted from a seller's market to a balanced one, while areas like Surprise, Goodyear, and Cave Creek are now favoring buyers. In fact, 14 of the 17 largest cities in the Valley are trending toward buyers.

New Construction Impact:

New construction is significantly influencing the market, particularly in West Valley and Pinal County, where nine cities have shifted to buyer's markets. With single-family permits up 56% year-to-date, builders are optimistic about the region’s growth. This confidence is not reflected elsewhere in the country, making Greater Phoenix a unique market. As new inventory enters the market, builders face little competition from resale listings, with new construction comprising 27% of all single-family home sales in the first half of 2024.

Sales Prices Holding Steady:

• Median Sales Price: Up 1.9% from last year.
• Average Sales Price per Square Foot: Increased by 2.6% annually as of June.

Preparing for a Balanced Market:

Sellers need to adjust their strategies in this balanced market. Proper home preparation, realistic pricing, and readiness to negotiate buyer concessions are crucial. Alternatively, rather than selling in a less-than-ideal market, consider renting out your property. This strategy allows you to generate income or cover your mortgage while waiting for a more favorable market to sell.

Conclusion: Market Outlook and Advice

The Arizona real estate market is as close to balanced as it’s likely to get this year. Sellers are facing tougher competition and fewer buyers, making it more challenging than in the past decade. For buyers and investors active during the summer, opportunities exist, but you’ll need to be strategic. With last month’s sales down 15% compared to the previous year, low volumes are expected to persist through September, with seasonal price dips. However, the market is likely to rebound in October—potentially faster if interest rates drop, though that’s not a certainty.

Thanks for reading this market update. If you have questions or want to discuss your real estate needs, feel free to reach out. Stay informed and make smart decisions in the market!