Market Update: A Broken Record More Sales in Third Quarter Estimated Weeks of Supply

The September Numbers

I sound like a broken record. But it happened again. Yes, once again the median purchase price for a single-family resale home in Greater Phoenix reached a new record high in September. It reached $362,000. This is $5,000 higher than August 2020, $42,000 higher than January 2020 and is $51,000 higher than September 2019.

The September 2020 median monthly rent for a single-family resale home in Greater Phoenix, after setting an all-time high of $1,895 in August 2020, dropped a little in September 2020. In September it was $1,862, down $33 from August 2020. In January 2020 it was $1,650 and in September 2019 $1,695.

Which data point has increased faster since January 2020, the median purchase price or the median monthly rent? Answer: Both are up thirteen percent this September when compared to January 2020.

Sales of single-family resale homes were 6,632 in September 2020. This was 974 or seventeen percent higher than September 2019. September 2020, so far this year, is the month with the highest year-over-year increase in sales.

New monthly listings of single-family resale homes in September 2020 were 7,172 which were 304 less than August 2020, but were 632 higher than September 2019. Both total new monthly listings and total sales were higher in the third quarter this year than in either the first or second quarters. This is not the normal seasonal pattern, but of course this is not a normal season. There were 21,673 new listings in the third quarter compared to 20,790 in the first quarter and 18,565 in the second quarter. There were 20,226 sales in the third quarter compared to 15,738 in the first quarter and 16,442 in the second quarter.

As of October 1, the overall estimated months of supply is less than one month. For active listings under $350,000 there is a two-week supply. For listings between $350,000 and $599,999 there is less than a four-week supply. For listings between $600,000 and $899,999 there is a four to six-week supply. Table Two is titled Estimated Months of Supply. The title may need to be changed to Estimated Weeks of Supply.

Affordability Goes Down as Prices Rise

How much would a buyer pay in monthly principal and interest in September 2020 compared to past years? Table Three compares September 2020, September 2019, September 2018 and September 2006. The principal and interest in Table Three has the following assumptions: a buyer purchases the property for the median purchase price, has a down payment of ten percent and obtained a conventional thirty-year fixed mortgage. The thirty-year fixed mortgage rate used was the rate Freddie Mac has on their website for the previous month Freddie Mac 30-Year Fixed-Rate Mortgages Since 1971.

Under the aforementioned assumptions, a monthly principle and interest payment in September 2020 would be $1,402 compared to $1,304 in September 2019 and $1,320 in September 2018. So, a monthly principle and interest payment has gone up this year when compared to the last two years. When comparing September 2020 to September 2006, which was when prices peaked before the great real estate recession, it is less expensive to own today than in 2006. Even though the median purchase price is $82,000 higher in September 2020, the mortgage rate was 3.52 percent lower. Under our previous assumptions, a monthly principle and interest payment in 2006 would be $1,623.

A monthly principal and interest payment of $1,402 seems a whole lot better for a buyer than a monthly rent payment of $1,862. But there are other financial considerations a potential buyer must consider. Does the buyer have the necessary down payment and closing costs to purchase? Sometimes sellers will cover some or all of the closing costs. Maybe a buyer is able to use a gift fund for the down payment. Let’s say a potential buyer has a ten percent down payment and has their closing costs covered. If a buyer puts down less than a twenty-percent down payment, the buyer will have to pay mortgage insurance. So, this has to be added to their monthly payment. The buyer will also have property taxes and homeowner’s insurance added to the monthly payment. There may be a monthly HOA fee. But once a buyer has a loan in place, they have locked the principal and interest payment in place, while a renter might have a rent increase at the end of the lease. Most cities in Arizona have a rent tax that a renter pays and a renter most likely will have renters insurance. So there are a lot of considerations when deciding to rent versus own. However, if someone purchased in September of 2018 when the median purchase price was $287,000, they would have some pretty good equity today. Homeownership builds wealth.

Table One: Year-Over-Year Comparison of Sales and New Monthly Listings

Table Two: Estimated Months of Supply by Price Range

Table Three: Comparison of Monthly Principle and Interest Payments