Greater Phoenix Residential Market
September 1, 2022
Greater Phoenix Residential Market
Purchase Price Goes Down
Monthly Rent Goes Up
Arizona Economy Update
Arizona Economy Update
According to the June 2022 Employment Report from the Arizona Office of Economic Opportunity year-over-year highlights show Arizona nonfarm employment increased by 104,400 jobs (3.6%) this June over last June. This equates to 286 people per day becoming employed. Arizona private sector employment increased by 104,500 jobs (4.1%), while government employment decreased by 100 jobs (0.03%). Ten out of eleven major sectors recorded job gains. The largest gains were recorded in Leisure and Hospitality increasing by 23,500 jobs. Trade, Transportation and Utilities increased by 22,800 jobs. All seven Arizona metro areas (MSAs) gained jobs. The largest percentage gains were recorded in Flagstaff MSA (5.8%) and Yuma MSA (5.8%).
Also, according to the report month-over-month highlights show the Arizona seasonally adjusted (SA) unemployment rate increased to 3.3% in June 2022 from 3.2% in May 2022. The U.S. SA unemployment rate remained at 3.6% from May 2022 to June 2022. Arizona nonfarm employment decreased by 31,900 jobs. The largest losses were recorded in Government (-36,800 jobs) and Education and Health Services (-2,100 jobs). The largest gains were recorded in Manufacturing (3,000 jobs) and Construction (2,300 jobs). The May 2022 nonfarm employment change was revised from a loss of 5,500 jobs to a loss of 4,700 jobs.
Arizona Flat Tax
Tax rates do matter. High tax rates are a reason some people are leaving cities in California. A reason why some people are leaving Chicago. An individual may pay up to 12.3% in state taxes in California. Soon in Arizona the maximum state tax rate will be 2.5%.
I spoke with Matt Gress. He is the Director of the Arizona Governor’s Office of Strategic Planning and Budgeting (OSPB). This is what he said about Arizona’s flat tax. “In 2021, the Legislature passed significant tax reform legislation that benefited all taxpayers and implemented the lowest flat income tax in the country. Over three years, beginning in Tax Year 2022, the state’s four income tax brackets (ranging from 2.59% to 4.5%) will be consolidated into two brackets (2.55% for taxable income up to $27,272 for single filers/$54,544 for married couples filing jointly; and to 2.98% for taxable income above these income thresholds). The two rates are further reduced to 2.53%/2.75% for Tax Year 2023 with the same income thresholds. In Tax Year 2024, the two rates are combined into one, flat tax bracket of 2.5% for all income.”
July Results: Rent Goes Up, Purchase Price and Sales Go Down
Unless otherwise mentioned, the following results are for single-family resale homes in Greater Phoenix (Maricopa County). The information was compiled from data provided by the Arizona Regional Multiple Listing Services, Inc.
The overall median purchase price (MPP) for a single-family resale home went down for the second consecutive month. The July 2022 overall MPP was $510,000. It was $528,000 in June and $540,000 in May. The May 2022 MPP of $540,000 is a record high. From May’s record high to July the MPP declined $30,000 or 5.6%. But let’s put this two-month decline in perspective. In December 2021 the MPP was $475,000. When comparing the MPP in December 2021 to July 2022 the MPP purchase price is up $35,000 or 7.4% in seven months. When comparing the MPP for July 2022 to July 2021 when it was $450,000, the MPP is up $60,000 or 13.3%.
Because purchase price is so important to a buyer, a buyer should consider how long they will own a home. Home values go up and down, but historically over time they go up. For example, the MPP for a single-family home in July 2017 was $268,000. If a buyer purchased then at the MPP and still owned the home today, they would have gained tremendous equity. The MPP purchase price in July 2022 is $242,000 or 90% higher than July 2017! See Table One. One more example. If a buyer purchased for the MPP in July 2010 it was $140,000. One year later in July 2011 the MPP purchase price dropped to $122,000. This is $18,000 less than what the buyer paid. However, two years later in July 2012 the MPP was up to $165,000. This is $25,000 more than what the buyer paid two years earlier.
Table Two compares the median purchase price for 30 cities from June 2022 to July 2022 and from July 2021 to July 2022. As previously mentioned, the overall median purchase price for a single-family resale home in Greater Phoenix dropped to $510,000 in July from $528,000. But when we analyze the MPP by city it did not drop in all cities. Table Two shows that 21 cities had a month-over-month drop in the MPP from June to July, it also shows 8 cities where the MPP increased month-over-month. The table shows that all 30 cities had YOY increases in the MPP.
July 2022 sales were 3,860. This is 1,389 or 26% less than June 2022 and 2,182 or 36% less than July 2021. These are big numbers. Affordability has become an issue. High mortgage rates and high purchase prices decreased the number of sales. For example, if a buyer purchased a single-family resale home for the MPP of $450,000 in July 2021 with a 30-year fixed rate of 2.98% their principal and interest payment would be $1,703. If the same buyer paid the MPP of $510,000 in July 2022 with a 30-year fixed rate of 5.52% their principal and interest payment would be $2,612. The difference is $909 more dollars in a principal and interest payment today than last year.
If you want to buy a single-family resale home but are not able to at this time, then renting one is your next option. Median monthly rent for a single-family resale home increased month-over-month. It was $2,350 in July compared to $2,315 in June. When comparing median monthly rent to last July it went up $125 or 6% YOY. See Chart One.
Listings Have Skyrocketed!
The number of active listings in the middle of March 2022 were 4,452. On August 1, 2022, there were 16,716. (Note: this is for all listing categories in ARMLS. Not just for single-family resale homes). This is an increase of 12,264 or 275% in five months. I have never before seen an increase in listings like this. This means buyers now have many more homes to chose from than just a few months ago!
In June 2022 there were 8,793 new single-family listings. The last time there was a month that had close to this many listings was the month of March 2017 when there were 8,714. In July 2022 the number of listings dropped. There were 7,319 new single-family listings in July 2022. This is 1,474 or 17% less than June 2022 and 109 or 1% less than July 2021.
Conclusion With Predictions
While higher mortgage rates and higher purchase prices have priced some buyers out of the market, there are plenty of potential buyers who today are qualified to buy, but either have buyer fatigue or are now in a wait-and-see mode. When the snow people (my definition of those people who come to Arizona to get out of the snow) start coming to Arizona they will increase the number of buyers in Arizona. This will decrease inventory. But today with the incredible buildup of inventory, a buyer has many more choices than just a few months ago. So, if a buyer today sees a home they want, they should consider how long will they be in the house and how historically home values go up. Affordability did get a little better in July with the drop in purchase price and a drop in the 30-year fixed mortgage rate. PREDICTIONS: The August overall median purchase price will be a little above the $510,000 we saw in July. Some sellers are in a wait-and-see mode which means less new listings. There will be less than 7,000 new listings of single-family resale homes in August. In August more sellers will be giving seller concessions to buyers. The 30-year fixed mortgage rate may fall below 5%. This article was submitted for publication on August 4. Let’s see how I did.
Overall, today with the market shifting BUYERS, NOW MAY BE YOUR OPPORTUNITY TO OWN.
Chart One: Median Monthly Rent & Median Purchase Price
Table One: Median Purchase Price Comparison by The Wilcox Report ™
Table Two: Median Purchase Price for Thirty Cities by The Wilcox Report ™
Chart Two: Sales of Single-Family Homes and 30 Year Fixed Mortgage Rate