Five Housing Market Facts You Wish Were Not True

What are you most excited about and what are you most nervous about?” That’s a question I’ve asked Flagstaff home buyers countless times through the last 14 years in my lending career. Flagstaff is special, we all know that. Almost everyone I talk to expresses their excitement to own their little piece of this mountain town; however, almost everyone I talk to also expresses the concern on cost. It’s no secret that our island-economy and highly desirable area has high demand and little supply, both of which make our market competitive and expensive.

I certainly have empathy across the board for all aspiring homeowners, as this is not an easy market to maneuver. While some lean heavy on emotional response and frustration, I believe buyers need to understand five housing market facts that will help them navigate the current housing market.

Less Supply and Fewer Sales – At the end of July 2022, 765 homes had sold in Flagstaff. This year, only 589 homes sold by the end of July, which is a 23% reduction. Part of the issue is that there are 21% fewer active listings in Flagstaff during that same period.

Prices are Sticky – While we watched mortgage rates whipsaw from sub-3% to over 7% last fall, many news headlines predicted housing crashes of a 20% to 30% and more reduction in home values. Mortgage rates have stayed mostly over 6% this entire year and while we have generally seen sellers list more competitively, June and July saw list to sell ratios at 98.7% and 97.2% respectively. Certainly, this is more favorable than the over-bid markets we’ve just come out of, but nowhere near the definition of a crash.

Market Still has Momentum – Bolstering the strength of the market is days on market, with a median of 48 days as of the end of July. Given the average contract to close period is 30-45 days, this puts half the homes on the market accepting offers within the first one to two weeks of listing. Some of us remember real estate before 2020 when a home could reasonably sit for a month or two. This speed, despite barriers of price and rate, speaks to demand resilience.

Inflation is the Culprit but Will End – Historically speaking, mortgage rates trend closely with the 10-year treasury, usually sitting around 1.72% higher than that market index. Today, mortgage rates are sitting over 3% higher than the 10-year treasury, a phenomenon we only see during small windows of high economic volatility and uncertainty. The inflation spike and subsequent monetary tightening is the main culprit for this uncertainty, but this too shall pass and once markets calm, if we saw a historic normal rate spread today, we’d see sub 6% interest rates.

Rates will Come Down but Demand Will Be Consequential – Sure, predictions are exactly that, but with strong historical data on post-inflation markets, there is a good case for ‘normalized’ rates to get eventually below 6% – and maybe even lower, depending on how soft of a landing the fed has led us into. On an average, with a Flagstaff loan amount of $400K, each 1% in rate reduction is about $260 per month in savings, so the impact is real and will be welcome. However, the Freddie Mac chart to the right shows that approximately three to five million households nationally were pushed out of homeownership with each 1% increase in rate. We can assume the opposite then, with each 1% reduction in rate, more households will enter the market.

Hindsight is 20/20 and it is astonishing to see the growth of our town. There is no individual, group or business that has pushed Flagstaff to this point. If I think about “why” we have developed the way we have, I believe the main factors are the same factors many of us came here in the first place – the small mountain community, the variety of seasons and recreation, the proximity to some of nature’s most stunning places and playgrounds, all while being a short distance from the big city. All those factors are not going anywhere, so yes, values may continue to be stiff, and this market may continue to be “poverty with a view,” but if you can make it happen, Flagstaff is a tried and tested investment and won’t disappoint. FBN

By Christopher Hallows

Chris Hallows is the Branch Manager and senior mortgage advisor of Benchmark Mortgage Flagstaff.  For additional information or to schedule an appointment, visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte 66 Suite A-3.