Real Estate Inventory Rising

The last two years have been hard for buyers, to say the least. Reports of a buyer making an offer on more than 10 properties before they were finally successful were not unusual, nor was being beat out in situations where eight, 12, 15 offers were being made on the same house. Low inventory was primarily to blame for this and, in the first quarter of this year, concerns about anticipated interest rate hikes may have further fueled the red-hot seller’s market.

Waiving contingencies such as the home inspection and appraisals and including escalation clauses and non-refundable earnest money were commonplace. And when the buyer pool is heavy with cash buyers and investors, someone with traditional financing can experience losing a bidding war by a long shot even when it was the best offer they could make. In that recent frenzied market, it was easy to see how competing buyers could become weary and exhausted, all but giving up in their pursuit of home ownership.

However, while it is still a strong seller’s market, there have been significant shifts in the real estate market this spring. As recently as early March, new listings were experiencing non-stop first weekend showings and offer-review deadlines of less than a week. New listings jumped by 57% and active inventory increased 85% from March to April. Median days on the market ticked up by about 3% during that time and agents are reporting fewer showings and fewer offers within the first week of a listing. After a long period of rapidly increasing, home prices have recently flattened out, with the Northern Arizona MLS showing 69 price reductions on single-family Flagstaff homes in the month of May at the time of writing.

All of these are signs of increasing supply and normal seasonality accounts for some of it, with inventory typically increasing in the spring and beginning of summer. However, when combined with rising mortgage rates and inflation, some have asked if the real estate market is heading toward a correction. Overall, the data does not seem to support that. Although current rates are higher than the 3-4% ± of the recent past, they still remain lower than interest rates in the 7-8% ± range of the early 2000’s. Another measure, the Market Action Index by Altos Research, is a barometer of real estate supply and demand on a 100-point scale. In a balanced market, the index measures around 30, with scores above that indicating a strong seller’s market and below indicating a buyer’s market. According to Altos Research, the index is at 66 in Flagstaff, indicating we are still in a strong seller’s market as of late May.

Although we may see more rate hikes, the cost to buyers of waiting to purchase a home is still high. Rental rates are increasing by as much as 25% year over year and buying a home can hedge against inflation. Changing market conditions require different tactics and tools. Adjustable rate mortgages have been on the rise as a counter to rising interest rates. And a tactic called seller buydown, where the seller pays to lower the buyer’s interest rate is being used in more deals. This increases the pool of prospective buyers for the seller by allowing more buyers to make an offer on a home that they may not have been able to afford otherwise. An experienced lender will better explain these options and others that are available in these changing market conditions. FBN

By Amber Welsch

Amber Welsch is a sales associate on The Mary Mendoza Team at Russ Lyon Sotheby’s International Realty. She is a 20-year resident of Flagstaff and a native Arizonan. She can be reached @ amber.welsch@russlyon.com or 928-607-9566.