See Phoenix real estate market at a glance for April 2021.
The Phoenix MLS updated their data for April.
In March, I said I expected June prices to be up 30% from a year earlier. Now, it looks like it will happen by May!
Summer Price Plateau?
Three weeks ago, I pitched the idea that Phoenix house prices could very well plateau this summer so I’ve been looking out for any early evidence that supports or undercuts the thesis.
The Cromford Report says the average list price per square foot of houses (all types combined) under contract to buyers on May 15 was only 0.2% above the April 15 price. Therefore, they are forecasting that the June 15 price will only be 0.2% above the May 15 price.
That strongly supports my Summer Price Plateau thesis because I wasn’t expecting prices to level off until July.
Redfin came out with a report that mildly supports the thesis.
Looking at national data, Redfin’s chief economist says;
“Pending sales for the seven-day period ending May 16 were down 10% from four weeks prior, compared to an 8% increase during the same period in 2019, suggesting that homebuying demand may have peaked for 2021.
Mortgage purchase applications decreased 4% week over week“
So demand is likely falling a bit now or soon will. The big question is whether the supply of houses for sale is so incredibly low right now that lower demand won’t lower the skyrocketing price trajectory significantly.
Why Prices May Plateau Fast
My thesis is the main driver of skyrocketing house prices right now is FOMO, people are panic buying because they’re afraid prices will continue to increase super fast.
If prices are increasing $10,000/month, you’re not so worried about paying $20,000 over fair market value. But when buyers see that prices aren’t increasing as fast, the psychology could change a lot faster than we now expect.
I bet “loss aversion” is a big part of it. How easy is it for a market to change from fear of not bidding enough now and having to pay more later, to fear of paying too much now and losing money later? The big change is the buyer’s expectation of future house prices.
It all depends on how much of the current mania is driven by fundamentals (lower interest rates, changes in demand from the pandemic, etc.) and how much of the current mania is simply driven by buyers who expect house prices to continue increasing fast - buyers who are afraid if they don’t error on the side of paying more than the fair market value now, they’ll lose money later.
Phoenix house prices are clearly above the peak in 2005 and 2006.
Interest rates, however, are lower now than back then which explains some of the price increase.
Click on the graph to go to the full-size, interactive version.
This information can vary a lot in different parts of metro Phoenix. Your real estate agent can find the data for your specific city or zip code at The Cromford Report.