The Fed Started the Fire - Now It’s Out of Control

Phoenix median house prices are more expensive than last January even accounting for the lower mortgage rates.

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Mike Orr at the Cromford Report points out how few homes are for sale in Avondale (southwest Valley). I just checked.

Avondale, AZ Single-Family Houses Listed for Sale in MLS - Last Week of January

  • 2021 = 29

  • 2020 = 76

  • 2019 = 175

House prices are, unfortunately, going to continue to increase very fast with such low supply. 2021 might be 2005.


The Fed’s Controlled Burn Turns Into a Wildfire

Median Single-Family House Price - Metro Phoenix

  • January 2020 = $307,000

  • January 2021 = $365,000

30-Year Fixed-Rate Mortgage Interest Rate

  • January 2020 = 3.62%

  • January 2021 = 2.74%

Go to your favorite online mortgage calculator and put in those numbers and compare the monthly principal & interest payment now versus a year ago.

January 2020

  • $307,000 house

  • 3.62% mortgage interest rate,

  • Principal & interest payment = $1,399/month

Since then, however, rates went down but house prices when up. Where does that leave us?

January 2021

  • $365,000 house

  • 2.74% interest

  • Principal & interest payment = $1,488/month

The Fed’s decrease in interest rates has already increased house prices so much that Phoenix houses are less affordable than a year ago.

Despite that, house prices continue to rise fast because people now expect house prices to rise fast. The Fed started the fire but now consumers expect home prices to increase fast and those expectations are carrying the fire.

The Fed doesn’t get judged by house price inflation. They only get judged by consumer price inflation. Consumer price inflation doesn’t include house sale price inflation.

The Fed doesn’t care about house price inflation and they’re very willing to destabilize the housing market if it helps them reach their mandated goals. Stabilizing house price inflation and household wealth creation is not their job.

Supply

The other half of the story is low supply. I don’t understand why more people aren’t selling at these prices.

Is it partly because prices are increasing so fast, sellers aren’t in a hurry to sell?

Are potential sellers afraid they can’t find a good houses to buy at reasonable prices in this manic market so they’re just staying put?

Is it because of the coronavirus?

  • Are potential sellers afraid to have strangers in their houses?

  • Have many potential sellers decided to fix up their houses instead of trading up into a better house?

  • Are potential sellers just being cautious and waiting to make big lifestyle changes?

  • Are some potential sellers taking work-from-home jobs so they don’t have to move when they take new jobs?

  • Is mortgage forbearance stopping the usual supply of foreclosures from hitting the market? (Yes.)

Is it because America is getting older and people move less often when they get older?

Let me know what you think in the comments.


Click on the graph to open the full-size, interactive version.

New Listings

This is bad. In January, the number of single-family houses hitting the market was LOWER than last year despite home prices being much higher!

For Sale

Down 62% from last year. At the time of year when the number of houses for sale is usually the highest, the inventory of houses for sale fell. This is bad.

Under Contract

This is better. Are prices so high that sales are slowing? Or is it just that so few houses for sale that buyers can’t find anything they like.

Solds

January sales figures were revised up. Sales are still running 20% to 30% above the previous year. This is bad.


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.

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