Here comes the slow down...

Although supply remains very low by normal standards, demand has weakened enough to allow inventory to start trending upwards. This has been really noticeable only for the last 3 days and the number of active listings in Greater Phoenix (excluding UCB and CCBS) is 13.4% higher than this time last year. This is the highest year-over-year increase in supply we have seen for several years.

We have been focusing on supply for the slightest indication of a break in the market's fever, and this is the most significant sign we have found. As yet it is a minor change that will be barely perceptible in the real world. But the mathematics suggest we are entering a proper cooling phase and I would be surprised if this does not become more significant as the second quarter progresses.

The trend is most noticeable at the affordable end of the market, where buyers are heavily dependent on interest rates. Below 3,000 sq. ft. inventory is up almost 22% from a year ago. Above 3,000 sq. ft. inventory is down 11% from last year. Above 5,000 sq. ft. inventory is down 43% from last year at this time.

It is important to stress that we are NOT seeing more incoming new listings; in fact they are currently arriving slower than last year. But active listings are going under contract at a decreasing pace, which means we get more choice for any buyers looking for a home, at least for homes under 3,000 sq. ft..

This is not the end of bidding wars, but it might be the start of a long drawn-out peace process.

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Ebb & flow...yet, an important distinction. While we're seeing better days ahead for the average buyer, the luxury sector remains way out of kilter in terms of supply versus demand.

For the 'why' is this happening. For those needing financing there are two dynamics going on. First, the rush to get in the door before rising interest rates close the door to many. And then there's the impact of rising rates we may already be seeing. 

There's another factor at play, which is the institutional buyer - the Black Rocks of the world that would like all us common folks to be renters. Can't help editorializing, but it's true. As to the question of whether they're easing up on their purchasing, that's yet to be seen. Certainly Zillow has backed off - a different story of course. 

Talking Point: It's always a bifurcated market e.g. those who need financing versus those who don't. The lack of high-end inventory continues to be a record-breaking driver. The big question as to whether we'll see a shift in high-end demand involves dynamics all together different and remains an open one, with no apparent metrics that might predict. Our Collateral Analytics 5-year forecast suggests more of the same though does, in fact, reflect some 'cooling' as appreciation continues for the next 24 months. 

Note how the appreciation arc gradually flattens over the next 2 years.