Valley home prices falling faster, report says

This 6,717-square-foot house on S. Loback Street in Queen Creek recently sold for $2.8 million. The six-bedroom, eight-bath room home, built in 2019, has a 917-square-foot guest house, pool bathroom, theater room, a garage and two gates for recreational vehicles and a number of high-end amenities. (Special to the Tribune)

Queen Creek already has more homes on the market than its long-term average as prices across the Valley are falling at a faster-than-expected rated, according to a leading analyst of the Phoenix Metro market.

The Cromford Report said that Queen Creek, Buckeye and Maricopa already have become the most attractive areas for homebuyers to score a good deal.

It identified five communities where neither buyer nor seller has a distinct advantage in sale negotiations. They include Tempe, Chandler, Surprise, Peoria and Gilbert.

But sellers in those five areas might be getting a little nervous, it added.

“Astute sellers will realize that the situation is very fluid and slipping away from them,” the report said.

“Prices are reacting much more quickly to the poor market conditions than we expected,” it said of the Valley-wide housing scene.

“In 2005 and 2006, it took a long time for prices to change direction. In 2022, the change has happened almost overnight. This is probably because people are primed to believe price drops are likely whereas in 2005 most people still believed that home price never go down. Whatever the reason, sellers in 2022 have been willing to make quick and frequent cuts in their asking prices and accept offers well below those.”

Cromford also predicted prices would continue to fall until demand picks up.

“Pressures to sell at lower prices are coming from the sellers themselves,” it said. “Low demand mean they are competing with other sellers and a lower price is an obvious tool for them.”

Fountain Hills, Paradise Valley, part of Scottsdale and Cave Creek are in a different situation and, in a way, a different world from the average buyer and seller.

Those four communities are largely considered in the domain of luxury housing, where homes $1.5 million and above have not been tilting as sharply and quickly from a sellers’ market to a buyers’ market as the rest of the Valley, according to the report.

“The luxury market over $1.5 million is seeing far less of a surge in supply and although the market is deteriorating through weakening demand, the deterioration is much slower,” it said two weeks ago, although last week it said even that category now shows demand is weakening.

Two weeks ago, the Cromford Report said that while the recent increase in homes for sale appears to be slowing down, “demand not only remains very poor, it is getting weaker still.”

It said the 7,887 listings recorded in July not only were 28% lower than a year earlier, but the lowest for the end of July since 2007.

Last week it also indicated the listing success rate – how quickly a home sells – has tumbled in three months from 91% to 73%.

While that’s not as bad as the “dreadful 20.4%” success rate of 2008, Cromford said, the statistic “is a reliable and crucial indicator that is flashing red.”

“We need this to stabilize and start increasing if we are to be optimistic in our outlook,” the Cromford Report said, adding that “there are a few reasons to expect an improvement in market conditions just around the corner.”

But it listed only one reason – and didn’t express much enthusiasm about it.

“A large drop in interest rates would almost certainly help,” it said, “but this is not something that is widely expected.”

The Cromford Report also suggested bigger changes in the Valley’s housing market could occur before the end of the year.

“Prices have looked wobbly for the last two months,” it said. “But as buyers start to flex their muscles, we should be prepared for more serious consequences. While we cannot forecast accurately several months out, it would be reasonable based on current trends to expect significant declines in average prices, median prices and average price per square foot by the end of 2022. Current trends can – and often do – change, so this is not baked in, just a reasonable base case.”

It also said the rapid growth in inventory might slow down soon but without a corresponding uptick in demand.

“Builders apparently are slowly reacting to the changing housing scene.

“Single-family permits are now dropping in response to the weak demand but probably not as fast as they should,” the Cromford Report said.

It reported that as of June 30, 17,788 single-family building permits have been issued so far this year in Maricopa and Pinal counties year-to-date – down only slightly from 18,803 last year for the first six months of 2021.

“There were only 2,248 single-family permits issued in June, which is the lowest monthly total since May 2020,” the Cromford Report said.

At the same time, multifamily developers aren’t slowing down at all and are at what the Cromford Report called “a full-bore gung-ho status.”

In the first six months of this year, a record 8,640 multi-family permits were issued in Maricopa and Pinal counties.

“Last year there were 6,871 at the same point and that was considered a lot,” the Cromford Report said. “There were 1,890 issued in June, making it the fourth busiest month ever.”