The Greater Phoenix housing market has been as hot as an Arizona summer throughout the past two years. But, just like the region’s winter months, things are starting to cool off. Tina Tamboer, senior housing analyst at The Cromford Report, spoke about the condition of the real estate market, the impact of iBuyers and what to expect next at the Valley Partnership breakfast on Nov. 18.  

Looking at the Housing Opportunity Index reveals that the second quarter (Q2) of 2021 was a turning point in housing affordability in the Phoenix Metro. “We want a family making the median family income to be able to afford 50% to 75% of what’s [for sale],” Tamboer explains. “When [the index] went below 60% [in Q2 2021], we expected demand to come down and prices to stabilize. When that didn’t happen, that created a bigger red flag.”  

As the affordability of homes in the region plummeted, so did the percentage of home sales intended to be used as primary residences. “Owner occupants started to get pushed out — they went from 80% [of home sales] to about 62% by the second quarter of this year. [Then] we started seeing investors coming in,” Tamboer says.  

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iBuyers such as Opendoor were one category of investors that accelerated their involvement in the Phoenix Metro starting Q2 2021. Since these companies do not purchase homes to rent or reside in, this activity represents what Tamboer calls “false demand” since it inserts another transaction between the seller and final buyer and distorts demand data.  

When folks looking for a home to live in started to pull back from the market, Wall Street-backed companies continued buying and selling to each other. These companies aren’t as sensitive to price or risk compared to owner occupiers, so they continued to compete amongst themselves, which caused prices to steadily rise.  

“Starting the second quarter [of 2021], [Opendoor] had more active for-sale listings than under contract. Generally, that’s not a good thing,” Tamboer explains. “Come April [2022], when mortgage rates went above 4.4%, we started to see Opendoor acquiring and holding onto more inventory than they would like. They didn’t have the demand there.” 

Mortgage rates touched 7.37% in October but have since fallen slightly. By Q3 2022, the Housing Opportunity Index for Greater Phoenix fell to 22.5% as mortgage rates spiked throughout the year. With home loans being more expensive — thus reducing overall purchasing power — Tamboer says sellers are making concessions to buyers in the form of interest buydowns or closing costs.  

Taken together, these factors point to a market where buyers have more leverage than sellers. Indeed, the Cromford Market Index — which is based off historical trends for supply and demand — now indicates a buyer’s market.  

At 100 on the index, the market is considered balanced. Over 110 is a seller’s market where prices rise faster than the rate of inflation, whereas below 90 and prices will not perform better than inflation. The lowest the Cromford Market Index has fallen was 26.5 in 2007 before housing prices crashed. 

“As of Wednesday [Nov. 16], we have glided into a buyer’s market. We’re not plummeting,” Tamboer concludes. “We’re literally kissing a buyer’s market and people are panicking or asking, ‘Can I offer 50% below listing price now?’ No, it’s not that time yet. I’m still feeling pretty optimistic.”