The Valley’s housing market has been the subject of a lot of conversation over the past several months — prices have been high and the number of homes for sale has been relatively low. But John Wake recently noticed something kind of surprising: the number of active listings was going up. In fact, the data showed at the end of last month, there were more homes for sale than at the same time in 2017, 2018 or 2019.
Wake is a real estate analyst in the Valley. He joined The Show to talk more about this.
Full conversation
MARK BRODIE: John, you've been watching that watching and noticing that the number of homes for sale is going up, especially at a time when that typically doesn't happen.
JOHN WAKE: Yeah, the reason people talked about the home prices skyrocket in 2021 and 2022, And people were saying, oh, it's because there's so little inventory, there's not many homes for sale. So there been no prices and now we're seeing that the number of homes for sale has been increasing at a time of year in the first six months where they usually go down. That's the high season.
Usually the number of homes for sale gets goes down. It's been going up a little bit, not tremendously but going up. And now we're going back to the point in June where it got back to June 2017 levels. So that's kind of like a normal year. So now we're back. So the number of homes for sale is about normal right now.
BRODIE: Do you have a sense of why that is, why all of a sudden there are this many more homes on the market?
WAKE: Yeah. Well, it's gonna be the question is, is that people putting more homes on the market or is it because sales are so low? So it's one of the two. So it's mainly because sales are so low. The number of sales in June were the lowest for June since 2008 during the crash. So that was a low, low number of sales.
So that's, that's mainly what it's happening because the interest rates are so high. People aren't buying unless they have cash or lots of times if you're selling a home at the same time you're buying, it's kind of a wash. Prices are way up, but it doesn't matter because you're paying a lot more for the house, but you're making a lot more on the house that you, you're selling. So that's kind of a wash. That's kind of the, the people that are still active as people that have a lot of equity in their kernel.
BRODIE: So, does that suggest to you that maybe the news isn't as good as it would look on face value, you know, as you talked about, you know, prices were so high, the thinking went because there weren't enough houses for sale. Now, there are more houses for sale, but maybe it's not quite as good. Maybe we're not seeing prices go down the way you might expect them to.
WAKE: Yeah. Well, homes are famous for having sticky on the downside as they say on prices. That's, people are like saying, well, I, I think my house is worth this. If I don't get the price, I'm not gonna sell it. So they just take it off the market. So, but if we, but the real danger, if we, the biggest danger is we go into a recession because the market is kind of wobbly. Like I said, there's very few sales but the prices are, prices are basically all like 1% more than they were a year ago, but they're like 4% less than they were two years ago. We're basically been in flat prices for two years.
If we get into a recession, that would be bad for prices. But, but then again, if we get into a recession, the federal start lowering interest rates, which would tend to support prices so on the other hand.
BRODIE: So when you look at the lack of sales, is that mostly an interest rate issue.
WAKE: Yeah, that's mainly an interest rate issue is the sales for sure. There could have been that there were so many sales earlier that the people, like, bought, you know, they, they stole the sales from the future when the things were so hot a couple of years ago. But it's mainly just the price. The prices are so high and plus the interest rates are high. It's a terrible combination.
When you look at it, the prices together, the prices with the interest rates are about as high as they were in 2006 yikes before the crash
BRODIE: Before the crash.
WAKE: Yeah.
BRODIE: So does that tell you then that this is not necessarily good news, for example, for first time homebuyers, like we've been hearing a lot about first time homebuyers trying to get in the market. This doesn't sound like great conditions for them.
WAKE: Yeah, that's, that's the hardest part. If you already have a home, you're fine. It, it's kind of a wash of when you buy and sell at the same time. But those first time home buyers that's,, there's downside risk. What happens if something bad happens and prices start to fall? I have a son. My second son is in Florida two years ago. He bought a house and I told him to buy a 10-year house, a house.
You would be happy if you lived in it for 10 years and you would be ok if it was worth what you pay 10 years from now because there's so much uncertainty. People thought pipes are going to tank last year and they didn't, they actually went up a little bit like 1% but nevertheless, they went up and set it down. So you, it's totally unpredictable. But that is kind of my rule of thumb is like, buy a 10-year house. Some people say buy a five year house, a house you'll be happy with if it's at the same price, five or 10 years from now.
BRODIE: So let's say that interest rates do go down at some point in the not too distant future, given the number of homes on the market. Does that become better newsfor people who are either looking to get into the market or maybe move up to a bigger, more expensive house than what they have now?
WAKE: Yeah, that would definitely support the market. But on the other hand, prices are so high right now that, that's putting downward pressure so it could just offset. I, my working theory right now is that if prices, if the interest rates go down, it'll support prices so they don't fall. But it could bring more people into the market, but it seems like prices are so high right now. It's hard to imagine that you hire but who knows? I said that in the past and it turned out they went higher.
BRODIE: Yeah. What are you seeing and hearing about more inventory coming on the market, either from people deciding to sell or maybe just new construction. You know, there's a lot of effort to try to get, just get more homes on in construction.
WAKE: In that area new, there's been talk for a long time now, a couple of years now about people who have short term rentals, investors. Are they making less money? Will they decide to start to sell those investors? And that would bring up supply a lot. And we're kind of at a delicate point right now. We like just a month from now, we'll have a lot more idea is the supply increasing faster than normal. If it is in August, that would be a sign that that's gonna put a lot of downward pressure on.
But if you, but if you are, I'm talking about all the bad news, the good news about being the first time buyer right now is you have a normal selection, you know, a year ago or in the past few years, you didn't have a good selection of homes to choose from. Now, you have a good selection, but you do have the downside risk of prices falling in the future.
BRODIE: I want to ask you about the short term rental issue. I mean, is there evidence to suggest that there are people who own short term rentals who are maybe looking to sell them and get out of the airbnb business.
WAKE: I haven't seen numbers on that but I've heard lots of stories about this guy, that guy, you know, I know my neighbor or whatever, but I haven't seen numbers. It hasn't been enough to influence the market or if it does, it's not a huge influence. But that could be part of the reason that they were getting more homes for sale. Maybe those, some of those short term rental investors are coming in and are trying to get out of the market.
BRODIE: Are they making less money on their short term rentals?
WAKE: Oh, yeah, there was a great year. What was it? … They made great money and then it's been down, it's not like they're terrible money but it's not like as good as it was.
BRODIE: So it's not as lucrative a thing to own all these homes
WAKE: At the top. it was, they were so, so many people came in and also there was this kind of a mania. It was kind of like a meme stock for a while, you know, where everybody's reading and they can see it online. There's a zillion, I don't know, youtube videos and Tik Tok videos about investing in real estate and do more short term rentals. And so that was part of the reason we had such a mania in 2001, the first part of 2002.
BRODIE: So what will you be looking for and looking at for the next several months to really get a gauge of where this market might be going, where prices might be going, where inventory might be going.
WAKE: The biggest one is the one you focused on at the beginning was the inventory. Is inventory gonna get, it's normal right now. Is it gonna stay like a normal year through the rest of the year or is it gonna continue increasing? And then,, the prices tend to go down in the second half of the year, usually, you know, not a ton, but they tend to go down the second half of the year. Well, they go down more than normal in the second half of the year.
And as I say about next year, but, but the biggest, the risk element is a recession. If we get a bigger than average recession, the Phoenix economy is doing amazingly good. It's one of the top in the country. But nevertheless, there's always that downside, things could be worse than expected. Like the last great recession. That was, who expected that?
