The Housing Crash in Phoenix is getting worse.
62% of Listings in Phoenix now have a Price Cut according to Realtor.com. That's the 2nd Highest Share in America (#1 revealed later in this post).
When there are so many Price Cuts, it's a signal that sellers are getting nervous. Very nervous. And that a mass seller liquidation in Phoenix could be around the corner.
The principal issue in Phoenix, and many other Housing Markets in America, is that Home Prices have surged far beyond what Local Homebuyers can afford. That much is evidenced by the dramatic surge in P/E Ratio ("Price/Earnings Ratio") in Phoenix from 2019 to 2022.
P/E Ratio is an indicator of Housing Affordability. It compares the Typical Home Value in a Metro to how much the Local Worker Earns in a Year. The higher the P/E Ratio goes, the more Unaffordable the Housing Market becomes. And the bigger the Bubble grows.
And for a while this Bubble can be sustained by speculative forces. Such as Corporate Real Estate Investors buying up 50% of the Homes in certain neighborhoods. Or a by a sudden, short-term influx in Cash Buyers from California. But those speculative forces eventually subside, especially in the face of higher interest rates and a recession. And once that happens, all hell can break loose in the local Housing Market.
Which brings us to Phoenix today in late 2022. The Investor Purchases are way down. The inbound Migration is no longer there. And as a result, Inventory and Price Cuts have quadrupled over the last 6 Months.
Seriously - take a look at this.
62% of Listings in Phoenix currently have a Price Cut. If that sounds high to you - it is. One year ago that figure was only 15%. Two years ago it was 18%. And back in the Fall of 2018, the last time Phoenix's Housing Market slowed, it only reached 45%.
When nearly 2/3 of Sellers cut the Price, that's telling you something about the local Housing Market. The sellers do not trust that the prevailing Home Values are real. And they expect them to fall. And they want to get out before they fall further.
These nervous sellers are prevalent in nearly every neighborhood across the Phoenix Housing Market. For instance, almost all ZIP Codes have a Price Cut Share above 40%. And some are even north of 80%, like 85224 in Chandler.
This broad-based decline in Phoenix's Housing Market is telling you that Negative Structural Forces are at play. And by "Negative Structural Forces" I mean fewer people moving to Phoenix, and more moving out. Resulting in more vacant housing inventory across the board. A theory supported by the fact that Phoenix's Rental Market is also in a tailspin.
These Negative Structural Forces indicate the Phoenix's Housing Downturn is just getting started. And that even if Mortgage Rates come down in 2023, the Price Cuts will continue to pile up. Expect Home Value Declines to continue.
By how much will it decline?
Well, in the last Housing Crash from 2007-12, Home Prices in Phoenix declined by 55% from peak to trough. I don't think the downturn will be as bad this time. But something on the order of minus 30-35% could be in the cards.