As the Market Turns: Could a Recession be Good for Housing in Phoenix, Arizona?

As the Market Turns: Could a Recession be Good for Housing in Phoenix, Arizona?

For Buyers

Be aware, the market is turning. Reading the Cromford® Market Index (CMI)* for Greater Phoenix, a measure under 90 is a buyer’s market, and 90-110 is a balanced market. Our index has been indicating a buyer’s market since November 2024 and reached its bottom at a measure of 72 before turning in mid-July. Two months later, as of September 11th, the CMI is up 9 points to 81. At this rate, it could surpass 90 and enter a balanced state by November, potentially ending a year-long buyer’s market and stabilizing prices.

Buyers may not have as much time as they think to purchase under the favorable negotiating conditions of a buyer’s market. Asking prices for homes have been declining for 4 months, but appear to have stalled over the past week. Mortgage rates in January were 7.26% according to Mortgage News Daily, and by September 11th, they had averaged 6.27%, representing a nearly full percentage point change. Meanwhile, active mid-range listings between $300,000 and $600,000 have dropped nearly 2% in asking price.

What does this mean? Let’s do the math. With every 1% drop in mortgage rate, all principal and interest payment measures across all loan amounts drop by 10%. So if a buyer was quoted a $2,400 monthly payment in January on a $350,000 loan at 7.26%, that PI payment would be $2,160 at 6.26%, saving $240/month. Combine that with a 2% drop in the asking price of the home, which saves an additional 2% off the payment, bringing the total savings to $288 and a payment of $2,112, representing a 12% discount compared to January.

That’s not all. In this buyer’s market, more than 60% of sales between $225,000 and $600,000 have sellers paying for the buyer’s closing costs, which often include a 2/1 rate buydown. This reduces the buyer’s payment by an additional 20% in the first year and 10% in the second, resulting in a first-year payment of $1,690 and a second-year payment of $1,900, before taxes and insurance.

Over the next few months, sales prices are expected to begin showing a decline, which active list prices have already experienced. However, if mortgage rates stay low and the Cromford® Market Index continues to climb out of a buyer’s market, buyers may see their negotiating advantage dwindle. For now, all properties are officially “on sale”.

For Seller

Headlines about the economy are quite alarming these days, with recession predictions reaching as high as a 93% probability from UBS last week. These are based on a continuous stream of weak job reports and an increase in the unemployment rate to 4.3% reported on September 5th. Ironically, history tells us that as the labor market weakens and recession looms, mortgage rates improve and homebuyer demand increases. In fact, in Greater Phoenix, home sales actually increased over the 2001, 2008, and 2020 recessions despite high unemployment.

How can this be? As fears of a recession rise, accompanied by increased unemployment, demand for bonds increases as people move their funds to safety. This pushes the 10-year Treasury rate down, which in turn lowers the 30-year mortgage rate. Even with higher unemployment rates, the vast majority of people are still employed. Those who are stable in their employment see an increase in their ability to qualify when mortgage rates decline and are motivated to explore their options, thus increasing demand.

Buyers are not the only ones who get excited over lower mortgage rates; sellers do, too. This means that while demand is increasing, more listings than expected may initially hit the market, creating a speed bump for the Cromford Market Index on its path to a balanced state. This is something to watch for over the coming months. Additionally, the 4th quarter is rarely the best time to be a seller seasonally. While lower mortgage rates are improving demand compared to last year, buyer demand drops significantly over the holidays in November and December.

Finally, while recessions can stimulate the mainstream housing market, they tend to stall the luxury and retirement housing markets. These segments do not rely on mortgage rates (often paying with cash) and are more influenced by the performance of their investment portfolios, which tend to suffer during a recession.

*Cromford Demand Index™ is a value that provides a short-term forecast for the demand for resale homes in the market. It is derived from the trends in pending and sold listings compared with historical data over the previous four years. Values above 100 indicate more demand than usual, while values below 100 indicate less demand than usual. A value of 100 indicates the demand is close to normal.

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Phoenix Market Update: Demand Stays Strong, but Listings Surge

Although the market still favors sellers, momentum is beginning to slow. We saw this shift last week, and it has continued into this week. The average monthly change in Cromford Market Index (CMI)* now sits at 7.6%, down from 8.4% last week. Demand remains strong, but many sellers are re-listing homes that were canceled during the summer, increasing overall supply. The pace of new listings arriving on the market is higher than in either of the past two years.

This week, 14 cities strengthened their seller-friendly policies, while 3 shifted in favor of buyers. Paradise Valley, Glendale, and Maricopa moved to the buyer’s side, with Tempe reversing course. Leading the seller-friendly pack are Fountain Hills, Scottsdale, Peoria, Gilbert, Avondale, and Surprise. Paradise Valley, however, is slipping quickly as more supply comes online and is at risk of being overtaken by Fountain Hills for the top spot.

We currently have 7 cities in seller’s markets, with Gilbert newly joining that group. Three cities are balanced, and 7 remain in buyer’s markets. Peoria is close to moving out of the buyer’s camp and into balanced territory in just a few days.

Generally, the most affordable areas are proving to be the strongest for buyers, though Avondale stands out as an exception. Its supply is far tighter compared to places like Buckeye or Maricopa, giving sellers there more leverage. 

*Cromford Demand Index™ is a value that provides a short-term forecast for the demand for resale homes in the market. It is derived from the trends in pending and sold listings compared with historical data over the previous four years. Values above 100 indicate more demand than usual, while values below 100 indicate less demand than usual. A value of 100 indicates the demand is close to normal.

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Markets in a Minute...National View

Housing Market

• Lower rates helped move some potential homebuyers off the fence. Purchase apps rose 7% for the week and were 23% higher than a year ago.

• ICE's September Mortgage Monitor shows that buying a home takes 31.1% of a buyer’s median income, down from the recent peak of 35.2% in October 2023.

• FNMA reports consumers grew less confident about housing in August, due to job worries, tougher selling conditions, and concern over future prices.

Economy

• Consumer inflation rose in August to 2.9% year-over-year, the fastest pace of inflation since January. Tariffs are seen as the primary driver.

• After jumping in July, wholesale inflation decelerated in August and was weaker than expected. The slowdown supports the possibility of Fed rate cuts.

• Jobless claims last week reached their highest level in 4 years, signaling layoff activity may be on the rise amid a sharp slowdown in hiring.

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East Valley Weather

🔍 Things to Note & Tips

• The heat remains intense, especially early in the week — Tuesday typically reaches its peak.

• There may be some afternoon thunderstorms around Friday; that’s the only slight break in the dry heat.

• Nights are easing a little, but still warm — expect low 70s/upper 70s.

• Hydration, shade, & timing outdoor activities wisely (early morning or evening) will be key.

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Have a great week! Brad Daniels - East Valley Real Estate Team

Brad Daniels is a native of Mesa, Arizona, and the founder of the East Valley Real Estate Team with My Home Group. With 20+ years of experience and hundreds of successful transactions, Brad specializes in helping buyers and sellers relocate to Arizona. Learn more at www.relocatetoaz.com.

(602) 679-1025 Direct brad@homeselleraz.com #RelocateToAz #CallBradToSellYourPad