Interest Rates Are Down, But Don’t Expect a Rebound in the Arizona Housing Market | hake mark

Interest rates fell below 7.0% this week after soaring for much of 2022. According to Bankrate, the average mortgage rate for 30-year mortgages fell to 6.85% this week , against 7.08% the previous week. They derive this from a survey of major lenders.

The main reason seems to be that inflation, as measured by the CPI index, fell to 7.7% in the last year ending October 30 before seasonal adjustments.

This helps investors believe that the Federal Reserve will consider slowing its rate increases for the federal funds rate. This is the rate at which banks lend reserves to each other and tends to determine the direction and level of short-term rates. The market sets the rate for long-term rates such as 15- and 30-year mortgages.

The problem is that real estate markets won’t rise much from this small drop in mortgage rates. Especially in Arizona.

Real Estate in Arizona

An Arizona housing index called the Cromford Report Market Index was at 240.8 as of June 10, when the Fed began raising rates. By the end of September, it had fallen to 104.21, as NewsBreak reported on September 22.

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But now the index level is at 89.2, as of November 18, well below 100.

This is a significant drop from a month ago on October 7, when it was at 103.1.

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The Cromford Report Market Index

A level of 100 indicates a balance or equilibrium between the buying and selling forces.

At levels well below 100, there is a significant lack of demand relative to supply. This could indicate that real estate prices and activity in Arizona may remain depressed.

Additionally, a query to the Department of Housing and Urban Development’s SOCDS database shows building permits for single-family homes in Maricopa County fell to just 1,068 units in September.

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That was down 27% in one month from August when they were at 1,463 units. Also, at the start of the year, there were 2,280 units in January 2022. This means that in September new home construction was down 53% from what it was in January 2022.

Conclusion – AZ Buyers Waiting Until Rates Drop

That could be the situation at least until mortgage rates drop significantly from here. One reason is that many sellers are not under significant pressure to sell, given that most have much lower mortgage rates than they do today. This applies to regular sellers other than large “i-home” buyers who have bought homes in bulk and are now trying to get rid of their inventory.

On the other hand, many buyers are unwilling to pay close to 6 or 7% for their long-term mortgage rates. They may be more than comfortable waiting for rates to fall to 4.5% or 5%. This is well below today’s rate levels, as Bankrate shows.

For example, consider this. At the current mortgage rate of 6.85%, a $300,000 mortgage costs about $1,966 per month, before finance charges, insurance premiums and property tax escrow amounts.

But the same $330,000 loan at 5% costs just $1,611 a month for 30 years, down 19.1% from a loan today. And a loan of $300,000 at an annual rate of 4.5% would cost only $1,520, or 22.7% less than today.

That’s why buyers are basically on strike now. They can predict a situation where, if inflation continues to fall, mortgage rates will also fall. At this point, they will consider buying.

So, for all intents and purposes, most investors and buyers see 6.0% and probably 5.5% as the level where their interest in buying Arizona real estate will return.

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Mark R. Hake, CFA, writes about national and local news, stocks and market events at InvestorPlace.com, Barchart.com, Medium.comand Newsbreak.com as good as TalkMarkets.

Leslie M. Gill