Mountain Spring Road in Scottsdale

This 109,517-square-foot home on Mountain Spring Road in Scottsdale recently sold for $10.4 million. Built eight years ago, the single-level house has eight bedrooms and basically sold at the listing price. 

Has the time come for sellers to get nervous?

After months of riding the wave of low inventory, big demand and quick turnovers, sellers may be headed for a rude awakening, according the Cromford Report, which closely tracks the housing market in Maricopa and Pinal counties.

It noted that more homes are coming on the market and that its own index for measuring the markets in Phoenix and 16 other nearby communities is trending away from a sellers’ market.

But at the same time, many potential buyers may not find the new trend all that encouraging.

Home prices are continuing to increase and Phoenix is now the nation’s leader in that category.

Cromford noted that prices between April and May jumped by 3.29 percent, observing, “Phoenix is back on top of this table again, comfortably ahead of the national average, which was 2.09 percent.”

Phoenix also topped the nation’s cities for year-over-year price increases. Between May 2020 and May 2021, home prices rose 22.3 percent.

“Phoenix was top of this table for the 23rd consecutive month,” Cromford said. “The national average was 14.6 percent.”

Realtor.com reported that nationwide, more homes were put on the market last month than in prior months this year, but it added, “prices continued to soar, reaching a new all-time high.”

It also noted that low inventory persists despite more homes going on the market since “the overall number of homes for sale was down 43.1 percent from June of the previous year, when the nation was already in the throes of a housing shortage.”

“The dearth of properties for sale boosted median list prices 12.7 percent year over year, to reach $385,000,” Realtor.com reported. 

Realtor.com senior economist George Ratiu observed “a shift away from an overheated market to a new normal.” 

“More homeowners are deciding to put their homes on the market, encouraged by vaccines, a stronger economy, and low mortgage rates,” Ratiu said. “What this means is buyers will have more choices at more affordable prices.”

“We’re going to see more homes come to the market as we move through the summer into the fall,” he added. “More first-time buyers will see much more approachable prices as the number of homes increases.”

Cromford noted that its index is decreasing in all 17 Valley submarkets. 

But with an index rating of 100 indicating a balanced market and anything below that a buyers’ market, the index suggests sellers still have more leverage.

The lowest index reading among all 17 Valley cities was 294 in Tempe. The rest ranged from 344 in Paradise Valley to 639 in Avondale. Phoenix stood at 406 last week, Mesa at 416 and Gilbert at 426.  Chandler held the fourth highest market index rating with 477.

“The number of active listings is increasing by roughly 300 per week,” Cromford said. “The number of showings is in decline and the number of contracts getting signed is getting smaller as each week goes by.”

“All this makes sense,” it continued. “When prices leap by over 35 percent, demand is suppressed and supply stimulated.”

Cromford said that while questions may arise as to when this downward trend will level out, “the honest answer is that no-one knows.”

“Buyers are more cautious now than they were in 2005. Sellers’ normal first reaction will be denial. Some will blame their agent. 

“These sellers will probably be complaining that they are not getting the viewings and offers their house deserves,” Cromford continued. 

“This is because they have so quickly become accustomed to a frenzied market. They will now need to get re-adjusted. The market still favors sellers, but buyers will start to gain a little more respect.”

Yet, it warns, “It is still very hard work buying a home, but it should by now be obvious that this is not really due to strong demand; it is almost entirely due to the weakness of supply.

“This means it is crucial to keep a close watch on how long the new listings trend lasts and how much inventory starts to build.”

Lawrence Yun, chief economist at the National Association of Realtors still sees an uptick in new listings continuing through the rest of this year and suggested that will slow the pace of home price increase.

But other economists are warning that sellers might see their homes staying on the market longer, citing a 26 percent decrease in mortgage applications between December and April.

That decline in applications “is now working its way through the sales numbers,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note. 

“Sales will soon hit bottom, given the flattening in mortgage demand over the past couple months,” he said.

The Mortgage Bankers Association reported mortgage applications dropped 17 percent between June 2020 and last month.

“The average loan size for total purchase applications increased, indicating that first-time homebuyers, who typically get smaller loans, are likely getting squeezed out of the market due to the lack of entry-level homes for sale,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

That prompted the finance website MarketWatch.com to predict, “Now that mortgage rates are rising again, many home buyers could be pushed out of the market as purchasing a property becomes less and less affordable.” 

“The very factors that continue to push home prices higher are also limiting sales activity across the housing market,” MarketWatch said last week.

“For many years following the Great Recession, home-building activity did not keep pace with the formation of households and population growth in this country. And now that millennials especially are buying homes in earnest, there simply isn’t enough inventory to go around. 

“New home construction, while at the highest pace in some time, can only make up for the shortfall so much,” it said, adding, “as mortgage rates begin to rise, affordability will become a more significant barrier for many prospective buyers and force some households out of the market.”