Phoenix Fall Market Forecast: What To Expect as Rates Stay Low

By Arizona Home Group

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The news right now is all about interest rates. The Fed met last month, and Chairman Powell delivered a widely anticipated 25-basis-point reduction to the federal funds rate. This conservative cut came despite indicators that inflation remains above the 2% target, with GDP growth stagnating and unemployment numbers growing. While many in the market and government had hoped for a larger cut, this move signals a cautious approach from the Feds.

Here’s what you need to know.

Buyers can secure rates in the high fives, but this depends on down payment, credit score, and loan type. The market anticipated this reduction, which is why we didn’t see a dramatic shift in long-term mortgage rates immediately following the announcement. The federal funds rate is primarily tied to short-term loans like credit cards and lines of credit. We’ve already seen a nice reduction in mortgage rates in August, and they are now sitting at approximately 6.375% for a 30-year fixed mortgage.

Rates are at their lowest level in a year, but it hasn’t been enough to persuade the majority of buyers and sellers to take action. It’s widely believed that we will need to see rates in the high fives before that happens. In fact, an article from the NAR predicts that over 5 million people are currently waiting to qualify for a home once interest rates hit 5.5% or lower. These potential buyers are choosing to rent for now, hoping for both lower rates and lower prices.

We’re in a Mexican standoff between sellers and buyers. Sellers, many of whom have fixated on historically low mortgage rates, are reluctant to reduce their asking price. They would rather take their homes off the market than settle for less money, as doing so would mean giving up their low rate for a higher one on their next purchase. This trend, known as the withdrawal rate, is not unique to Phoenix; it’s happening across the country, with some major markets seeing 15% to 20% of listings withdrawn. Here in Phoenix, that number has been as high as 36%.

It’ll be interesting to see what happens as we head into the fall. This is a time when we typically see more inventory come onto the market as snowbirds arrive in town, which may not bode well for sellers hoping for higher prices.

Meanwhile, buyers are waiting for prices to come down further, but that hasn’t materialized in a significant way. The median home price in Phoenix is currently $448,000, which is only a 7.25% drop from the peak of $480,000 in May of 2022.

It is a good buyer’s market right now, and many sellers are acknowledging this by offering concessions to buyers. These concessions are often used to buy down the interest rate or pay for closing costs, which is especially helpful for first-time home buyers.

We will be watching closely to see how these dynamics play out in the coming months. Stay tuned to our website and YouTube channel for updates, and if you have any real estate needs in the Phoenix area, please don’t hesitate to contact us. From all of us at the Arizona Home Group, we hope you have a wonderful October and a Happy Halloween!