By Frank May, Real Estate Agent
The onset of 2024 has ushered in a wave of optimism in the real estate sector, largely attributable to the strategic reduction of interest rates towards the end of the previous year. This financial maneuver has started to reveal its positive impacts, revitalizing a market that had been somewhat stagnant due to previously high interest rates.
Our housing inventory, which had been notably sparse, is finally seeing a gradual increase as more homeowners decide to list their properties for sale. This uptick in listings is a welcome change, especially since this period traditionally marks the start of a busier season for us. However, the shadow of the high interest rates from the past loomed large, casting doubts on whether we would witness a robust start to the year. Thankfully, the reduction in interest rates has played a pivotal role not only in boosting market activity but also in increasing our inventory by an impressive 12% since the beginning of the year. Despite this increase, it is important to note that our inventory levels are still considerably lower than what would be considered normal, indicating a persistent shortage in supply.
Moreover, the lower interest rates have had a significant and positive impact on potential homebuyers. One of the most remarkable outcomes has been the substantial increase in the number of homes going under contract—a staggering 60% rise in the same timeframe. This surge in buyer activity is a clear indicator of growing demand in the housing market.
As is customary in economics, when supply remains constrained and demand escalates, price inflation follows suit. This principle holds true in our current market scenario, where we have observed a consistent 2.5% month-over-month increase in average home prices. To give you a clearer picture, maintaining this rate of price inflation could potentially lead to a 30% hike in average home prices over the span of a year. In my recent video communications, I have emphasized this point, suggesting that we are currently in a phase where future homeowners might look back and wish they had seized the opportunity to purchase property. The rapid price escalation we are witnessing, coupled with the anticipation of further interest rate cuts within the year, is likely to fuel even more demand, setting the stage for a highly competitive market characterized by multiple offer scenarios.
Reflecting on the past few years, we have seen a steady influx of people moving to our area. However, the spike in interest rates around mid-2022 had a cooling effect on buyer enthusiasm, leading many potential buyers to adopt a ‘wait and see’ approach, resulting in a temporary shift towards renting. Now, with more favorable financial conditions emerging, we are observing these same individuals taking decisive steps towards homeownership. This shift is corroborated by the data I have been analyzing, which aligns perfectly with the trends we are currently observing in the market.
In summary, the early part of this year has marked a significant turning point for the real estate market, driven by strategic economic policies and changing consumer behaviors. As we move forward, the interplay of supply and demand dynamics will continue to shape the market landscape, with all signs pointing towards a robust and competitive market in the months to come.
Frank May grew up in the Valley, graduating from Northwest Christian School and Northern Arizona University. He is a real estate agent with RE/MAX Fine Properties and has been helping both buyers and sellers for over 20 years. He has been a Dave Ramsey Endorsed Local Provider (ELP) since 2003. Learn more at mayteam.com.
