Something had to give. After two years of the most frenetic real estate market Sedona has ever seen, we picked up signals in early May that it had finally peaked. Evidence is mounting that the real estate market is decelerating all over the country, regionally, and locally. In Sedona, new listings and competition among sellers have increased sharply, buyer activity has slowed significantly, and price reductions among current listings have spiked. Nationally, Dr. Lawrence Yun, Chief Economist for the National Association of Realtors, noting that pending sales have been down for several consecutive months, predicted that high prices and rising mortgage rates would continue slow the housing market. The NAR, however, still predicts an 8.4% increase in prices by the end of 2022.
So, slowing of unsustainable price increases – not a crash nor even much, if any, depreciation of current values. The consensus among real estate professionals at all levels seems to be that, despite cooling, we’re likely to see a decent seller’s market ahead as we move toward a more “normal,” stable, and sustainable market. A survey of statistical prognostications from seven respected expert bodies such as Freddie Mac, Corelogic, and NAR recently projected a range of housing price increases nationally in 2022 from 6.2 to 10.8, with 9% as the average. That 9% was echoed by another panel of economic experts who also predicted an average price appreciation of roughly 3.84% in the four following years, 2023-2026.
Locally, Zillow, for what it’s worth, is forecasting a 13.5 % increase in Sedona valuations for 2022. That seems rather exuberant compared with most Sedona real estate professionals who sense that we are in the midst of an overdue market correction, based on slowing demand and increasing supply. That said, although new listings have been surging, Sedona remains 53% below the typical number for this time of year. So, the expectation is that prices will simply flatten rather than drop precipitously. Multiple offer situations may still occur, but be more focused on Short-Term-Rental properties. And, sales are now starting to take weeks and months, rather than days. In pre-pandemic days, the average time on market for homes was roughly six months; for luxury homes, about a year. We appear to be drifting back in that direction.
In any case, buyers are catching a bit of a long-overdue break as the pendulum swings toward a more normal market.
Increase in median selling price of Sedona homes in one year
Percentage of Sedona homes that sold for over $1 million in Spring 2022
Slowing demand, increasing supply
Previously, thanks to an incredibly low housing supply in the face continued strong demand, the Median Recorded Selling Price of Sedona single-family residences had, by the end of April, risen 42.5 percent, from $825,000 in 2021 to $1,140,000 in 2022. That all-time record is indicative of how unaffordable Sedona had become for mere mortals. In the spring of 2021, 36 percent of single-family residences sold for over $1,000,000. In 2022 that figure hit 58 percent. Great for sellers, but it’s hard to sustain a market that continually closes itself off to more and more buyers.
In the meantime, with fears of rampant inflation running amok, sharp interest rate hikes were being applied by the Federal Reserve, consumer confidence in the economy plummeted, and fears of recession rose. Then came turmoil in the stock market.
Particularly for luxury properties, there is a correlation between the stock market and the local real estate market. Equities volatility carried over and had a chilling effect on real estate. That was evidenced by statistics as well as by the experience of real estate agents in the field. And most title companies serving the Sedona area tell us that their new escrow numbers have fallen off sharply; in one case down 60% for May. Realtors from the West Coast and around the country are reporting a similar shift in the market.
The most notable early-warning sign was a dramatic increase in the number of listings. Over the winter we had 25-27 homes actively on the market. It creeped up to 34 by March 31st and to 42 by April 30th. By the end of May it was 77 and climbing. On 31 May 2021 there were 34. In each of the three years prior to that we were at 165. So, a dramatic increase in a short period of time, but still a long way from a “normal,” balanced market.
Meanwhile Pending sales, a good indication of demand, were sub-par and declining at a time when they typically are increasing. In early June are 69 Pendings. Last month there were 82. A year ago, there were 125. Typically, the Sedona real estate market slows over the summer and I expect a quiet two or three months ahead before it picks up again in the high fall season.
So, with supply increasing and demand cooling, we can certainly expect some roll-back from the acute price pressure we experienced in the first four months of 2022.
Moving to A More Balanced Market
Among luxury homes the numbers are even more pronounced. At the same time that another new record has been set for sales of homes over $1,000,000 – 128 versus 82 in 2021, harbingers for future sales, active listings and pending sales, indicate a significant market respite there as well. Active listings – supply – jumped from 15 in June 2021 to 54 in 2022 – up a whopping 260%, but back into Pre-Pandemic norms. Pending sales eased 20% – from 56 to, a still respectable, 45.
The Vacant Land Market, meanwhile, is a mixed bag. Closed sales were down 45% from 2021’s spring “land rush” that eventually petered out in the summer and fall. And pending sales have dropped 66% to, a somewhat anemic, 20. But there is some good news for sellers: a 20% drop in listings from 111 to 89 and the Median Record Sales Price for land finally breaking through the $300,000 barrier and settling at $308,000. A primary impetus for the reinvigoration of the land market, however, has been the acceleration of home prices in the past year. A softening of the residential market could well further slow the vacant land market.
Although the specters of inflation, recession, and low consumer confidence are daunting, a moderate cooling-off of the over-heated housing market can be taken as a healthy development. Balanced markets attract buyers, rather than chase them off to more affordable locales. That’s good for everyone, including sellers. In any event, even with significant market corrections, it does appear that a moderate seller’s market is likely to be with us for some time.