In early September, after experiencing the slowest Sedona real estate market of the past 15 years, local agents took heart observing anecdotal indications that 2023’s autumn high season might give the market a long-overdue boost. We saw prospective buyers increasingly make reservations to come see property and showings were picking up some steam.
Halfway through the fall season, however, that expected bump seems to have fizzled-out. Similar to what is happening nationally, the pace of Closed Sales of Single-family residences in Sedona has been tepid thus far – 46 since the 1st of September. Aside from the disincentive to purchase presented by relatively high interest rates, Buyers seem to be spooked by the perceived uncertainties of the economy and as well as international events. In any case, many appear to be holding back, hoping for better times, easing mortgage rates, and lower real estate prices. For those of us who saw 18% interest rates in the 1980’s, 7% doesn’t seem all that bad. But, having enjoyed historically low rates in recent years it will take a while before buyers accept the reality that relatively high rates are going to be with us well into the foreseeable future. If and when they do come down, real estate prices are likely to act inversely. Meanwhile cash buyers are carrying the day. About 60% of local real estate transactions are being done on a cash basis these days.
Percentage of Cash Buyers in the local Sedona market
MRSP end of 3rd Quarter 2023
Pending Sales figures are, however, a bit alarming. Those are homes currently under-contract and the most reliable indication of the immediate and near-future state of the market. That number has been hovering around 27 for most of the fall. The last time we saw Pendings that low was back in 2008 when it hit 26. Keep in mind that 2008 was the historic Bottom-of-the Market for sales numbers during The Crash and The Great Recession. On the opposite end of the scale, we saw 120 in October 2020 as the Unicorn Market was building momentum. By October 2022 it was down to 46. For a final reality check, the Pre-Pandemic average was 63. So, by any measure Pending Sales are at a dismal level. And, that ain’t good.
The Inventory of Single-Family Residence actively on the market has been rather consistent. Currently we have 127 Listings. That’s 44% less than the Pre-Pandemic fall average of 227, but far better than the 89 we saw in 1st Quarter 2023 and even the 96 at Mid-year 2023. And, of course, light years ahead of the 34 that were available at the end of 1st Quarter 2022. Low inventory is a key factor that has kept prices higher than one might expect given reduced demand of late. Should inventory gain ground in the months ahead, we can expect more softening of prices and, perhaps, more buyers returning to the market.
In late spring this year, we saw home sales and prices pick up for a couple of months. The Median Recorded Sales Price of single-family residences stood at $937,500 for the 1st Quarter of 2023. By the end of June, the cumulative Mid-year MRSP had popped up to $999,000 and looked to be headed to well above $1,000,000. At the end the 3rd Quarter, however, it had slipped to $964,500. But, if we look at it just for September through late October, the MRSP sits at $845,382. That number is based on a relatively small sample of sales, so we need to be careful about relying on it too much. It could easily swing higher or even lower as more data comes in. That said, we do appear to be seeing a continuous softening of prices from June to the present. Corroborating that, Altos Research’s Market Activity metric shows that 47% of the homes presently on the market have had price reductions. That figure is not too surprising. Most listing agents bringing homes to the market in the last couple of months were likely expecting that fall season market bump that hasn’t happened and have had to adjust their list prices accordingly.
As for the long-suffering Vacant Land Market, things remain pretty grim, so to speak. Closed Sales numbers are off about 50% from 2022, but only down 27% from the Pre-Pandemic average. Pending Sales are a mere 8 compared with 15 in 2022 and 37 in 2020. The Pre-Pandemic average is 16.5, so currently we’re at about half of that. And, interesting enough, inventory is rising a bit. Presently it’s 126 parcels, whereas in 2022 it was 102 – as it was in 2019. In the previous 4 years before that, however, the average was 310. The reality is that vacant land is a non-renewable resource because Sedona is an island of private land surrounded by National Forest. Once land is built upon, we don’t have the option of extending the City’s boundary to grab new land. That will, eventually, make vacant land an extremely expensive resource. For a variety of reasons that hasn’t happened yet, but it will ultimately. When is the $64,000 Question.
Important Statistical Footnote
Two caveats are needed here. The Median is the midpoint of a range of numbers and does reflect real changes in valuations of properties, but it is also somewhat tainted by being affected by the mix of properties in the sample. A heavy preponderance of luxury homes is going to skew the results up to some degree and conversely be pulled down by a disproportionate number of inexpensive homes coming to the market. That said, there are significantly more homes under $1,000,000 on the market than we’ve seen for a while. That’s actually a healthy sign. More affordable housing will draw more buyers. But, it does skew the Median Recorded Sales Price. We just don’t know by how much. So, the MRSP – which is the standard statistic used by the National Association of Realtors – is a reliable stat for observing price trends, but less so for valuing individual properties.
The other caution is that the smaller the sample of units being considered, the less reliable the statistic. The 300 sales so far for the year gives us a solid statistical basis for making market generalizations; the 46 sales since September 1st, far less so. That said, since 2020 we’ve experienced volatile markets that are better read week-to-week rather than year-to-year. So, we do need to keep tabs on smaller samples of data, but we also need to be careful of over-reliance on those figures.