On September 23, the Federal Reserve increased interests rates and an additional three quarters of a point to combat inflation.
While mortgages are not directly tied to the federal rate they do respond to it, and respond they have.
According to data published by the Federal Reserve Bank of St. Louis, the average interest rate on a 30 year fixed mortgage is 6.29%, the highest rate since the Great Recession 14 years ago.
Rates increased rapidly, at the same time last year mortgage rates were under 3% and as recently as January 2021 average 30-year fixed rate was 2.65%.
The lowest average ever recorded.
The quick rise has been a shock to the system for the Phoenix real estate market. In 2018, average list and sale prices in Phoenix hovered around $300,000.
A four-year run-up in housing value peaked both numbers close to a half a million in the first half of 2022.
Since the rate hikes began this past year however, the average sales price of a home in Phoenix has corrected 6%. Listing prices adjusted down 7%.
Another way to look at it is year over year housing prices. Prior to 2021, sales prices in Phoenix increased on average 10% annually.
When interest rates hit rock bottom last year, the average year over year sales prices tripled.
Since the rate hikes the annual increase has fallen back down to earth with a more modest year over year increase of 14%.
This means last year Arizona’s housing market was red hot, housing analysts are now calling Phoenix a “balanced market”.
The Cromford Index is one way Phoenix realtors measure whether housing is in a “buyers” or “sellers” market, with any value over 100 considered a sellers’ market.
As recently as March, of this year the Cromford Index was calculated at over 400, giving a heavy advantage to sellers in real estate transactions.
In September, the Cromford Index hit 105. Analysts also say that oversupply is not yet materializing and that sales are hitting long term averages.
One area of the market not seeing a major correction were houses priced over $500,000 with the number of houses under contract being like 2021.
For the first time in awhile buyers are now incentivized.
One new development in the Phoenix market is the growth of the “2-1 buy down mortgage.” To attract buyers, some mortgage companies are offering mortgage rates that have borrowers paying 2 points under the fixed mortgage rate for the first year and 1 point under for the second year.
This is unlike the popularity of adjustable rate mortgages from the housing crash of the Great Recession sine the cost of the rate decrease comes directly from the seller and the final rate never goes above the locked in 30 year rate.
