The Flagstaff Real Estate Market is Hot, But Why?

More than half of Flagstaff home sales in September were above the asking price, the number of sales has skyrocketed (September alone had a 40% year-over-year increase), and multiple offers have become nearly standard on properties that are even somewhat decently priced. The question is why?

The number one answer is exceptionally low interest rates. For months, rates have been hovering near or below 3% for a 30-year fixed-rate loan — the lowest rates since tracking began. This could save hundreds on a monthly payment for many buyers compared to just a couple percentage points higher, which partly explains why buyers are willing to pay more for a home.

Other potential reasons for the hot real estate market, at least in the Flagstaff area, are more directly tied to the pandemic. Coronavirus has caused a surge in demand of vacation homes for desert-dwellers in Arizona because travel has become difficult or less appealing, and many people from all over Arizona and California who are now working remotely would rather live and work in beautiful northern Arizona. This has led to a higher number of sales at all price ranges.

All of this unexpected demand has come with it’s own unique set of challenges. This market is overall excellent for sellers, but it can come with the challenge of not losing the sale due to buyer’s remorse or low appraisals. And for buyers, it can be great to take advantage of low interest rates and having a home in Flagstaff, but it can be very difficult to find the right home and win the bidding war (without grossly overpaying). Thankfully, there are strategies that experienced agents can use to address these challenges and increase the chances of win-win experiences for their clients. Everyone’s situation and goals are different, so I’d love to discuss how I can help you in this market.

Source for local statistics: Northern Arizona Association of Realtors MLS – Flagstaff area residential home sales.

Impact of Coronavirus on Flagstaff Real Estate

Now that we’re essentially three months into the COVID-19 pandemic, there’s no question that there’s been an impact on the Flagstaff real estate market.

The biggest changes in the market are the number of new listings, the number of homes under contract, and the number of closed sales. Home values appear to have softened slightly, but it’s too soon to know the true extent.

New listings are down 18% in the past three months compared to the same time period last year, likely due to coronavirus concerns as well as many people taking a wait-and-see approach to the market. This squeeze has made it a challenge for many homebuyers to find the right place. Fortunately, new listings have started to increase in the past few weeks.

The number of pending sales is down a significant 36% from the same time last year. This change, especially, has the potential to impact the market in the months to come. However, it’s possible that pending sales are down because the low number of available homes is making it difficult for buyers to find a home to purchase. If that’s the case, then we could see an increase in pending sales as more homes are listed.

The number of homes sold in Flagstaff was down 11% in April and 22% in May, but now is back up 22% month-to-date in June. Closings are a lagging indicator because the offers are typically made 30-45 days prior, so we were likely seeing the effects of the stay-at-home order in May and are seeing somewhat of a rebound now.

The overall good news is that people are still buying and selling real estate. Showings have recovered to approximately the same level as last year, sales are increasing, and many homes are still selling quickly. Plus, interest rates are at exceptionally low levels, making this a good market for buying or selling.

If you are interested in buying or selling a home in Flagstaff, please know that it is very possible. We can take precautions for the sake of everyone’s health and help guide you through these unique circumstances. Please feel free to contact me – I’d be happy to chat!

Get an Expert Opinion on Your Home’s Value

Online resources can give you an idea of your home's value but to really know what it's worth, you need a professional opinion. In fact, one popular online tool acknowledges that half of their estimates are more than 5% off. That means on a $400k house, half of their estimates are off by more than $20k! There’s no question this kind of tool could be useful for reference; however, if you base your plans on this information, you could wind up disappointed or in a bind if the true market value was significantly less. Or, worse, imagine if you left $20k or more on the table because you relied on that information.

This is why you need a professional who can give you accurate information on which to base your plans and can help you protect your equity when it comes time to sell. A true professional knows which comps are best and can better account for features such as upgrades, floorplan, condition, views, and the surroundings.

Call me if you’re considering selling and would like to discuss getting a professional evaluation of your home.

Best Time of Year to Sell a House in Flagstaff

Would you be surprised to learn that March is the best overall time of year to sell a house in Flagstaff? It is, indeed, and the reason being is that it’s one of the highest months for homes going under contract and yet the number of homes for sale hasn’t caught up with the demand (the inventory starts climbing in March and goes up significantly until peaking in July). By the time July rolls around, there are only slightly more sales per month and yet hundreds of more homes for sale. Essentially, you’re getting a head start on all the other people who are about to put their homes on the market and potentially capturing the buyers that they’re missing out on.

Of course, homes sell year-round in Flagstaff and we can get your home sold at any time of year, but if your motivation is to time the market just right, you can’t go wrong with listing in the next month.

So, in general, you’ll want to be on the market by March but it wouldn’t hurt to be on before that to take advantage of less competition and not miss out on a potential sale as we get closer to spring. Last January and February, there were almost 150 residential sales in Flagstaff, so there are buyers even in these coldest of months.

But what if your yard shows better in the spring or summer? The good news is that all of your competition has the same circumstances and the statistics show that motivated buyers see past that. If your home is still on the market when the foliage is at it’s best, good agents will update your pictures on all the marketing (the last thing you want is a snowy picture in the middle of July!).

Of course, these stats are for Flagstaff as a whole and there is some variation in individual areas and neighborhoods (but even those are likely different than you would think) so feel free to contact me if you have questions about your specific area.

Sales Up This Summer, But Inventory Stabilizing

There were more sales in the month of August than we’ve seen in any month in years! We had 151 residential sales, compared with 119 in August of 2012. The number of sales in Flagstaff this summer has increased 28% over last summer. This demand has led to continued price increases.

However, as you would expect, more properties have come on the market as prices and conditions have improved, which has offset some of the shortage that was driving up the prices. While we still have substantially fewer homes available now than two years ago, we’re basically back to last year’s levels. This is the same trend we’re seeing with pending sales – the number of homes under contract is higher than two years ago, but about the same as last year.

Add to this the fact that interest rates have jumped up considerably in the past two months and it begins to create some uncertainty as to whether the real estate market will see further gains or whether it will stabilize at the current level. A lot of it depends on whether the economy has improved enough to support more demand in the housing market.

Highlights of Improving Flagstaff Real Estate Market

The Flagstaff real estate market has made a lot of interesting changes in the past year. We’ve been so accustomed to negative housing and economic news for the past few years that it seemed recovery would never come. However, for the first time since the real estate crash, sales and prices are finally shifting in a positive direction.

Here are some highlights that show the improving real estate market in Flagstaff.

Fewer Distressed Properties on the Market

As recently as January 2012, distressed properties (foreclosures and short sales) made up 61% of all residential sales in Flagstaff! In less than a year and a half, this has dwindled down to the point where only 25% of all sales are foreclosures or short sales. This is still a large enough percentage to have an impact on the market, but the fact that it’s declining is a positive sign for the housing market.

Less Inventory and Rising Prices

The number of available homes in Flagstaff is down 33% from two years ago, while the number of year-to-date sales are up almost 20% in this same time period. This shift in the supply and demand has caused prices to rise for the first time in years. In Flagstaff, most homes have seen appreciation of 7-10% since the low point last year.

Interest Rates Still Low

Interest rates have been averaging at or below 4% for the past year and a half. Rates are constantly in flux but it is generally thought that the rates will begin to gradually increase and recently have begun to do so. The reality is that these rates are incredibly low and, in the long term, have no where to go but up. Of course, even rates in the 5-6% range are low by historical standards, but the exceptionally low 4% rates will likely continue to spur activity while they last.

New Construction is Booming

With the squeeze in available homes, there’s been a surge in new construction in Flagstaff. Year-to-date in Flagstaff, there’s been three times the number of permits granted for residential new construction as there was just last year-to-date. Coconino County has also seen improvement with a 42% increase in residential permits from 2011 to 2012.

Arizona’s Economy is Improving

Not only was Arizona’s housing market one of the hardest hit in the nation, the economy and the state’s finances were in bad shape as well. However, being a resilient state and a state willing to make difficult choices, we’re already on the road to recovery. Arizona has recently been named by Kiplinger as one of the “10 States with Biggest Rate of Job Growth” and by Forbes as one of the “Top 10 Fastest-Growing U.S. States,” both of which are good signs for the future of Arizona. Also, in just a few short years, the state of Arizona has gone from a low balance in the general fund of -$905 million in December 2009 (this was the only time period with a negative balance in at least 20 years) to now having a positive balance of a whopping $2.9 billion!

As you can see, the real estate market and economy have seen some improvements and are currently heading in the right direction. Ideally, we’ll continue to see a gradual, steady increase in sales and prices, supported by a healthy and growing economy.

Prices Finally Up in Flagstaff!

Unless the real estate market takes another dive, it appears the bottom of the market in Flagstaff was sometime around August 2012. The prices had started to climb earlier in 2012 before dropping again to that low, but have been climbing steadily for the past seven months since then. In fact, the market has made quite an astounding jump since that low point with trailing average and median prices gaining in the ballpark of 10%!

The increase in prices is due to the fact that there are fewer people selling and more people buying, tipping the scales of supply and demand and forcing prices upward. The supply of homes has decreased due to fewer short sales and foreclosures, less desire and ability for people to sell at the lower prices, and the extremely low levels of new construction in the past few years. The demand for housing has increased due to low prices, low interest rates, and pent-up household formation.

There was such a drastic market correction that home prices were likely below their true market value for the past couple years and are adjusting back to that point. It will be interesting to see whether the upward trend takes hold this time and at what level it continues.

Unusual Market Conditions Mean Good Time to Buy AND Good Time to Sell

In the real estate boom, we had an absurdly strong seller’s market, where instant sales and bidding wars were commonplace. Then in the bust, we had the opposite: a very strong buyer’s market where prices were tumbling, selection was overwhelming, and low buyer confidence kept most buyers on the sidelines. Now, we’re in an unusual real estate market where it’s both a good time to buy and a good time to sell, at least momentarily.

This is very good news for anyone who’s contemplating a move. There are a number of reasons for both buyers and sellers as to why now is a favorable market.

Why Now Is a Good Time to Buy Real Estate in Flagstaff

  • Buyers can take advantage of historically low interest rates, which gives them unprecedented purchasing power. At the time of this writing, rates have been just over 3.5%! Keep in mind that as recently as 2008, the rates were above 6%. If you’re not clear as to how much of a difference the interest rates make, read this post.
  • Home prices have essentially been rolled back to 2004 prices. This alone should be incentive enough to buy, but coupled with amazingly low interest rates, this may be the one chance to get into the home you want. You can likely afford more than you think and the prices are showing signs of increasing, so don’t miss out.
  • Rents have been increasing in Flagstaff for various reasons, including increased enrollment at NAU. In most cases, it is quite a bit cheaper per month to own than to rent.

Why Now Is a Good Time to Sell Real Estate in Flagstaff

  • The inventory of available homes has dropped by 37% in the past year! Low inventory means you have less competition from others trying sell. Also, you’re competing against far fewer foreclosures, which are typically priced aggressively.
  • Prices have begun stabilizing. This is good in that you don’t have to worry as much about putting your home on the market and watching the prices plummet before you can get sold. Some segments of the market have even begun seeing price increases.
  • The number of sales in Flagstaff has picked up over the past year by about 10%. Essentially, there are more people buying and fewer available homes.

In the past few years, most people have dreaded the thought of having to sell, but, as you can see, the market has become more favorable for selling. In fact, with the lack of available homes for sale, we’re technically in more of a seller’s market. However, with the low interest rates and good prices, you can’t go wrong being a buyer either.

Hot Year Begins to Slow – Better Time for Buyers or Sellers?

Although Flagstaff home sales in late spring and early summer were hot, sales in early fall have tapered off and are shaping up to look at lot like last year. Every month from January to July had more sales this year than last, and in some of these months it was significantly more. But then something interesting happened… August and September reversed course and actually had fewer sales than last year, although just barely. It seems strange that the entire year has been “hotter” than last year and then we see a sudden shift. Explanations could be that people are more focused on the upcoming elections, that demand was merely shifted from August and September to prior months, or that this was just an anomaly.

Another possible explanation for fewer sales recently is that due to limited supply, many would-be buyers aren’t finding the home that suits their needs. The inventory of available homes in Flagstaff continues to be very low, making the home search slightly more challenging. The low inventory, along with a 13% increase of year-to-date home sales over last year-to-date, has changed the balance from a strong buyer’s market to somewhat of a seller’s market.

It’s too soon to know what effect this limited supply will have on pricing in the long-term. If sales continue to taper off, even to just last year’s levels, this will likely keep the market balanced and keep prices steady. If this recent cooling of sales is just an anomaly and sales go back to outpacing last year, and/or we continue to see a drop in available inventory, it seems likely that prices would increase. This, of course, will depend on many factors such as the economy, employment levels, consumer confidence, etc.

Based on all of this, the current lack of inventory could make now a good time to sell due to less competition and slightly higher pricing power. Plus, we don’t know how long it will be until the economy improves enough to significantly increase prices. However, from a buyer’s perspective, it’s still a good time to buy if you’re patient and focused. After all, it’s hard to know when we will again see these extraordinarily low interest rates (hovering below 4%) coupled with the lowest prices in years.

Increased Demand But Prices Remain Unchanged From A Year Ago

Interestingly, despite the flurry of home sales we’ve had in Flagstaff this year, the trailing average price is about the same now as it was a year ago. We saw prices bump up a little bit this summer, but those increases seem to have faded over the past couple months.

One would think that with demand being up and supply being down, prices would continue to rise. However, the balance of supply and demand has just barely reached a normal level. In other words, there are just enough sellers and buyers to keep the prices steady; there’s not enough of an under-supply to dramatically increase the prices. One explanation could be that the demand exists only because of the lower prices and that as buyers face the prospect of paying more for a home, some just change their mind about buying.

Fortunately for those Flagstaff buyers who stay in the market, the combination of exceptional prices and historically low interest rates make this an incredible buying opportunity. And for those needing to sell, the balanced market has made the conditions for selling better than they have been in years.