November 11, 2022

2 min read

Phoenix, We Have a Problem

Executive Summary

  • Phoenix was a pandemic winner, up over 50% from the COVID lows in spring 2020 to its peak in Summer 2022; this price performance ranked 3rd out of 20 major US metros, only behind Charlotte and Tampa
  • Since Phoenix peaked in Summer 2022, an all-time high, it is now down 10% according to Parcl Labs real-time market pricing data
  • iBuyers have dramatically elevated exposure to the Phoenix market, with approximately $1bn in inventory today; this dwarves the next largest iBuyer market in our analysis, Atlanta, which has $430m in inventory
  • iBuyers are slashing prices every 14 days, by over 2% on average; this is the largest magnitude of iBuyer price cuts across active iBuyer markets we investigated
  • If iBuyers were able to sell all active inventory at current market prices, they would lock in approximately $100mn in losses
  • In October, Phoenix printed the worst inventory turnover ratio in over a decade at 0.34% of all residential properties in the region
  • We see a race to the bottom between iBuyers and individual homeowners in Phoenix, with each competing to find market clearing prices. In our view, all of the conditions are in place for a steeper ‘market crash’ in Phoenix.

The Phoenix real estate market was a major pandemic winner, up over 50% from the COVID lows in spring 2020; this price performance ranked 3rd out of 20 major US metros. Since Phoenix peaked in Summer 2022, an all time high, it is now down 10%.

Parcl Labs data indicates that top iBuyers Currently hold nearly $1B worth of homes in the Phoenix area. For context this dwarves iBuyer activity in other major markets; it is over 2x the next largest market (Atlanta).

iBuyers are changing prices fast. These entities are changing prices of active inventory every 2 weeks in Phoenix. This is the steepest bi-weekly price cutting activity relative to other markets with top iBuyer activity. Other sellers are changing prices just as fast, which is not what we typically see across other markets with significant iBuying activity (iBuyers normally cut prices ~25% faster than non-iBuyers). There is a race between institutions and individuals to find out where the market clearing prices sit in Phoenix.

Parcl Labs Data

If iBuyers sold their active inventory at current asking prices, we estimate that they would lock in $90m in losses relative to their original purchase prices.

iBuyer basis risk by market

Denver, Las Vegas, and Phoenix have the widest margins to the downside relative to original purchase prices and current asking prices.

Based on what we know about October sales right now, October could be the worst inventory turnover ratio (# sales/total units) month in Phoenix in a decade. External sources have highlighted the rapid rise in total unsold inventory in recent months. Our data corroborates that market liquidity is deteriorating rapidly.

Between elevated iBuyer activity, worsening liquidity, and higher interest rates at the national level, we believe that all of the conditions are in place that could preempt a steeper ‘market crash’ in Phoenix.

Relevant Twitter Threads:

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