Things truly are better than only a few weeks ago; consumer sentiment is up month over month. Things are definitely better than what the headlines read. As David Childers, with KCM, said, “The media often does more to terrify than clarify.” He is right. With all that said, we cannot diminish everything that is happening in our world today.
Robert Reffkin, the CEO of Compass said, “It’s OK to not be OK in this time. Agents and members of the real estate industry are always putting on a “happy face” but right now real estate professionals are dealing with a rapidly changing world and two simultaneous crises.”
During this week’s virtual Inman Connect, Brad Inman begged the leaders of our industry to; “To step up and go beyond making vague commitments to diversity, charities and economic fairness.” The CEOs of Zillow, Redfin, RE/MAX, Compass, eXp, Keller Williams, Realogy, Coldwell Banker, and the president of NAR are all speaking out against racism and implementing new policies and practices.
Speaking of real estate leaders, Adam Contos, CEO of RE/MAX, is very encouraged by the leading indicators and believes that during the second half of 2020 we will make up a lot what was lost during the first half of the year. A recent report from Zillow shows the same prediction. Yes, transactions will be down but not nearly by the amount initially predicted. Most people pressed pause, not stop. Economists considered real estate dead 60 days ago. Today some are saying that housing is the driver for our entire economy. At 16% of the GDP, I agree. When someone buys a new home, on average, $88,000 is pushed out into the economy. When someone buys a resale home $42,000 is pushed out.
Cromford Market Index (CMI): The CMI is the best leading indicator available (balance is 100, above 100 is a seller’s market and below 100 is a buyer’s market. Prices do not drop until the CMI hits 90). On March 20, the CMI peaked at 241, and yesterday it was a 162.9, up from the bottom of 145.2 we hit on May 15 and up 10 points in the past seven days.
Supply: Our local inventory started dropping on May 12 and has continued to decrease every day since. We finished May nearly 28% below where we were at the end of May 2019 and that is nearly 48% below normal inventory levels. To keep prices under control, we need more listings, desperately. Dr. Lawrence Yun, the chief economist of NAR said, “More listings and increased home construction will be needed to tame price growth.”
Demand: Showing Time shares its physical showing request data. The requests peaked on February 22 and then immediately dropped by 63% through mid-April. As of Wednesday, we are only 2.7% below February’s peak and only 4.8% below where we were last year. Our demand is running about 15% below normal and increased by 3% in the past week.
New Listings, New Pendings, and Closings: When new pendings outpace new listings, we have a market frenzy. This week over week comparison for the southeast valley since March 15 shows an early drop in new listing counts which is concerning given the growing demand. Only time will tell if it is pent up demand or actual demand. Based on February’s demand it is likely to be actual. If this is the case, prices will rise rapidly. Closings always increase at the end of the month. May’s end of the month was not only bigger than April’s, but the closing increases started earlier. Good signs for what is to come!
Other Arizona News:
- High paying tech jobs continue coming to AZ.
- Despite the headlines, Boeing is hiring and growing.
- Mitsubishi’s location in the Falcon Field district in Mesa is growing and they are bringing in more jobs.
- Industrial building continues in NE Mesa and companies are occupying them quickly.
- More businesses have committed to moving to AZ bringing several hundred jobs.
- According to Elliot Pollack & Company as of the week of May 16 in Maricopa County retail and recreational trips are down 27.3% year over year.
- April hotel occupancy levels were 24.8%, down from 73.8% year over year and from 47.9% in March.
- Hotel demand in April was down 69.4% year over year and supply dropped 8.9% year over year. Several closed their doors completely.
Experts previously predicted that in May we would have a loss of 8 million jobs instead, we gained 2.5 million jobs in May, awesome!! Those predictions were off by 10.5 million! Not only did we reach the tipping point for unemployment; unemployment numbers improved from April’s 14.7% to May’s 13.3%. Amazon hired 175,000 new employees and announced that they will be keeping 150,000 of those new employees. Of the nearly 42 million who have filed for unemployment around 22 million are collecting benefits. A study from the University of Chicago found that 68% of unemployed workers who are receiving benefits that exceed the lost earnings. Further, 20% of the unemployed workers are receiving benefits that exceed two times the lost earnings. Becker Friedman from the Institute of Economics at the University of Chicago said, “The CAREs Act actually provides income expansion rather than a replacement for most unemployed workers.”
What remains to be seen is the long-term impact of unemployment, the supply chain interruptions, and the 25-30% of the non-essential businesses that closed and will not reopen. On Wednesday, AMC Theatres, the world’s biggest movie theater chain, stated they have “substantial doubt” they will be able to stay in business due to the extended closures.
National savings rates are up; April was 33% versus 12.7% in March and 8.4% a year ago. Remember one person’s spending is another person’s income. Saving is good yet so is spending. Spending on travel is slowly increasing. According to the TSA as of May 23 travel is down 89.1% year over year, an improvement from 91.3% the week before. Traffic through Sky Harbor is down 93% year over year in April.
- Zoom fatigue. It is possible to Zoom too much, be sure to balance health, safety, and our basic human need for real interaction.
- We are seeing increases in second home purchases which is unusual in a financially stressful time.
- Glenn Kelman, CEO of Redfin said, “The listings that are getting all the traffic right now are in small towns. Almost all of our customers are considering a relocation.”
- Zillow listing views are up 40% year over year, 500% increase in the use of 3D tours, 123% more saves on properties with 3D tours in March
- Errol Samuelson head of research and development at Zillow said that the 3D tours are helpful, but everyone needs to include a floor plan in their listing images.
- Today’s consumers are researching commute time, wifi strength, cell strength, access to Amazon Prime Now, etc. These will likely become searchable data points in the future.
- Moody’s Analytics expects that by the end of the year office vacancy rates could reach an all-time high of 19.4%.
- 75% of Americans that are working from home said they would like to continue doing so and of those 2/3 said they would like to move.
- 40% of homes do not have an extra room for a home office; 31% of people working from home are working in their living room or family room, 10% in the kitchen, and 3% in the attic.
- Affordable housing startup, United Dwelling, is building small rental units in residential backyards. They charge $87,900 to install a unit that is then managed by United and keeps a portion of the unit’s rent for 15 years at which time the homeowner then gains complete ownership of the unit.
Other Real Estate News:
- Four-year-old tech start-up Voiceter Pro permanently closed its doors this week, stating the shutdown is due to COVID 19.
- Realogy is bringing back a portion of their furloughed employees.
- Offerpad is launching a traditional listing option in addition to its iBuying. Their licensed W2 Realtors will list and sell a consumer’s home. While it is on the market the seller can decide to switch the iBuyer option at any time. Sellers can utilize the company’s concierge services to prep the home for market or do renovations. Offerpad’s partnership as Keller Williams’ iBuyer which operates as Keller Offers, remains intact.
- Court denies Top Agent Network’s (TAN) restraining order application against NAR’s Clear Cooperation policy. TAN filed a lawsuit against NAR on May 11 stating the policy violates the anti-trust laws along with others.
- Pocket Listing Service (PLS), is the latest pocket listing network to file a lawsuit against NAR and a number of MLS’s also stating the Clear Cooperation Policy violates anti-trust laws.
- CEOs Glenn Kelman of Redfin, Adam Contos of RE/MAX, and Gary Keller of Keller Williams all expect to see new mergers and acquisitions, as they often happen during economic downturns. Only this time they will look different. Offices and their cultures will likely stay intact as the acquiring company may never occupy the space and remain separate. More business will continue to be done outside of physical meetings. Additionally, they expect to see other sources of revenue generation as part of the acquisitions such as other real estate services like title, lending, property management, home inspections, etc.
- According to the Mortgage Bankers Association, purchase mortgage applications are up for the 7th week in a row and are up 18% year over year. Only 7 weeks ago, we were down 35% year over year.
My favorite real estate strategist, Mike DelPrete, agrees the data is all positive. Things are absolutely picking up and going in the right direction. In March, every single market had an immediate and dramatic drop in demand. DelPrete questions how much of today’s demand is pent up demand versus actual demand, which is market-specific and too early to tell.
This week at Inman Connect Now, DelPrete discussed how both traditional real estate brokerages and iBuyers both need to work hard to stay relevant and capture market share. iBuyers need to figure out how to be profitable. Traditional brokerages need to speed up and pivot, develop virtual showing options, double down on marketing, and create digital transaction platforms. If done right, we will see traditional real estate brokerages and iBuyers come together and ultimately offer more benefits to consumers and Realtors. He said, “Over time, iBuyers will look more like traditional brokerages and the traditional industry will look more like iBuyers and there will be an overlap of services. The industry is moving fast. Figure out what you can do to stay ahead of the curve.”
Rich Barton of Zillow is calling today, “the great re-shuffling.” The real estate industry is a lot smarter than it was in 2008. “We are a more robust industry now,” he said. Necessity is the mother of invention which is why real estate has been driving innovation. Pete Flint, founder of Trulia said, “A five-year revolution has happened in three months.”
Remember, “Data without analysis is just noise.” As you digest this information, what does it mean to you? It means that things are changing faster than ever before, and your competition is struggling to keep up. It means buyers are out looking and competing for fewer and fewer listings. This is the time to work hard, communicate with your clients, let them know what is really happening, listen to their needs, and respond accordingly. That is how you will win.
Copyright 2020 by Sarah Perkins
Sarah Perkins is an award winning account executive and has been in title sales since 2004. As the Director of Industry Research & Senior Account Executive, Sarah’s role is to bring real estate transactions to Navi Title. Sarah supports her clients by helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.