Disneyland announced its closure due to COVID-19 on March 12. Despite being the usual 31 days, March lasted longer than any other month in history. People all over the world were glued to the news; trying to make sense of what was happening. April 19 was the turning point for Arizona real estate. In May the end was in sight. And then it wasn’t. Now it is August, a time when we used to buy school supplies and take the first day of school photos we are, instead, buying laptops for Kindergarteners begging them to hold still for one more minute.
The intense political climate has brought more confusion than answers. Today it was announced that 50% of Americans do not trust the media. I was surprised that the number was not higher. We know a lot more now than we did five months ago but a great deal remains to be seen.
Let’s start with what we do know. Real estate is saving our economy.
What we know:
Demand for real estate is intense all over the country and it is reflected in the 11% year over year sales price increase for the last week of July. The national median sales price is up to $315,000. (Redfin)
Cromford Market Index (CMI): Is the best leading indicator available (balance is 100, above 100 is a seller’s market, below 100 is a buyer’s market, prices rise at 110, and drop at 90). Yesterday it was 324, the pre-COVID peak was 241 and bottomed out on May 15 at 145.2. This week we blew past the previous record set in 2005 at 312.9.
Supply: The available inventory continues to stabilize; it just happens to be at an extremely low level. As of yesterday, our inventory is 63.3% below normal. Active listings excluding under contract accepting backups (UCB) are down over 42% year over year and nearly 11% month over month.
Demand: Pending sales are down 2.5% since last month but up 16% year over year, which is significant given how much lower our inventory is today. Our demand is nearly 19% above normal and increased by 2.6% in the past seven days.
Sales & Prices: Phoenix metro area closed sales are up nearly 15% month over month and up 16% year over year. The median sales price is $315,000, up 2.5% month over month and nearly 11% year over year. Healthy appreciation is 3% annually.
Southeast Valley New Listings, Pendings, and Closings: This week over week comparison for Tempe, Mesa, Chandler, Gilbert, Apache Junction, and Queen Creek since March 15 shows the recent supply stabilization, demand continues to outpace supply, and sales are increasing. Closings always spike at the end of the month.
What else do we know?
- Today’s fast-paced, ultra-competitive real estate market is not only due to pent up demand, the historic low-interest rates and dropping inventory are fueling the fire. Realogy CEO Ryan Schneider said, “Today we are seeing inventory down 15 percent or more in every price band compared to a year ago when inventory was already at historic lows.” (Realogy earnings call)
- NAR has added a new partnership to the Realtor Benefits Program, ReferralExchange, a concierge, lead vetting company. (NAR)
- Nationally, new unemployment claims last week was 1.2M. 250,000 fewer than the week prior. We are now at 11% unemployment, down from 11.6% the previous week. (US Department of Labor)
- New Arizona unemployment claims last week declined by 14% from the previous week. (US Department of Labor)
- Mortgages in forbearance declined for the seventh week in a row, down to 7.67% of all mortgages or roughly 3.8 million loans. (MBA)
- Delinquencies for commercial mortgage-backed securities hit 9.6% in July, up from 2.62% last year. (Bisnow)
- Since the beginning of March 72,842 businesses on Yelp permanently closed. (Elliott Pollack)
- Judge overturns Governor Ducey’s gym closure, stating they must be allowed to prove they can safely operate during the pandemic. (Phoenix New Times)
- COVID changed homebuyers timelines, and not in the way expected. More are moving up their purchase timelines. (Redfin)
“Somewhat counterintuitively, the coronavirus-driven recession is propping up the housing market. Homebuyer demand is surging despite GDP taking a historic nosedive in the second quarter, largely because Americans value the home more than ever and are willing to prioritize housing even as they cut back on other expenses. Additionally, the Fed is using low-interest rates to stimulate the economy, which is giving buyers more purchasing power and boosting home sales. But even with low rates, widespread unemployment and financial uncertainty mean not everyone who wants to buy a home is able to.”Redfin Chief Economist Daryl Fairweather
According to a recent report by Point2, using data from Redfin, homebuyer profiles have also changed since the beginning of COVID. Full report: https://www.point2homes.com/news/us-real-estate-news/the-2020-us-homebuyer-profile.html
What do we think we know?
- McMansions are making a comeback. Maybe not 5,000 square foot houses, but definitely 3,000 square feet. (Inman)
- Schools may reopen for in-person learning on 8/17 unless Governor Ducey extends the required delay in tonight’s press conference. In Chandler, where my kids go to school, the first quarter is now completely virtual with the possibility of in-person learning resuming mid-October.
- Schools are a big part of location, location, location. If they are closed does the demand for a top-notch school district go down?
- With kids at home, parents cannot go back to work or look for a new job; which will keep the unemployment numbers high.
- Parents that are working from home are now also simultaneously teaching from home.
- Both residential and commercial investors are backing away from new purchases. (Bisnow)
- Economist Elliot Eisenberg said, “In yet another indication of a stalling national economy, after rising by ten percentage points a month in April, May and June, credit card purchases were flat in July and are now ten percent below their pre-Covid-19 level. This flatlining is probably due to rising coronavirus cases and subsequent behavioral changes in addition to state-imposed restrictions. The lack of continued improvement has primarily hurt restaurants/bars, gas stations, lodging, and airlines.”
- Since February, rent growth is slowing at a greater rate in urban areas than it is in suburban areas. Reaffirming suburban migration trends. (Zillow)
- Despite dropping to their lowest levels the “Investor Confidence Index” and “Startup Confidence Index,” investors in this sector are optimistic due to warp speed change, innovation, and increased adoption of new technologies within real estate. (MetaProp)
What we do not know:
- Typically, the second half of the year sells less than the first half. Starting in July we tend to see an increase in available listings and that increase remains through November. It is too early to tell if 2020 will fit the pattern.
- 85% of college students want to return to campus. Colleges and universities want to reopen but how? Some economists question whether major universities will be able to weather this storm. What would Tempe look like without ASU? (Chronicles of Higher Education)
- StreetEasy, a Zillow owned, NYC listing portal is implementing a 24-hour rule similar to the Clear Cooperation Policy. Non-compliance could lead to loss of the system’s tools and advertising. Will other advertising platforms follow suit? (Zillow)
- eXp, coming off its most profitable quarter ever, purchased Showcase IDX with plans to create a consumer-facing search portal to compete with Zillow, Realtor.com, and Redfin. Is it possible to compete with portals of this size? (Inman)
- In an effort to bring commercial tenants back into offices, landlords are now offering healthcare benefits through virtual health startup, Eden Health. Will it work? (Bisnow)
- What is the future of commercial office space? Projections continue to indicate more trouble for the sector due to more permanent work from home options. (Bisnow)
- The FED is playing a large role in bolstering the economy. The outcomes of the recent expiration of the expanded unemployment benefits created by the CAREs Act remains to be seen.
- 1031 Exchanges may be on the chopping block again. Getting rid of the nearly 100-year-old tax program to fund Joe Biden’s childcare and elder-care proposal. What does that mean for real estate? (Inman)
Too cool not to share:
Loftus Hall, a 900 year old residential property in Ireland hit the market for $2.9M. In AZ an old house was built in 1980! Check it out here. https://www.irishcentral.com/dream-homes/irelands-haunted-house-sale
There is a lot of information coming at us all of the time. After being the cause of a major economic downturn 12 years ago, the real estate industry is taking its role as the solution very seriously. We continue to overcome hurdle after hurdle. I am optimistic that we will continue to do so as we prepare for even more hurdles in the coming months.
Copyright 2020 by Sarah Perkins
Sarah has been with Lawyers Title of Arizona since 2004. As an award-winning sales executive, Sarah’s role is to bring transactions to Lawyers Title. To do this, she focuses on supporting her clients and helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.