“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.” Leaving politics aside, the opening of Charles Dickens’ 1859 novel, A Tale of Two Cities, accurately describes today’s environment.
Dickens continues, “It was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”
This is a tale of two economies and this tale is nonfiction.
Many economists are calling this a K shaped recovery. That means that some are having a positive recovery or are fully recovered while for others the struggle continues to worsen. Economist and real estate consultant, Elliott Pollack calls it the “have and have not economy.” Those with jobs have saved money and are in good financial standing. Those who have lost their jobs, who are usually not homeowners, are finding themselves with fewer job prospects and, with the expiration of the CARES Act, significantly smaller unemployment checks.
Best of Times:
- National retail spending increased by 1.2% from June to July, increased 1.7% from February to July, and increased by 2.7% from July 2019. (Elliott Pollack & Company)
- AZ retail spending increased by 4% in June and was up 13.7% over June 2019. (Elliott Pollack & Company)
- Spending on goods is up 5% from February. (Elliott Pollack & Company)
- People are canceling their weddings and using the money for a down payment for a house.
- After a very rough March and April and then surprising jump in business, Airbnb filed initial public offering (IPO) paperwork with the Securities and Exchange Commission (SEC). (Airbnb)
Worst of Times:
- Spending on services is down 12% from February. (Elliott Pollack & Company)
- Real GDP dropped 11% since February. (Elliott Pollack & Company)
- Projections show a 5.2% GDP decline for 2020 (Blue Chip Financial Forecasts)
- Airport travel is down 73.2% year over year. (TSA)
- National hotel occupancy is 33.3% down year over year. (Elliott Pollack & Company)
- Greater Phoenix seated restaurant dining is down 67.2% year over year. (Elliott Pollack & Company)
- Many small businesses are struggling to keep their doors open.
Jobs & Unemployment:
Initial unemployment claims in Arizona dropped again last week. Our rate of new claims is only 218% above this week last year. It is an improvement over the 401% increase in year over year initial claims we saw in early July. (Elliott Pollack & Company)
Initial unemployment claims in the US increased last week by 1.1 million, 135,000 more than the previous week. Continuing unemployment claims dropped by 636,000 to just over 14.8 million. (US Department of Labor)
Phoenix has the best performing job market in the country. It is not that more jobs were added, it is that fewer jobs were lost. (Elliott Pollack & Company)
Amazon announced it is bringing 3,500 new jobs to the valley, including a 500 employee tech hub in Tempe and a 150,000 square foot fulfillment center at Falcon Field in Mesa. (Arizona Republic)
Mortgage & Forbearance:
- For the ninth week in a row mortgages in forbearance decreased. It dropped from 7.44% to 7.21% or to roughly 3.6 million loans. Yes, we have a long way to go but an improvement is still an improvement. (MBA)
- Mortgage loan applications declined 3.3% week over week. (MBA)
Virtual learning is causing a lot of challenges across the country. The New York Times wrote about parents and teachers now being pitted against each other. School districts are changing plans almost daily. The San Tan Valley school district had to cancel in-school learning completely due to over 100 teachers calling out sick last Friday. Parents are feeling forced to choose between their kid or their job.
My family is feeling the strain. The other day my husband and I were discussing our options for our three elementary school kids after we learned school is postponed again, this time until mid-October. I mentioned private school and my husband’s immediate response was, “If they go to private school I want to move.” We moved to our current location for the schools. If that conversation is happening in my house, it is happening elsewhere too.
The length of the closures will influence the impact on housing. My kids are only 3 weeks into their virtual learning and I have already pulled them out of 2 different available options and upped my nanny’s hours by more than 50%. If this continues past October, we will be looking at more permanent alternative options. Kenya, in Africa, canceled the entire 2020/2021 school year.
Based on survey results in my local district about 1/3 of students do not plan on going back when school reopens. Some school districts across the country report that up to 75% of students do not plan on attending in-school learning. Teachers are retiring in record numbers. Kentucky was having a teacher shortage prior to the pandemic and is not sure that all schools will be able to reopen due to a lack of available teachers. Some teachers are going private as families and neighborhoods are starting their own tiny schools in their own houses.
Parents who were out of work are indefinitely delaying their return to work. Delaying the unemployment recovery furthers the divide between the haves and the have nots. A recent New York Times survey found that 1 in 5 families will have in-person help with homeschooling. That puts enormous pressure on households with two working parents. This is deepening the divide between teachers and parents.
Buyer trends are shifting, they want home offices, Zoom rooms, and home-schooling rooms. This week there was an article in Inman that said, “buyers are much less interested in things that used to be important: proximity to offices, shopping and urban centers, high-quality public schools, and even the prestige of neighborhoods.”
There is potential of a geographic redistribution of wealth that would have serious implications for housing. What remains to be seen is if this is a temporary issue or a systemic one.
Residential Real Estate-The Best of Times:
This is a good time to both sell and to buy given the low-interest rates. For the people who have stayed employed, savings are increasing and giving consumers the opportunity to re-evaluate home. Zillow president, Jeremy Wacksman said, “Consumers are thinking about changing their living space for a variety of different reasons. Whether it’s dreaming of a home office or moving to the suburbs because the commute doesn’t matter anymore, consumers are re-evaluating what they believe home is.”
The Realtor.com Housing Market Recovery Index reached 104.8, meaning we have surpassed pre-pandemic numbers.
The AZ Market:
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 338.2, nearly 100 points above the pre-COVID peak of 241. On May 15 we hit 145.2.
Supply: The available inventory continues to stabilize. Inventory remains low but is not dropping at incredible rates. As of yesterday, our inventory is 64.2% below normal. Active listings excluding under contract accepting backups (UCB) are below 8,000 (we should have 25,000) down nearly 41% year over year and over 6% month over month.
Demand: Pending sales up 16% year over year. This is significant given the low inventory. Our demand is over 21% above normal. The demand continues to rise but at a slowing rate.
Sales & Prices: Phoenix metro area closed sales are up 5% month over month and up 15% year over year. The median sales price is $320,000, up over 14% 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 slight increase in listings and a slight slowing in demand. This will slow the massive price growth, which is a good thing. Closings always spike at the end of the month.
The National Market:
- This year is not following the typical seasonal shifts. This time of year we usually see an increase in listings and a slight drop in demand. Demand is increasing more slowly and inventory is no longer plummeting and prices continue to increase.
- The National Association of Homebuilders/Wells Fargo Housing Market Index, which shows builder confidence, increased to 78, the highest reading since 1998.
- Housing starts increased by 22.6% in July. (US Census Bureau)
- A recent Zillow study shows that most urban real estate markets are selling as quickly as suburban markets are. Everywhere is a seller’s market.
- According to Redfin rural home prices increased 11% in July, year over year. Suburban prices increased 9.2% in July, year over year and urban areas increased 6.7%.
- Additionally, Redfin surveyed the evolution of home buyer’s choices comparing today to pre-pandemic plans.
Commercial Real Estate-The Worst of Times:
- While residential is doing exceptionally well, we have a looming dark cloud, rentals.
- Most of the unemployed are renters.
- With the expiration of the CARES Act and the upcoming expiration for the eviction moratorium, struggling renters will be more exposed.
- About 22% of single-family homes in the Phoenix metro area are rentals. (Elliott Pollack & Company)
- 96% of rental owners are small Mom and Pop businesses.
- Luxury apartment and condo complexes are now offering 24/7 health care services including telemedicine and house-call options. Eden Health is a concierge health service partnering with commercial property owners to make the buildings more desirable.
As we navigate the coming weeks and months, watching for the potential ripple effects of one economy into the other, it will be up to you to tell the real story of what is happening in real estate and why. It is up to you to filter through the noise to provide confidence and understanding.
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.