Greater Phoenix Real Estate Update 10/16/2020

Residential real estate is outperforming the rest of the economy. The strong market going into the pandemic combined with historic low interest rates enabled to us to get here. We learned that these low rates trump COVID and our home is our castle. Despite the unexpected growth we are experiencing today, many experts are seeing warning signs around future affordability.

The AZ Market:

Cromford Market Index (CMI): Is the best leading indicator available (balance is 100, prices rise at 110, and drop at 90). Yesterday it was 353.9, way above the pre-COVID peak of 241 and nearly 210 points above the 145.2 we hit on May 15.

Supply: We stand at 1.4 months of supply and as of yesterday, our inventory is 63.4% below normal. Active listings excluding UCB crept up slightly to about 8,500 down 43% year over year. Today houses are like hand sanitizer and toilet paper in March, they are flying off the shelves.

Demand: Pending sales are up 36% year over year, incredible considering the time of year and low inventory. Our demand is nearly 30% above normal. Demand rates slowed early in September and picked up speed towards the end of the month and continue into October.

Sales & Prices: Monthly closed listings are up 23% year over year. The median sales price is $331,343, up 17.8% year over year. The median sales price has increased by 12% since June.

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 illustrates our pandemic real estate rollercoaster. The last few weeks have hit peaks yet still show volatility.

National Real Estate:

Throughout the entire pandemic real estate as outperformed expert’s forecasts and economists have been surprised and surprised again by the resilience of the residential market. Check out these leading indicators:

For those who have growing fear of a repeat housing market crash, please read my post comparing the 2005 and 2020 markets here https://theazmarket.com/2020/09/11/phoenix-area-real-estate-update-9-11-2020/ and this chart illustrates the extreme supply differences between then and now. The oversupply, among other things, brought prices down. Today’s extreme undersupply is driving prices up with no end in sight.

Nationwide inventory is down 38% and the national median sales price is up 12.9% year over year to $350,000. (Realtor.com)

Affordability:

Ivy Zelman, a premier real estate expert, and several other economists have a warning and advice for us in real estate. It is to take advantage now of the historic low rates. The low inventory is likely to stay for a long period of time, especially in the move up market. This pushes up prices. The low mortgage rates are making homes more affordable driving up demand. These rates will not last forever and as rates increase along with the price increases, fewer people will want to move or be able to move. And more people will want to stay with their incredibly low rates. Creating a slowing of the market. Zelman calls it an “immobile market” and believes we will start seeing it in 2022. She expects 2021 to remain strong. But as the economy rebounds and gets healthier the interest rates will rise. A quarter point increase in rates equals a 3% increase in monthly payment which hurts affordability.

The bottom line is that now is the time to be talking to everyone you know who is even slightly considering a move. Now is the time they can sell and take advantage of the low rates and the fast sales. If they are waiting, they will only be waiting for higher prices and tougher affordability which could lead to longer sales times. Based on her projections we have 15 months to get everyone into their dream home now before we see a potential market shift. And that market shift is only a slowness, no depreciation and certainly no crash. She says there is about a 0% chance of a foreclosure crisis.

Zelman said, “Whatever they are waiting for, there is no good reason to wait. Waiting will only cost the consumer more.” She said now is the time to take advantage of this once in a lifetime opportunity.

Commercial Real Estate:

• Average apartment has shrunk by 9.7% since 2010. (RCLCO Real Estate Advisors)
• Commercial investors are preparing for big opportunity in commercial real estate come Q2 2021 and Q3 2021 as forbearance and other protections, coined Compassionate Capitalism, expire. (Bisnow)
• Arizona and Utah are the strongest performers for commercial real estate across all asset classes, this is likely due to lower cost of living, lower taxes, less social unrest, and high quality of life. (Phoenix Business Journal)
• Federal guidance allows landlords to start eviction proceedings before the 12/31/2020 moratorium expiration. This is a likely response to the surge of lawsuits filed against the federal government by several landlord trade groups. (Washington Post)
• Build to rent communities are on the rise and expected to continue as single family rentals increase continue to increase in demand. Today 22% of rentals are single family homes versus only 11% in 2000. (Elliott Pollack)

Real Estate News:

• Softbank’s multi-billion dollar Vision Fund is launching a special-purpose acquisition company or SPAC and is looking for a tech start-up to take public. This is the type of company that is taking Opendoor and UWM public. I expect to see this trend continue in the real estate disruptor space. This will bring large quantities of capital into the selected company. (Inman)
• Finance of America announced they will go public via SPAC in early 2021 giving it a $1.9 billion valuation and $250 million. Blackstone will retain 70% ownership. (Wall Street Journal)
• Offerpad is partnering with Aires, an international relocation firm. The partnership gives business access to all of Offerpad’s services including licensed Offerpad employees and their concierge services. (Inman)
• Tempe is number 10 on Zillow and Yelp’s “Cityness Index” which rates suburbs based on affordability and quantity of urban amenities.

Forbearance & Delinquencies:

• Fannie Mae and Freddie Mac recently clarified that if a borrower missed a mortgage payment while in forbearance and did not make 3 timely, consecutive payments post-forbearance they are NOT eligible for new financing whether it is for a new purchase or refinance until 3 consecutive, timely, payments are made.
• Forborne loans have to be paid back, forbearance is not forgiveness, it is a deferral only.
• Total loans in forbearance dropped from 3.4 million to 3.2 million last week bring the percentage down to 6.32% from 6.81%.
• Two-thirds of borrowers exiting forbearance were current, repaid forborne amounts, or moved into a permanent loan modification. (MBA)

“The share of loans in forbearance declined across all loan types. With the forbearance program for federally backed loans under the CARES Act reaching the six-month mark, many borrowers saw their forbearance plans expire because they did not contact their servicer. Another reason for expirations was that borrower information needed to determine an appropriate loss mitigation option was not yet in place.”

Mike Fratantoni, MBA’s Senior Vice President and Chief Economist

• In September commercial and multifamily delinquencies decreased across all sectors. Lodging has the highest delinquency rate of 22.1%, down from 23.5% in August. Multifamily has the lowest delinquency rate of 1.7%, down from 1.9% in August. (MBA)
• Americans have equity, a foreclosure wave is unlikely, a trickle may happen. 42% of American own their home free and clear. (John Burns Consulting)

Resources:

• Rental assistance is available through the Arizona Department of Housing website at https://www.saveourhomeaz.gov/self-assessment/
• The CFPB, FHFA, HUD, VA and USDA created a joint effort mortgage and rental assistance platform, for more information visit https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/

Unemployment:

• Arizona unemployment is up last week but down from a month ago. We also had 3 consecutive weeks with under 10,000 initial claims. (Elliott Pollack)
• National initial unemployment claims increased last week by 53,000 to 898,000. (DOL)
• Continuing unemployment claims decreased by 1,165,000 to 10,018,000, hopefully next week we can get below 10 million! (DOL)
• Experts do not expect unemployment rates to rise. (KCM)
• Unemployment is disproportionately impacting younger people and lower income earners predominantly employed in the service industry. We are seeing a slow recovery in that sector as well, this recovery will move the needle the fastest on our unemployment numbers.
• Today’s economic downturn is performing very differently than past recessions in timelines.

Final Thoughts:

Housing continues to outperform all other economic sectors. It is bolstering our economy and keeping many people employed. There are many outside pressures pushing very hard and yet real estate continues to amaze economists and industry experts alike. Stay mindful of the misleading headlines and continue sharing current information with your clients. Logan Mohtashami write on HousingWire, “Stay positive, healthy and safe – and try not to create problems for yourselves by buying into boy-band folklore and fairytales.”

Please share this with your colleagues and clients.

Copyright 2020 by Sarah Perkins