Greater Phoenix Real Estate Update 10/23/2020

During recessions housing always does well, except when the recession is caused by housing. Despite external pressure, 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 wrote, “Stay positive, healthy and safe – and try not to create problems for yourselves by buying into boy-band folklore and fairytales.”

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 354.3. The pre-COVID peak was 241 on March 20 then dropped to 145.2 May 15 and has been rising since.

Supply: Inventory is 63% below normal. Active listings excluding UCB crept up slightly to about 8,400 but is still down 43% year over year.

Southeast Valley New Listings: This a bi-weekly comparison of new listings in 2019 and 2020 for Tempe, Mesa, Chandler, Gilbert, Apache Junction, and Queen Creek. 2019 followed the typical annual cycle showing more activity in the first half of the year. 2020 is not following any typical patterns. Which makes it impossible to know what the orange line will do next.

Demand: Pending sales are up 24% year over year, incredible considering the low inventory. Our demand continues to rise quickly and is 31% above normal.

Sales & Prices: Monthly closed listings are up 21% year over year. The median sales price is $330,000, up 16.8% 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:

• Luxury sales increased by 42% year over year in Q3 2020. (Redfin)
• Existing home sales surged 21% in September year over year, pushing us to a seasonally adjusted annual rate of 6.5 million sales, all while inventory is at record lows. (NAR)
  • Pre-pandemic 2020 projections were for about 5.8 million sales.
  • In 2019 there were 5.35 million sales.
• Rental growth is outpacing homeownership growth. Roughly 2/3 of households are owner-occupied while 1/3 are rentals. Lately, especially in the more expensive urban areas, rentals make up 50% of households. (Inman)
• Through the first 9 months of 2020 there were 400,000 fewer listings on the market than there were through the first 9 months of 2019. (KCM)
• Phoenix is the #2 metro area for in-migration from March through September. (Orbital Insight)
  • Nationwide people are moving to more favorable climates, with more favorable taxes, lower cost of living, and less social unrest. (Ivy Zelman)
• Of the 15.9 million people who moved from February through July; 28% said they moved to avoid getting sick, 23% due to college campus closures, 20% to be with family, and 18% for financial reasons. (USPS)

Affordability & Moving Trends:

A growing number of experts are voicing concerns about sustainability and affordability. While the sky rocking prices are nice for sellers, more inventory and slower appreciation lead to a healthy housing market.

• Nationwide total Inventory is down 38% year over year and down 41% for single-family homes. (NAR)
• The national median sales price is up nearly 15% year over year to $350,000. (NAR)
• Over the past 10 years, new household formation for owned properties has increased by about 5%. It has increased by 10% for new household formation for rented properties. Much of this is due to the lower homeownership rates for Millennials. (Zelman, US Census)
  • Population growth in Arizona, Utah, Idaho, Texas, and Nevada was 20% from 2010-2020.
  • Population growth in Connecticut, Pennsylvania, New York, Illinois, and California was 3% from 2010-2020.
  • Population growth in West Virginia was negative during the same time period.

• From 1998-2002, 15% of Americans moved each year.
• From 2013-2018, 11% of Americans moved each year.
• In 2019 it was 9.8% of the population. (Ivy Zelman)

Commercial Real Estate:

• Retail sector rent collections increased in September to 83.16%, up from August’s 80.80%, and July’s 78.02%. (Datex)
• At 5.8%, Phoenix had the largest single family, rental appreciation in the country in August, year over year. Nationwide the increase was 2.1%. (Corelogic)

Wall Street:

• More and more real estate companies are going public via IPO or SPAC.
• On August 18 the S&P 500 closed higher than the previous all-time high on February 19, thus ending the shortest bear market in history. (Jeremy Kisner, Surevest)

Real Estate News:

• NAR has proposed changes to the Realtor social media professional standards in order to reduce discriminatory posts. Critics on both sides are upset about the proposal either being not enough or too controlling. Whether or not these changes will be adopted, expect changes to come.
• FHFA and FHA extended pandemic forbearance plan options to single family owners with FHA loans through 12/31/2020. It was initially set to expire 10/30/2020. FHA forbearance plans are 6 months with an option to extend for an additional 6 months.
• The anti-trust lawsuit the Department of Justice filed against Google on Tuesday may create a new timelines for the seller paid buyer commission anti-trust lawsuit against NAR and other entities. Many question if Amazon and Facebook will be next.
• A recent article from Mike DelPrete, real estate tech consultant, illustrated the downward pressure on commissions coming from Opendoor and Zillow, both offering 2.25% co-broke versus the ARMLS average of 2.8%.

Lending:

• According to the Mortgage Bankers Association (MBA), purchase mortgage originations for 2021 are expected to increase by 8.5% from 2020. They expect 2021 will hit an all-time record of $1.54 trillion!
• This week we hit another record low on mortgage interest rates. (MBA)
• This chart shows 50 years of interest rates. My parents bought their first house in 1980 at 18%

Delinquencies:

• Over 6 million households (renters and owners) were either late or missed their full or partial payment in September. (MBA, RIHA)
  • 8.5% or 2.82 million renters missed their payment.
  • 7.1% or 3.37 million owners missed their payment.
• At the beginning of April, 3% of renters were receiving unemployment benefits, at the end of September it was 7%. (MBA, RIHA)
• At the beginning of April, 3% of homeowners with a mortgage were receiving unemployment benefits, at the end of September, it remained at 3%. (MBA, RIHA)
• Landlords lost roughly $9.2 billion due to unpaid rents during Q3 2020, an improvement over Q2 2020. (MBA, RIHA)
• Lenders lost roughly $19.4 billion due to unpaid mortgages during Q3 2020. (MBA, RIHA)
• Early-stage delinquencies, less than 90 days, have dropped down to pre-pandemic levels. (Black Knight)
• Seriously delinquent, 90+ days, mortgages dropped by 43,000 in September. The first sizeable drop since the onset of COVID 19. (Black Knight)

Forbearance:

• Mortgages in forbearance dropped from 6.32% to 5.92% to roughly 3 million loans, down from the previous week’s 3.2 million loans. (MBA)
• This removes another 200,000 from forbearance programs. One reason given for the 400,000 over the past two weeks coming off is that borrowers do not know they can stay on or further negotiate their plans. If borrowers do not make any phone calls or connect with their lenders or servicers they are automatically being removed from their forbearance plan. This is a big deal.

“The share of loans in forbearance declined across all loan types, primarily because of borrower forbearance plans expiring at the six-month mark. Federally backed loans under the CARES Act are eligible to be extended for up to 12 months, but borrowers must contact their servicer for an extension. Without that contact, borrowers exit forbearance, whether they are delinquent or current on their loan.

Borrowers with federally backed mortgages should contact their servicer if they still have a hardship due to the pandemic.”

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

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:

• In September Arizona’s unemployment rate was 6.7%. National unemployment was 7.9%. (Elliott Pollack)
• Last week there were 787,000 in initial unemployment claims, down 55,000 from the previous week. (US DOL)
• Continuing unemployment was 8,373,000 a drop of 1,024,000. This number is moving in the right direction! (US DOL)

Arizona Facts:

• Arizona has the 3^rd lowest percentage of persons born in state at 39.9%. We are behind Nevada at 27.2% and Florida at 35.8%. Louisiana has the highest at 77.6%. (Elliot Eisenberg)
• The Greater Phoenix Economic Council (GPEC) was named top economic development organization in the country for cities with populations of 500,000 or more. (Rose Law)

Final Thoughts:

There are pandemic winners and losers. The winners are those who sell goods and real estate. The losers are those who sell services, entertainment, and travel. Keep in mind that as the economy gets healthier, mortgage rates will increase and real estate demand will slow. Set this stage with your clients today and guide them through their decision making.

Please share this with your colleagues and clients.

Copyright 2020 by Sarah Perkins