Greater Phoenix Real Estate Update 2/12/2021

I was recently interviewed for an Inman article that came out earlier this week. I was one of 5 contributors discussing the challenges of differentiation for traditional brokerages. Click here for the article.

Real estate is dominating many headlines; from the low-interest rates, low inventory, high demand, big news at Zillow, another commission lawsuit, national policy changes, to CFPB leadership changes there is a lot going on!

National Real Estate:

“Pending home sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale. There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings.”

Dr. Lawrence Yun, Chief Economist for NAR
  • According to Ivy Zelman of Zelman and Associates the size of the market will depend on the number of listings coming to market, not the size of the inventory. The job is to bring more listings to market, not to focus on the size of the inventory, which is tough to do.
  • Inventory is in crisis, there are only 354,900 active single-family residences on the market nationwide. 50,000 new listings went straight under contract, only listed as active for hours, and therefore never make it into active inventory counts. We have less than half of the inventory we had a year ago and it was crazy low then. No real end in sight right now. Prices continue moving up again this week.

The AZ Market:

Elliott Pollack’s Monday Morning Quarterback covered our market in great detail, this is what he wrote:

“Locally, all eyes are on the housing market. Month after month, numbers being reported in the resale market are reminiscent of the housing bubble in 2005. There is a record low number of listings. According to The Cromford Report, as of February 1st, only 5,180 homes were for sale, a 56.7% decline from last February and a 14.5% decline from just last month. This equates to a 15-day supply of homes. In a normal market, you would expect about a two-and-a-half-month supply. The squeeze becomes much worse when you remove the luxury segment of the market. There is only a 10.4-day supply for homes under $500,000 and only an 8.5-day supply for homes under $350,000. 

This means that it is very difficult to find a home to buy and that prices are increasing rapidly. Indeed, the median resale home price at the end of January was 20% higher than just one year ago ($342,000 vs. $285,000). And rapid price appreciation will continue in 2021 until more supply is made available. 

This should all bode well for the new home market, which has seen a much more sustainable rate of price appreciation. According to Information Market, over the last 12 months, median new home prices have increased 4.5%. This has caused the gap in pricing between new homes and resale homes to shrink dramatically and will help the sales volume increase among new home subdivisions. In January 2020, there was a 22% premium comparing new home prices to resale home prices. Now, there is only an 11% premium. 

As a result of both lack of supply and the rapid price appreciation of existing homes, people have been drawn to the new home market. And homebuilders have been responding. According to RL Brown, new home permits increased over 21% in 2020 to nearly 29,000 permits. We expect permits to surpass the 30,000-permit mark this year, which will break a 13-year streak of less than 30,000 permits.

And that has been the difference between what is happening now and what occurred between 2005 and 2007. We are severely undersupplied in both existing homes and new homes. We are not building excess inventory and we have completely absorbed all of the excess that was previously built. This is not a bubble that will come crashing down. But, though we are currently still one of the most affordable major markets out there, a rapid decline in affordability could cause its own issues. Overall, however, the new home market should continue to do extraordinarily well for the foreseeable future.”

Zillow:

Headlines can be very misleading, like “Zillow Homes makes $27 million in profit in Q4 2020 and making an average of nearly $23,000 per home the iBuyer sold.” That is only true when they do not include all of the costs of running a business, paying employees, marketing, technology, and even paying interest on loans. When all costs are considered, both Zillow Homes and Opendoor lost $300 million in 2020. Zillow’s actual return on it’s iBuyer properties is negative $72,000 PER HOUSE. Opendoor’s figures show an $11,000 per home gain in 2020. The $105 million paid in interest was omitted when running those numbers.

Despite the claims of transparency, many numbers are hidden and the whole story is not provided. Unfortunately for the rest of us in the industry, these companies manage to lose money each year yet keep their investors/shareholders happy. Wall Street plays by different rules. Mike DelPrete explains further here.

There is one headline that is getting a lot of attention right now. “Zillow buys ShowingTime for $500 million.” Brad Inman wrote an article about why we shouldn’t worry about Zillow trying to take all of ShowingTime’s data. He is right, Zillow has more than enough data with 2.2 billion visitors to the site in Q4 2020 alone. While ShowingTime provides market stats for nearly 1 million Realtors, Zillow provided data for 9.6 billion users in 2020.

Based on history though, Zillow may have other plans for ShowingTime.

Nearly three years ago Mike DelPrete wrote about Zillow’s move as an advertising company, far from the real estate transaction, towards the transaction and encompassing more of the transaction.

While Errol Samuelson, chief industry development officer for Zillow noted that “ShowingTime will remain an open platform available to all industry participants.” He also said Zillow is not in the leads business but in the “transaction generation” business. That was what the acquisition of ShowingTime is all about.

Given Zillow’s huge push with Zillow Homes, its agent-employee brokerage which went active on January 1, does he mean iBuyer transaction generation? Further statements also mention increasing transactions for Premier Agents and also generating more transactions in general.

I am less concerned about data, Zillow has plenty, but this does give Zillow even more control. Six years ago Zillow said it would not open a brokerage; it may indeed keep ShowingTime available for everyone, for now. Rich Barton is smart and Zillow knows how to make money; they are willing to take risks. I expect to see more acquisitions in the near future.

IDX and Zillow:

  • Zillow is now an MLS and NAR member, therefore, has an IDX feed to all listings. This increases the accuracy of Zillow’s Zestimate and listing information. You can no longer write off Zillow info as bad data, it isn’t anymore.
  • Since it is using an IDX feed there is no way to opt not to syndicate your listings to Zillow. If you do not want your listings on Zillow, you must opt-out of IDX as a whole so the listings will not appear on personal websites or any other listing platform.

Commission Lawsuit #4:

  • A fourth class-action lawsuit claiming that the MLS commission sharing practices violate antitrust laws was filed at the end of January, although this one claims that the price-fixing burdens the buyer who comes in with the funds versus the seller who pays out of the proceeds.
  • The bottom line is that the plaintiffs in all four suits want to have homebuyers pay their Realtor directly, rather than have listing agents share the commissions with the buyer agents.
  • Many people fear that this would completely upend the real estate industry. But think about companies like Rex Homes that are already doing this; Rex charges a 2% commission total: 1% goes to Rex and 1% to the listing agent and they are not members of NAR or the MLS. We have closed transactions with them; the buyer’s agent has a buyer broker agreement and the buyer has paid their agent’s commission.

Lending:

Final Thoughts:

These past few years, especially 2020, taught us that real estate can pivot much more quickly than we ever had to in the past. We are up for the challenges of the changing times.

Please share this with your colleagues and clients.

Copyright 2021 by Sarah Perkins

Published 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.

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