This Week in Phoenix Real Estate (video) 2/22/2021

In this 11 minute video, Amber Kovarik and I discuss the latest in real estate, lending, and the economy. There are some major emerging trends that were predicted for 2021 and they are all happening now; only 6 weeks into the year. Rates have moved up slightly, and Amber talks about why.

2021 Megatrends:

Mike DelPrete said at a recent Inman presentation “The industry is moving very slowly, but it’s never moved this fast.” And he is right! At the national level, there is a lot of activity right now. We are seeing leadership changes, Josh Team announced today that he is leaving his position as the president of Keller Williams and is leaving the company entirely. Last week Redfin announced its $608 million acquisition of RentPath and Zillow made some serious waves with its recent announcement of its $500 million acquisition of ShowingTime.

During the same presentation DelPrete discussed the 5 megatrends to watch for in 2021. Given that we are hardly 2 months into the year and his megatrends are pretty apparent.

1. Portals are moving closer to the transaction. Zillow and Showingtime. Zillow Homes the brokerage that launched in Phoenix and other markets on January 1 are two examples.
2. Agents as employees. Homie, Redfin, Zillow, Rex Homes all have employee agents. It is all about control.
3. New models are here to stay, iBuyers, despite not yet being profitable are not going away. When Opendoor went public in late December they came into $1 billion cash to use to get profitable.
4. The battle for adjacent services; while the most lucrative are title and lending; these also include moving concierge services, renovation, and inspection services. Homie has done a very good job of selling its adjacent services and quickly became a profitable startup.
5. Asymmetric disruption: likely to be the biggest trend of the year, big outside companies entering the real estate space, funded by venture capital, meaning they do not need to make money. For example Zillow can stand to lose $600 million without losing its foothold on the industry.

DelPrete went on to say, “That sets the trend, that’s what you’re competing against, a company that doesn’t have to make money.”

Good Time to Buy? Yes!

With fewer than 4400 active listings on the market, the seller’s market is intense. BUT it is still a great time to buy. Rates are still low but have started to move up slowly.

Even with the rate increases; rates remain near all-time lows and it is a great time to buy. It is important to proactively educate your clients. They need to know what it takes to get an offer accepted in today’s environment. Buyers with loans can still have the winning offer over cash buyers when the offer is structured properly.

Why Are Rates Going Up?

Amber Kovarik shared, “As the markets attempt to predict when the Fed will begin to taper their stimulus, they are watching the key economic metrics of the employment rate and the inflation rate. The simple math of increasing daily vaccinations will mathematically push down the daily counts of new infections, possibly at an accelerating decline.  As this happens, businesses will re-open, jobs will come back, consumer spending will go up, vaccinated people will begin to travel and inflation rates will go up. These forces will be further supported by the largest series of economic stimulus package spending in the history of the U.S. economy. 

As the economy recovers this will naturally push bond prices down (which causes interest rates to rise) through normal forces of supply and demand. When the inflation rate picks up, this will create further pressure to push interest rates up. The large stimulus package soon to be approved by Congress will further push down the demand and the price for bonds, and will add an increased pressure to push inflation rates higher. All of these forces combined create significant and very powerful market forces to push interest rates higher.

Then on top of these very powerful forces above, when the Fed decides to taper their daily mortgage-backed security purchases, this will add an additional and very powerful pressure pushing down bond prices (causing higher interest rates) on top of the above normal market forces. When the Fed began buying mortgage-backed securities, this had a huge impact on prices. The reverse will happen when they exit. Nobody knows when the Fed will officially taper their purchases, but the markets know that it will happen, it is just a matter of when.”

This chart shows the past 6 months of interest rates. The all-time low was reached on 1/4/21.