Greater Phoenix Real Estate Update 2/26/2021

While real estate remains local; the big business behind it is anything but. 2021 has seen many mergers and acquisitions and we expect to see many, many more this year. The journey towards the undefined end-to-end platform continues on, gaining speed in the form of millions and billions of dollars.

What is end to end? Is it buying a house with a click of a button? Is it bundling real estate, title, and mortgage services from one company? Is it the Zestimate value as the offer amount? Real estate isn’t a grassroots industry anymore.

The New Zestimate:

Zillow’s Zestimate is 15 years old and provides a valuation for about 100 million properties nationwide. In recent years Zillow has put a lot of effort into increasing the accuracy of the Zestimate. It uses tax records, machine learning, and artificial intelligence that pulls data from photos. Despite all of that Realtors could easily explain the Zestimate inaccuracy. That was until January 1, 2021. That was when Zillow Homes, the brokerage joined NAR and the local MLS’s. Now armed with an IDX feed, the accuracy improved overnight.

Yesterday Zillow announced the follow up from a recent promise; the Zillow Zestimate (in 20 markets and on homes that quality) is now a live offer from Zillow Homes; the iBuyer. The company claims only a 1.9% error rate.

Jeremy Wacksman, Zillow’s Chief Operations Officer said, “There’s a set of houses where we’re getting really confident because there’s a lot of houses like it, or we have a lot of data about your house. Ultimately the offer that Zillow Offers makes is intended to be the actual, precise market value of your house once you tell us more about and we come to see it.”

The Zestimate live offer is available for qualifying homes that fall within Zillow’s “buy box” which is basically, an average-sized home, around the median price, that only needs light renovations.

Despite the specific buy box, this impacts how all homeowners will now view the Zestimate. It now seems like an initial offer and not an opinion. For example, a CMA can say a house is worth $350,000 but Zillow just said they’d write a check for $340,000. This is all about perception; not the reality that a property has to qualify. Because now, seller’s see a clear bottom price. Why would they ever accept an offer less than the Zestimate? Yes, in today’s market, getting above the Zestimate, even above the appraised value, is not difficult. However, this too shall pass; nothing lasts forever, especially not in real estate.

If you do not already, I highly encourage you to check out the Zestimate before going on another listing appointment. Sellers do their homework and they know that number when you arrive, so you should too.

This impacts FSBOs. They will no longer need help pricing the property. This impacts flippers and do-it-yourself iBuyers, who often purchase for less than the major iBuyers. This impacts the major iBuyers. Redfin has a valuation option already. Opendoor will build one. Could it impact how you build a CMA or how an appraiser appraises? Likely.

The Zestimate live offer feature is available to qualifying homes in Phoenix and Tucson, AZ; Charlotte and Raleigh, NC; Miami, Jacksonville, Orlando and Tampa, FL; Portland, OR; Denver, Colorado Springs and Fort Collins, CO; Nashville, TN; San Diego, Los Angeles, Riverside and Sacramento, CA; Dallas, Houston and San Antonio, TX; Las Vegas, NV; Atlanta, GA; and Minneapolis, MN.

Real Estate News:

• Notarize is offering free notarizations to update old documents, like CC&Rs, to remove racist language in an effort to fight systemic racism in real estate. Learn more here and here.
• Redfin is getting into the rental market through its $608 million acquisition of RentPath, owner of Rent.com and ApartementGuide.com. The FTC recently rejected CoStar’s attempt to acquire RentPath.
• On Monday, Josh Team, President of Keller Williams announced he is leaving the company. Hours later, Marc King, a 20 year KW veteran, was announced as Team’s successor.
• From February 8 – February 14, Manhattan luxury real estate had its best week in 5 years with 38 sales over $4 million for a total volume of $351.6 million.
• First time home buyers made up 33% of home sales in January, up from 31% in December.

New Construction:

• 2020 new construction sales outpaced 2019 by 18.7%.
• January sales increased 4.3% month over month and 19.3% year over year.

“New home sales activity started 2021 at a strong pace, with purchase mortgage applications for newly constructed homes jumping nearly 19 percent compared to last January. These results are consistent with the still-increasing pace of single-family housing starts and permitting activity reported over the last several months. The low supply of existing homes on the market, and changing household preferences toward newer, larger homes, continue to spur buyer demand.”  

Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting

The AZ Market:

• Join us next Friday as Tina Tamboer does a deep dive into the AZ market. Click here for details and registration.
•  According to a recent Zillow report; Phoenix topped the charts in both annual home price growth and annual rental growth at 17.1% and 8.4% respectively.
• COVID only sped up the inbound migration from CA, OR, and WA. Greater Phoenix grew by three quarters of a million people from 2010 through 2019!

Housing Policy:

There are two major features of the latest proposed stimulus bill that impact housing. The $15,000 first time home buyer tax credit, while a definite benefit for buyers, will move demand higher eroding some of that benefit. Logan Mohtashami said, “The best economic sector in the world with rates this low doesn’t need government assistance.”

The second, likely to have a greater impact, is the repeal of 1031 exchanges for investors making over $400,000 a year. This 100 year old tax law allows investors to exchange property and defer capital gains taxes. Surveys from NAR and Ernst & Young reveal a potential economic slowing, GDP reduction, damages small businesses, and 96% of Realtors surveyed said it would decrease both sales quantity and value.

National Real Estate:

• According to Redfin, two thirds of its buyers in Q4 2020 wrote offers on properties sight unseen.
• Pending sales declined from December to January by 2.8% but increased 13% year over year. The decline is due to lack of supply.

“Sales easily could have been even 20% higher if there had been more inventory and more choices. Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market.”

-Dr. Lawrence Yun, Chief Economist for NAR

• Although we cannot see it or feel it; on a national level, weekly new listings are increasing. They are still being absorbed as quickly as they are listed, leaving us with a total of 336,924 active single-family listings nationwide.

• Another way to look at the market is the rate of price increases on flipped properties. In some markets, it is upwards of 20%. Nationwide the average is 7.4%, double the average.

Final Thoughts:

Housing is 17% of the GDP; a massive number. The industry is changing. Yesterday, Rob Hahn wrote, “The big picture remains the same: certainty, speed, convenience. Consumers want them. We as an industry have to provide them to the best of our abilities. They want to be able to count on us like one, two, three. Provide that, and we should be able to count on them like four, three, two. Zillow has taken a step; now we see how everyone else reacts.” And it isn’t just about Zillow. This applies to everything.

Please share this with your colleagues and clients.

Copyright 2021 by Sarah Perkins