Greater Phoenix Real Estate Update 3/26/2021

“There are decades when nothing happens, and then there are years when decades happen,” Notarize CEO Pat Kinsel said after raising $130 million in funding.

National Real Estate:

Inventory remained flat again this week, now two weeks in a row. We have 316,073 active single-family listings nationwide. This is a good thing for buyers and means that our market is moving towards a more balanced environment. It is less good for sellers; especially those expecting to sell for $50,000 or more over asking. It is normal for inventory to stay low through March, it usually starts climbing by late March, or at least by April 1. Last year our inventory peaked on April 3 at about 750,000 active single family listings. After that inventory started plummeting for 50 weeks straight.

The percent of homes with price reductions is currently at record lows at 16.1%. Enough contracts are coming in over-asking which means very few sellers are reducing their asking price. For Realtors working with sellers and potential sellers, the next 3-4 weeks is likely going to be the absolute peak. The rest of the year will continue to have strong buyer demand and increasing prices, but the absolute peak of the demand frenzy is likely happening right now. So now is the time for sellers to get the biggest premium.

According to Freddie Mac, rates reached 3.17% yesterday, the highest they have been since June.  A year ago they were 3.5%. As interest rates increase, home buyers are spending less on discretionary items, like certain upgrades in new homes or waiving inspections or appraisals in resale homes.

About 50% of mortgage borrowers in the US have interest rates at or below 4%. Ivy Zelman is concerned that if rates go too far above 4% that it will lock a lot of homeowners in their current properties, unwilling to take a higher rate which would further reduce inventory.

About 40% of the 138 million residential properties nationwide are owned free and clear. And nearly 57% have at least 50% equity. (KCM)

Market Headlines:

Existing home sales declined 6.6% from January to February. No need to panic though, sales were up 9.1% year over year and the market was strong during February 2020. The decline is due to the low inventory combined with the 15.8% year over year appreciation.

New home sales dropped 18.2% from January to February but are still up 8.2% year over year. New home sales are usually impacted more by interest rates than are existing home sales. Builders are impacted by rising costs too, due to labor shortages, supply chain issues, and lumber costs. A new home now costs $24,000 more, on average, a cost that is pushed to the buyer.

“Despite the drop in home sales for February — which I would attribute to historically-low inventory — the market is still outperforming pre-pandemic levels,” 

Dr. Lawrence Yun, NAR’s chief economist

Many economists and housing experts are talking about the inflation impacting our market, not inflation of goods and services but inflation in housing. Anyone wondering when we will be impacted by inflation doesn’t need a crystal ball. It is here and happening now. Every single home buyer looking in this market will agree.

The AZ Market:

• At 2.1% of all home sales, Phoenix had the largest number of iBuyer sales in Q4 2020.
• New home permits in Greater Phoenix increased by 24% year over year in February, while nationwide permits decreased by over 10% year over year. (Elliott Pollack)
• Locally, inventory has stopped dropping also. Here is some perspective; in January 2019 we had over 18,000 active listings and in January 2021 we had just over 6,000.
• As long as there are more pending listings than active listings, we will be in a market frenzy, the extent of that frenzy is based on how wide the gap is.

Forbearance:

For info on forbearance, buyer confidence, and a surprising move by some landlords, click here for my update from Wednesday.

Another Commission Lawsuit:

NAR, a few CA MLS associations, and several large national brokerages were named in the 5^th class action lawsuit going after commissions that was filed last week. The plaintiffs in all five lawsuits want to have homebuyers pay their agent directly rather than having the listing agent share their commission.

NAR/DOJ Settlement:

In November the DOJ filed a lawsuit and settlement against NAR requiring 5 changes for NAR to implement by the end of Q1 2021. The most notable change is that the commission offered to the buyer’s agent is to be made public. RE/MAX, Redfin, and a few MLS’s have started making the info available. On Tuesday a spokesperson from NAR said these changes may take months to process. There is no ETA for the actual implementation of these changes and from the sounds of things, they are still working on the details of those changes.

GSE Second Home Policy:

On Tuesday, the Mortgage Bankers Association sent a letter to Treasury Secretary and the FHFA director expressing concern over recent amendments including the 7% limit on the GSE’s portfolio for second home loans, a rate well below the current percentage. The MBA asked for a meeting to discuss the potential “unnecessary disruptions in the housing finance system.” For more information on the portfolio limits, check out my video and post from Monday, here.

Demand for investment properties and vacation homes has risen 84% year over year – more than double the demand for a primary home.

Real Estate Disruption:

Zillow had 9.6 billion visits to its website in 2020, by far the most of any real estate company or portal. This is why real estate was the top performing sector in the entire economy.

Is Zillow becoming a verb? According to a Google Trends report, more people in 2020 searched “Zillow” than “real estate.”

Real estate tech strategist and iBuyer guru Mike DelPrete said, “The point is not that these business are unprofitable and therefore must be bad. Spending (and losing) money to gain market share is a well-worn path. The point is that these companies are actively doing it, and if you’re in the real estate industry, concerning yourself with disruptors willing to lose billions is a good use of time.”

Pete Flint co-founder of Trulia said, “I often say that if something can be commoditized, it will be commoditized, and I look at the financing, title and escrow and all these components of the real estate industry that will get digitized, and will get somewhat commoditized. But if you’re providing value as an agent, which cannot be commoditized, then I think you’re going to be fine.”

Real Estate News:

• Offerpad announced it is going public through a SPAC created by former Zillow CEO and co-founder, Spencer Rascoff. Ironically, after Rascoff’s departure, Rich Barton, the current Zillow CEO and co-founder, began heavily investing in Zillow’s iBuyer. After going public, Offerpad expects a $3 billion valuation and will receive up to $650 million in cash. They will use the funds to expand to new markets and increase advertising spends in existing markets.
• Homie is hiring 1,000 new buyer (employee) agents nationwide.
• The CFPB reversed policies from January 2020 which limited its power. The CFPB plans on exercising greater enforcement “consistent with the full scope of its statutory authority under the Dodd-Frank Act.”
• According to CoreLogic, American homeowners gained about $1.5 trillion in equity in 2020.
• Target plans on spending about $4 billion a year expanding and improving its real estate portfolio. After sales in 2020 grew by more than $15 BILLION, more than the previous 11 years combined.

Final Thoughts:

For anyone, buyer or seller, on the fence about what to do next; the answer is clear. Buy now, rates and home prices are going up. Sellers sell now, increased inventory is coming and that will create more competition and, likely, more time spent on the market.

Copywrite Sarah Perkins 2021