This Week in (Greater Phoenix) Real Estate 4/19/21

In this 12 minute video, Amber Kovarik and I discuss the latest in real estate trends and lending from the past week.

It is almost daily I hear people talking about how they will get into the market when prices go back down. And they do not like my follow-up question asking why they think the market will go down. They don’t like my question because they cannot give me an answer. They tell me they are afraid things are like they were in the 2005 bubble.

Today’s market is nothing like the 2005 bubble. We have real demand. We have real appreciation due to people actually wanting to move here and live in houses here. Economic cycles are based on supply and demand.

Our market peaked on March 14^th. What does that mean? It means that demand is falling faster than supply. What does that mean? It means that we are moving towards a more balanced, healthy market. Balance and healthy are good. Demand remains slightly elevated, at about 9% above normal. Supply is rising, so we are now only below normal by 77.4%!!! That is an increase from 78% below normal. Demand needs to fall below supply in order for prices to drop. That is not happening anytime soon.

When you combine basic supply and demand it is important to think about where demand comes from. There are more than 32,400,000 Americans aged 27-33. This is the largest group, in the largest generation and this is the prime time for getting married, having babies, and buying houses. This demand is expected through 2024.

Even with increasing prices and increased interest rates, there are still enough replacement buyers for the listings even if some buyers are removed from the market.

Another fear I hear about is overbuilding. Builders are not overbuilding, they are attempting to pick up from the underbuilding that has taken place for the past decade. Builders learned a very tough lesson in the 2008 crash and they shifted their business models and will not overbuild. Business is good for builders right now.

Institutional investors are another reason we have tight supply. Since the end of the Great Recession, institutional investors have purchased over 7M single-family homes to keep as rentals. These buyers are home rental firms, like Invitation Homes which owns about 80,000 houses in 16 markets, private equity, pension funds, sovereign wealth funds, etc.

According to John Burns Real Estate Consulting, institutional investors are currently purchasing about 20% of all single-family homes in the US. Due to the continuously climbing rental rates in Phoenix, these buyers are purchasing about 30% of the single-family supply. They pay cash and will go over the asking price in order to secure the property; something many buyers simply can’t compete with. Additionally, these properties are held longer than a typical owner stays, meaning these properties are being completely removed from the market.

With forbearance numbers improving, we’re down to about 2.3 million borrowers in forbearance and Mike Fratantoni Senior Vice President of the MBA said, “In terms of performance, more than 88 percent of homeowners who have exited into deferral plans, modifications or repayment plans were current on their loans at the end of March, compared to 92 percent of all homeowners.” 

A recent article shared insight into Google search queries. People asking, “When is the housing market going to crash?” increased by 2,450% in the past 30 days.

The market is actually starting to normalize and a semblance of seasonality is starting to emerge. These are good things. If you or your clients have questions on where the market indicators are pointing, let’s talk. Recoveries are fragile and misinformation is toxic.

There are a lot of strategies available for buyers who are looking to make strong, over asking offers.