Greater Phoenix Real Estate Update 4/30/2021

Yesterday one of my clients excitedly called to tell me she had accepted an offer on her home for $1.2M more than she paid for it about two years ago. She then said, “Now what do we do? Rent, buy, flip?” I paused, gathered my thoughts, considered the numbers, and answered, “Don’t rent. Buy.”

Logan Mohtashami recently wrote about why we are not in a housing bubble, “These Americans who are outbidding others and getting the home are doing very well financially. I am not talking about cash buyers or investors. I am talking about primary resident mortgage homebuyers. They have enough home-buying power to win the house. The market is unhealthy because we shouldn’t be having this much competition for shelter, but it’s not speculation demand at all.”

Economy:

Yesterday, Elliot Eisenberg wrote, “GDP grew at a pleasantly fast 6.4% annualized rate in 21Q1 and is now just 0.9% below its inflation-adjusted level on 12/31/19. It will surpass that level in mid-May 2021. By contrast, it took more than three years for real GDP to fully recover in the last recession. 21Q2 and 21Q3 GDP should easily exceed 21Q1’s 6.4%, and GDP growth in 2021 will, baring disaster, be the best since 1984.”

Lending:

With forbearance and delinquencies declining, 16.4% of homeowners got caught up on their mortgage in March, lessening the severity of the ultimate impact of these programs. There are still about 1.5M 90+ day late borrowers, which is not insignificant, however many are in forbearance and are protected for the time being. Over 47% of the borrowers exiting their forbearance plan never missed a payment, were caught up upon exit, or paid off the loan with a refinance or sale. For more info, check out my forbearance update from Wednesday.

Purchase mortgage applications, a leading indicator, decreased 4% week over week, last week. This is the result of frenzied demand normalizing, low inventory, and significant home-price growth.

“The purchase market’s recent slide comes despite a strengthening economy and labor market. Activity is still above year-ago levels, but accelerating home-price growth and low inventory has led to a decline in purchase applications in four of the last five weeks.”

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

National Real Estate:

After two months of declines, pending home sales increased by 1.9% from February to March. NAR projects a 10% year over year increase of existing home sales in 2021 with prices increasing by 9%.

“Low inventory has been a consistent problem, but more inventory will show up as new home construction intensifies in the coming months, as well as from a steady wind-down of the mortgage forbearance program. Although these moves won’t immediately replenish low supply, they will be a step forward.”

Dr. Lawrence Yun, NAR’s Chief Economist

After new home sales declined by 18.2% from January to February, they increased by 20.7% from February to March and were up 66.8% year over year, the highest rate since 2006.

Last week we had our first teaser with a slight inventory increase, this week available single-family listings declined by 2,000 down to 310,039. The steep decline in inventory is leveling out. Inventory is expected to grow for the next few months.

The chart below doesn’t show the roughly 100,000 new listings that hit the market each week. About 28,000 went under contract in less than 24 hours and another 42,000 went under contract in less than a week. Sales are expected to remain at an elevated pace through June.

The AZ Market:

Inventory levels remain at historic lows but it stopped dropping. It is down 76% from two years ago and 69% from last year. Monthly sales are 11% above where they were two years ago and 29% above where they were last year.

New Construction: The median new home price in greater Phoenix is now up to $403,000, according to Zonda. That is a 16% year over year price increase and sales are up 17% year over year. Lately, prices of new homes have been increasing 3% a month. While it seems like new homes are going up everywhere, there are actually 100 fewer active new subdivisions this year than there were last year. There is a total of 427 active subdivisions in Maricopa and Pinal Counties, the lowest in seven years.

Case-Shiller Index: February’s Case-Shiller Index (the report that many large builders, Wall Street, and the US Census to track appreciation) shows that greater Phoenix continues to lead the pack with the highest year over year appreciation rate in the country at 17.4%. The national year over year appreciation was 12%, the highest year over year gain since February of 2006. Phoenix’s month-over-month gain was 2.03% while the national average was 1.05%. Tucson just barely beat Phoenix for the top spot for the largest year-over-year single-family rental appreciation at 11.2% and 11.1%, respectively.

Policy:

American Families Plan: On Wednesday, President Biden announced his proposed policy to provide free pre-Kindergarten and community college. The funding would come from taxing capital gains and inherited properties as well as eliminating the 1031 exchange program. This plan most significantly impacts real estate investors to the tune of $41B over the course of four years. Read more here. The proposal will likely evolve as it goes through Congress.

First-Time Homebuyer Act: Congressmen from CA and OR introduced a bill that provides a tax credit for first-time homebuyers of up to 10% of the purchase price or $15,000. Buyers may not have owned a home in the past three years and make no more than 160% of the median income for the area.

Zillow Browsing:

A recent study shows that Zillow, like many social media platforms, can be addictive. According to the study: 53% of people looked up their boss’s house, 30% browse to daydream about houses they can’t afford, 62% checked out the value of their neighbor’s house, and 27% said they browse Zillow to relax. Additionally, browsers admitted to:

Real Estate News:

• Second Century Ventures, NAR’s venture capital fund, has selected 8 startups for investment through its Reach Scale-Up program, the most well-known is Knock for its Home Swap program that essentially allows a buyer to write a cash offer with no contingencies. Previous investments include Adwerx, BowBrownie, and DocuSign.

• Another cash offer startup, Ribbon, launched an appraisal protection service that will cover the difference for under-appraised properties.

• Asset management companies, Altas Real Estate and DivcoWest have created a joint venture for single-family rentals and will spend $1B “acquiring and renovating homes in high-growth states including Colorado, Arizona, Idaho, Nevada, and Utah,” according to a press release.

• The Deputy Director of the National Economic Council knows that mortgage lenders and industry leaders are frustrated by the 7% cap on second homes and investment properties and has plans to discuss things with FHFA.

• Lumber prices increased again, now triple what they were 12 months ago, adding an estimated $36,000 to the average price of a new construction single family home.

Final Thoughts:

Elliott Pollack & Company wrote on Monday, “Housing will continue to make headlines for the foreseeable future. This level of activity and interest has not been seen since the mid-2000s. It is difficult not to compare these two periods. We went through our first recession since the Great Recession and the effects of that recession are still fresh in our minds. Yet, this is different. Measures were taken to keep people afloat and avoid a large number of foreclosures so far. Job growth has been steady and has made a significant recovery since last year. The number of listings is at a decade low and demand is outpacing supply, causing upward pressure on prices. Mortgage rates remain at historical lows and have allowed buyers to buy more and maintain affordability (Greater Phoenix and Greater Tucson) to a certain extent. And housing does not appear to be slowing down yet. We have seen an increase in permitting activity across the country and in Arizona, especially in its biggest metro areas.”

Copyright 2021 Sarah Perkins