Greater Phoenix Real Estate Update 5/21/2021

Residential real estate continues moving at breakneck speeds. In April, nearly 75% of offers written by Redfin agents were for listings with multiple offers, nationwide. In greater Phoenix, it was 80.5%. Last week Tina Tamboer with the Cromford Report told us that 57.1% of homes that closed in greater Phoenix in April, closed over asking. These exciting times of economic growth and massive home-price appreciation are being dampened by fear, not just of a bubble – which we are not in – but also by the threat of inflation. One of the ways the government is able to slow inflation is by increasing rates (not mortgage), which then usually puts pressure on mortgage rates which would increase affordability challenges thus weakening homebuyer demand.

Inflation:

Consumer price inflation increased by 0.8% from March to April, the largest increase since June 2009. It increased by 4.2% year over year, the highest since September of 2008. Core inflation is up 3% year over year. Experts blame supply chain challenges and last spring’s weak readings and believe this inflation is short-term and will settle down in the coming months. Housing has taken on the largest rate of inflation at 18% (nationally) year over year. Consumers call it appreciation and economists call it inflation.

In late April the Federal Reserve stated again that it intends to keep short-term interest rates at nearly 0% until we reach full employment (roughly 5%) and inflation is slightly above 2% “for some time.” It will also continue buying $80 billion in Treasury securities and $40 billion in mortgage backed securities monthly until those benchmarks are reached.

Employment:

American workers are more productive than they were pre-pandemic. Federal Reserve Governor Christopher Waller said, “It fits with what we have been hearing from businesses about labor supply shortages. GDP is back to its pre-pandemic level, but we have recovered only 14 million of the 22 million jobs lost last spring.”

With nearly 8 million job openings nationwide and many employers struggling to find workers, 22 GOP led states, including Arizona, opted to end the additional $300 in weekly pandemic unemployment benefits early. In Arizona, those benefits will expire on July 10 rather than in early September. There are just over 6.6 million people receiving Pandemic Unemployment Assistance nationwide.

Despite the dismal April jobs report, the weekly jobs report released yesterday shows that 444,000 people filed for initial unemployment benefits, down 7% from the previous week and hitting an all-time low since March 14, 2020, when it was 256,000. In Arizona, we had a 27% decline in initial unemployment claims. Continued unemployment claims, known as insured unemployment, increased by 0.1% week over week to 3,751,000. In Arizona, that number declined by 4% to 52,836.

While the unemployment numbers remain high, experts predict Arizona will add 116,900 jobs by the end of 2021, which would put us ahead of our pre-pandemic numbers, according to the Economic Club of Phoenix, a unit of the WP Carey School of Business at ASU. In April of 2020, Arizona lost 331,000 jobs.

National Real Estate:

Single-family housing starts in April declined 13.4% from March, putting us at an annual rate of 1.09 million single-family starts. Builders blame supply chain and labor shortages for the decline.

As people are out and about more, the personal savings rates will decline. Dr. Lawrence Yun, Chief Economist for NAR, expects “revenge spending” on more services and entertainment in the coming months which will slow some of the frenzy we have been experiencing. He also expects that bidding wars will not be common by 2022.

Single-family inventory increased again this week by 1% to 313,577. Experts predict inventory to gradually increase by about 1% a week over the next few weeks. There are no signs of distressed listings coming to market. This gives our exhausted buyers more flexibility and room for negotiation. As you can see below, we have only had 3 weeks of inventory increases in the past year.

71% of new listings went under contract in less than a week, a slight decrease from last week’s 73%. Expect strong demand through June.

Home sales prices were flat this week at $395,000 and new listing asking price dropped from $365,000 to $360,000. For the past month, new listing asking prices have stayed flat so prices are no longer skyrocketing, on a national level. Normally the asking prices top out in May, last year it did in July. The new listings prices lead the market by about a month. Then closed listings followed by a month and then the headlines follow by another month.

The AZ Market:

From July 2019 through July 2020, Phoenix ranked #1 in net migration. We had 89,000 people move here or 244 per day. In 2020 alone Phoenix grew by 106,008 people, ahead of the 10-year average of 85,562 people a year.

According to the Information Market, in Maricopa County, new home sales are up year to date by 8.6% and resales are up 22.3%. In April, the median sales price for new homes was up 24.6% year over year. For resales, it is up 32!!

For more in depth information specific to greater Phoenix, see my update from last week, here.

Lending:

It is no surprise that mortgage demand declined in April from March but remain significantly above last year’s totals. Demand has been slowly declining since March. The continued low inventory combined with affordability pressures is still to blame. Experts predict there will be a modest rise in rates this year, which will likely further impact demand as well.

1031 Exchanges & Proposed Policy:

President Biden’s proposed American Families Plan does not completely eliminate 1031 exchanges but it does cap the amount allowed in the exchange. The plan allows for up to $500,000 in capital gains deferral.

A study from the University of Florida shows that the average size of a 1031 exchange transaction from 2010 to 2020 was $500,000; which is far smaller than institutional commercial real estate transactions. Walker & Dunlop’s average transaction amount is $49 million and they do not use 1031 exchanges.

Real Estate News:

• Fannie Mae recently revised down the expected existing home sales counts due to rising mortgage rates and potential inflation. The article states, “Homes will sell at an annual pace of 5.88 million during April, May and June. That’s down from the previous forecast for second quarter sales to come in at 6.16 million, annualized.”
• National mortgage delinquency rate improved in April as 400,000 borrowers became current on their loans. The delinquency rate declined to 4.66%, a 7.08% decline from March’s rate.
• On Wednesday, Zillow launched an in-app calling feature which allows potential buyers to call an agent directly without ever leaving the app. The Realtor has 30 seconds to answer before the call is then routed to another Premier Agent.
• Two of the country’s largest single-family rental REITs upped their rates on vacant home in April by a lot. American Homes 4 Rent increased 11% and Invitation Homes increased by 10%.
• Popular CRM, Liondesk announced last week that it is being acquired by Lone Wolf Technologies. As the system integrates with Lone Wolf, users may see some changes.

Cryptocurrency:

Yesterday, the IRS announced that “businesses that receive crypto assets with fair market value of more than $10,000” must be reported. This is part of President Biden’s proposed American Families Plan. The announcement comes on the heels of Bitcoin’s peak earlier this week at nearly $65,000 and then an immediate decline to just below $40,000 after a similar announcement that China is planning its own cryptocurrency regulations.

Final Thoughts:

While yes, the inflation numbers are more intimidating than we would like, these are short-term numbers and are expected to fall and normalize over time to a more balanced level.

Demand is declining some but remains stable. Inventory is rising but is coming from such a small number it needs to rise for some time before it becomes a concern.

For those who remain afraid of a bubble, I quote one of my favorite housing economists, Logan Mohtashami of HousingWire, “Home prices, on the other hand, are rising too fast. When you have the best housing demographics ever recorded in U.S. history in the years 2020-2024 and the lowest mortgage rates ever recorded in history, then the notion that housing demand will collapse is, in a word, ridiculous. Along with stable demand, the financial balance sheets of our current homeowners are solid. But hey, in America, trash sells, no matter how unbelievable.”

Copyright 2021 Sarah Perkins