Greater Phoenix Real Estate Update 5/28/2021

“Buy land, they’re not making it anymore.” ~Mark Twain

April saw its best sales rate in 15 years and at the same time sales declined again for the third straight month. Homes are selling faster than ever before, and prices are higher than ever before; yet the signs are all there, the market is slowing – very slowly – and just starting to normalize.

“One of the main reasons that inventory can keep falling as it has and sales overall continue to grow is precisely because of this faster market velocity. And unlike previous periods when demand for homes was high and time on market short, notably the pre-2008 housing boom, the market this time around is driven by sound fundamentals unlikely to fade anytime soon.”

~ Treh Manhertz, Zillow

National Real Estate:

Pending sales for the seven-day period ending May 16 were down 10% from four weeks prior, compared to an 8% increase during the same period in 2019. (NAR)

In the past week, single family inventory increased by 10,000 listings or 3%. This is the biggest increase in new inventory since June of 2019. That is a three-week trend of increasing inventory and it takes three weeks to see a trend. Nationwide, during normal market cycles, inventory tends to peak around August. Expect more slow increases in inventory in the coming weeks. It will likely take years to get to normal levels.

Last week just over 29,500 listings sold in less than 24 hours. This week it was just shy of 27,000. Homes are staying active only hours longer than in previous weeks.

88% of homes are selling in 30 days.

Price reductions tend to be very cyclical. Usually, by mid-May we see more people cutting their prices before they go too deep into the summer. We are just barely starting to see the seasonality now with 16.3% of listings taking a price reduction. The average is around 28%. Markets remain very hot, yet we are slowly starting to move closer to normal. Now is not the time to push the market or overprice a listing.

New Construction:

New home sales fluctuate more than resales month to month. It is not unusual to go positive growth, negative growth, positive growth. A more stable approach to new construction is by measuring monthly supply levels, averaged over three months. At 6.5 months builders stop building. Below 4.4 months business is good and builders are building. At 4.4 to 6.5 months, the market is fine. April’s report shows a 3-month average supply of 4.23 months.

Housing permits, starts, and builder’s confidence levels remain strong. Affordability challenges for both buyers and builders are the root of the falling numbers. Buyers and builders are both benefitting from the low-interest rates which will not last forever.

In order to manage labor and supply chain shortages as well as the skyrocketing costs of materials, many builders are adjusting how they work with buyers. Some builders are building spec houses to sell outright, some are waiting to go under contract once they are closer to the build start date, and some builders are going under contract without a finalized price.

• April’s new home sales declined by 5.9% from March to a seasonally adjusted rate of 863,000 for the year. But remains 48.3% above April 2020.
• April’s new home supply reached 4.4 months, up from March’s 3.6 month supply.
• In April 2020, 45% of new home sales were under $300,000. In April 2021 that number dropped to 27%.
• The national median sales price in April is up 17% year over year to $372,400.
• Completed homes continue to have less and less market share, in April it was only 11% of total inventory versus 24% in April 2020.

“In the short-term, inventory shortages will persist. U.S. Census Bureau data from earlier this week showed residential housing starts have started to slow due to challenges in the cost and availability of building materials.”

~Joel Kan, MBA’s Vice President of Economic & Industry Forecasting

The AZ Market:

Greater Phoenix took second place in two recent price index reports. One for losing affordability and the other for the annual appreciation rate, which is pushing 32%!

On Monday, local housing economist Elliott Pollack wrote, “Permits in Greater Phoenix were above 3,000 for the second month in a row, bringing the year-to-date total to almost 12,000 permits. The median sales price for both resales and new homes increased to $365,000 and $370,878 respectively, narrowing the gap between resale and new home prices to just $5,878.”  

MLS Aligned is a new showing scheduling service that is co-founded and owned by five MLS’s, including ARMLS. Due to a 12-year-old ARMLS policy that doesn’t allow vendors to also be broker members, ARMLS will not extend the contract with ShowingTime after its expiration on 1/1/2022. Zillow is both a member of ARMLS and the owner of ShowingTime. The other co-owners are Metro MLS in WI, MLSListings in Silicon Valley, RMLS in OR, and UtahRealEstate.com.

Earlier this year Scottsdale formed a municipal committee that consists of residents, Realtors, hospitality officials, and two city council members to research and track the city’s short-term rentals. Over the past three weeks, two city employees found 1,000 short-term rental locations that are currently are in violation of contract or tax licensing requirements. Will this committee set a precedent for other cities?

Greater Phoenix retail vacancy rates decline as 99.6% of the lost retail jobs have been recovered. Leasing activity is up 18% year over year and up 85% since the whole decline in Q2 2020.

Greater Phoenix has recovered 73.6% of jobs lost while the US has only recovered 63.3% of jobs lost.

Earlier this week the Case-Shiller Index released its March numbers. Nationally, March saw a 13.2% year-over-year appreciation rate. Greater Phoenix had the highest appreciation rate of 20% year over year. Economists, Wall Street, and the federal government use Case Shiller’s data on appreciation rates. The index is considered a “repeat sales index” which means that it looks at the difference in sales price from when a property is purchased and when it is sold. It is a very accurate way to monitor home prices. The downside is that it is a very slow report, these are only March’s numbers.

Commercial Real Estate:

Apartment complex vacancy rates are expected to hit 4.55% this year, 4.38% in 2022, and 4.18% in 2023. All of those are lower than the 20-year average and significantly lower than the 7.2% apartment vacancy rate reached in 2009.

Corelogic recently announced that single family rents increased nationwide by 4.3% in March. The cities with the largest-double digit rental increases were Phoenix and Tucson. Renting costs more than buying!

Lending:

Purchase mortgage applications increased for the second time in May after a weak April with multiple declines.

In 2020, 15% of buyers purchased homes with cash. Through mid-May 2021 that number has grown to 25%.

A new bill has been proposed to create a new loan program similar to a VA loan that allows first responders, law enforcement, and teachers to borrow up to 100% of the acquisition price.

Real Estate News:

• Chlorine prices have increased by 36% year over year. New pool demand is up 20% year over year after 2020’s large increase over 2019. Expect chlorine prices to continue to climb.
• In addition to the Georgia and Alabama Association of Realtor’s lawsuits against the CDC’s eviction moratoriums; the Florida Association of Realtors filed a lawsuit against the CDC stating that the CDC does not have the authority to be the “nation’s landlord-in-chief.” NAR supports all three lawsuits and stated, “

“Nearly half of America’s rental housing is provided by mom-and-pop property owners who own four units or less. These providers will be hesitant to pour their sweat and savings into housing if a government entity without oversight can seize their only ability to generate income. Many have struggled for more than a year to pay their bills and maintain their properties as legally required. This future uncertainty will suppress the availability of affordable rental housing in America.”

Final Thoughts:

Yesterday, Elliot Eisenberg wrote, and it sums up our market beautifully, “April existing-home sales fell 2.7% M-o-M, to 5.85 million/year, the best April sales rate since 2006. That said, it was the third straight monthly decline. While low rates and remote working still boost demand, a lack of homes, especially at lower price points, vertiginous Y-o-Y price appreciation of 13% to 19% depending on how you measure, and no new meaningful growth in home construction activity are quietly taking their toll.”

Copyright 2021 Sarah Perkins