This Week in Greater Phoenix Housing 6/21/2021

In this 10 minute video, Amber Kovarik and I discuss the latest in real estate and lending.

Supply, Demand, and Appreciation:

It is incredible what a human can get used to. Some people are afraid of moving into a more normal, more balanced market. We got used to operating under extreme pressure due to high demand and low inventory. That market isn’t healthy and it peaked in March. Now, we are, very slowly, moving towards a healthier market and it is a good thing.

In the past 3 weeks, inventory has increased by 13%, while that is a large increase we still only have 5800 active listings. Demand is about 7% above normal, which means that demand is solid but is continuing to decline, more slowly than inventory is increasing. Even with these increases, it will take years to get to normal supply levels.

The Greater Phoenix appreciation rate is over 30%. 18 months ago, the idea of 10% appreciation seemed excessively high. The relationship between supply and demand dictates appreciation. In 2005 it was the extremely high demand from the speculative buyers that pushed prices up so significantly. Today it is the extremely low inventory levels and more/less regular demand that is pushing up the prices. Today’s buyers are qualified buyers looking to live in these houses.

As more and more sellers are willing to list their properties, the increased competition will slow appreciation and allow for more buyers to enter the market, which is a good thing. It will not put us in negative appreciation. We are seeing an increase in price reductions. Now is not the time to overprice listings. Buyers are doing their homework.

Equity:

A recent report from CoreLogic states that homeowners gained $1.9 trillion in equity in Q1 2021, which is a year-over-year increase of 19.6%. Going deeper that breaks down to an increase of $33,400 in equity per homeowner and is the highest gain in over 10 years. Arizona’s year-over-year average equity increase is $51,000!

Housing Shortage:

According to a recent NAR report, construction declines and housing demolition over the past 30 years,  has created a 6.8 million unit housing shortage nationwide. NAR is calling for a “major national commitment” for more building of all housing types, especially for more affordable housing units. To close the gap, builders will have to build 2 million homes a year for the next 10 years. The challenge here is that builders build to make money and when demand declines, they stop building, which means to reach the building levels NAR calls for, government assistance will be necessary.

3D Printed House:

Habitat for Humanity is building its first 3D printed house in Tempe. The goal is to expedite the building process while reducing labor and construction costs. About 70% of the building will be printed and the remaining 30% will be built through traditional construction. The selected family will move into the 1,600 square foot, 3 bedroom, 2 bathroom home this fall.

Federal Reserve:

Last week’s Fed meeting announcements moved the markets significantly, inflation increased a lot more than expected. Some analysts believe inflation has peaked. Rates are up. All eyes will be on next month’s inflation report as it could be very telling about the future.

FHA Announcement:

On Friday we got some good news from FHA regarding guidelines on student payment loans. Currently, regardless of the payment status, we have to hit the borrower for the greater of:

• 1 percent of the outstanding balance on the loan; or
• The monthly payment reported on the borrowers credit report; or
• The actual documented payment; provided the payment will fully amortize the loan over its term 

The NEW guidelines state we must use:

• the payment amount reported on the credit report or the actual documented payment, when the payment amount is above zero; or
• 0.5 percent of the outstanding loan balance, when the monthly payment reported on the borrower’s credit report is zero 

This new guideline is effective for all case numbers on or after August 16th.