Greater Phoenix Real Estate Update 7/2/2021

The market is softening = slowing = normalizing = moving closer to balance which are all good things even though it feels weird. After the wild ride of 2020 and the nearly non-existent inventory levels of Q1 2021, the real estate market is working out its kinks. I have mentioned it before and will say it again, it is impressive what a person can get used to. We got used to 10 or 15 buyers for each listing. We even (kinda) got used to only 4,000 active listings (when we should have 25,000). Now we have to prepare today’s buyers and sellers (and ourselves) for another new normal, a much healthier one.

National Real Estate:

Existing home sales declined again for the fourth consecutive month in May but the rate of decline is slowing. Sales are down by nearly 1% since April and 14% since February to a seasonally adjusted rate of 5.8 million units. In 2020 there were 5.64 million existing home sales. Low inventory, falling affordability, and buyer fatigue are blamed for the declines. Sales are nearing pre-pandemic levels as the market continues to normalize and the pent-up demand from last year is exhausted.

Speaking of falling affordability, the median existing-home price for all housing types in May was $350,300, up 23.6% from May 2020 ($283,500). This is an NAR record high and marks 111 straight months of year-over-year gains since March 2012.

Pending home sales increased by 8% in May, month over month, after declines in April. The increase is attributed to the low interest rates and increasing inventory. Nationally, active inventory is up by nearly 16% since February.

New Construction:

New construction sales declined by 5.9% in May month over month, to an annualized rate of 769,000 units. This is the second month in a row of declines, April also had a 5.9% decline in new home sales. Rising sales prices combined with lumber, labor, and material shortages are blamed for the decline.

Meanwhile, housing starts increased by 3.6% during the same time period putting new construction inventory levels at 5.1 months. When inventory levels are 4.3 months or less builders are happily building, when inventory levels are 4.4 to 6.4 months builders need evidence of sales growth to continue building, and at 6.5 months or more builders slow or even stop production. Builders only build houses they know they can sell.

The new construction sales chart below shows the initial declines in sales followed by a giant increase and the recent declines from that peak level.

The AZ Market:

Here in Greater Phoenix, when it comes to real estate, everything is magnified. In 2008, when the market crashed, as a country values declined by 25%. Phoenix saw 45% declines. Today, as the entire country sees 23.6% year over year appreciation, Phoenix’s appreciation rate reached 33%, year over year. It should come as no surprise that as the market normalizes, Phoenix is normalizing faster. Inventory is up nationally 16% since February, in Phoenix, it is up by nearly 28% since February.

May’s Case-Shiller Home Price Index was released on Tuesday. For the 11^th month straight, the US has seen price gains. In May it was 15.4%, year over year, the highest reading in over 30 years. Greater Phoenix has topped this chart for the past 23 months and in April came in with a 22.3% year over year price gain. Case-Shiller is what the federal government, national builders, and Wall Street use to gauge price appreciation.

Cities like San Francisco and New York had huge rental declines. Not only do Phoenix and Tucson top the charts for rental appreciation but four valley cities are in the top 10 fastest growing rents since March 2020.

ShowingTime’s latest data shows that home showings saw an unusual dip in May, which could indicate further market stabilization. Nationally, showings usually peak in April and remain high through June. In AZ showings slow in the summer more than other parts of the country. We are currently running 32.4% below this time in 2019 and 24.4% below this time in 2020. (Phoenix declines were larger than the national declines)

Evictions, Foreclosures, and Forbearance:

Last week the CDC extended the eviction moratorium through the end of July and stated, “this is intended to be the final extension of the moratorium.” On Tuesday the Supreme Court denied the requests to lift the nationwide eviction moratorium filed by the Alabama and Georgia Realtor associations last November. Justice Brett Kavanaugh agrees that the CDC overstepped its authority by issuing the ban but denied the request. The Supreme Court will frown on any further extensions without congressional approval.

Last week the foreclosure moratorium was also granted a final extended for another month, now set to expire on July 31. On Wednesday the CFPB announced its final ruling on how mortgage servicers are to handle foreclosure proceedings. Only those borrowers who do not qualify for assistance, fail to meet the assistance agreement, who are unable to be reached, or the home has been abandoned are able to be foreclosed on once the moratorium is lifted. Servicers must contact delinquent borrowers prior to foreclosing to offer loss mitigation plans. The rule goes into effect on August 31 which likely means that servicers will not be able to initiate foreclosure proceedings until the end of the year. For more information on the CFPB’s ruling and forbearance info, check out my AZ Forbearance Update from Wednesday, here.

Lending:

Rising sales prices likely caused the 5% week over week decline of purchase mortgage applications last week. They are also down by 17% year over year.

Ginnie Mae announced a new 40 year mortgage term option created for struggling borrowers in order to lower their monthly payments and keep them in their home. The product will be available in October and will be sold on the secondary market.

New Laws:

• Within hours of the June 23 Supreme Court ruling, stating that the FHFA’s structure is unconstitutional, giving new power to the president to fire the head of the FHFA, the White House announced plans to replace Mark Calabria, the head of FHFA. Calabria then resigned and by the end of the day, Sandra Thompson was appointed as acting director of the FHFA. Her appointment will likely lead to more policy change and diminishes the likelihood of Fannie Mae and Freddie Mac’s exit from conservatorship. The irony behind this activity is that this lawsuit was brought by investors hoping to end the conservatorship so profits would flow to the investors rather than the government. Thompson’s appointment all but guarantees that Fannie and Freddie will remain in conservatorship for years to come.

• A bill recently passed the Oregon state legislature outlawing informal communications from prospective buyers to sellers, often called buyer love letters because of the potential violation of the fair housing laws. Listing agents must reject any communication other than customary documents in a real estate transaction provided by the buyer. Will other states follow?

Real Estate News:

• Not only are consumers using cryptocurrency to buy houses, now people are talking about utilizing non-fungible tokens (like crypto, stored on blockchain ledgers) for homeownership. This NFT-ing of real estate would allow the ownership of a home to be held in one digital wallet which opens up new options for fractional ownership.

• A credit card provider says it’s partnering with landlords, like Blackstone and Lennar, to help provide “every young person a path to homeownership” by allowing them pay their monthly rent with a credit card, and apply the points they earn to making a down payment on a home. (I am not sure this is best idea)

• Sidewalk Labs, a subsidiary of Alphabet Inc., Google’s parent company, recently launched a commercial real estate development advisory business.

• Offerpad is now a mortgage broker. Offerpad Home Loans is licensed in AZ, CO, and AL and plans further, rapid expansion. Will they offer seller carrybacks? If so, the impact to traditional lending could be significant by nearly eliminating appraisals and other typical loan application steps required by traditional lenders.

• Yesterday the Department of Justice withdrew the proposed settlement and the lawsuit it filed last November against NAR. The settlement for the antitrust lawsuit required NAR to repeal or change several rules regarding buyer agent commissions. The DOJ plans to refile the suit at a later date.

Final Thoughts:

Elliott Pollack wrote on Monday, “The impacts of supply and demand imbalances continue to be on full display in each weekly release of economic data. Consumer spending on goods has been hampered, not by lack of demand, but rather bottlenecks in production and the supply chain. Demand has stayed incredibly strong due to pent-up savings, and is driving up prices, with housing at the forefront. Fortunately, with continued vaccinations, more and more of the economy has reopened and spending will shift from goods towards services. This will help drive the country toward full economic recovery and will bolster those industries hit hardest such as food services, tourism, and hospitality.”

Copyright 2021 Sarah Perkins