The American economy is big, like nearly $23 trillion big. For perspective, one billion seconds ago it was 1990. One trillion seconds ago was 30,000 BC. The foundation of this giant machine is based on the fundamentals of supply and demand. The price of a loaf of bread, the house down the street, and even 2676 Bayshore Drive (sold for $33.2M in March) is established based on supply and demand.
Demand is weakening slowly, it always does in Q2 and Q3. That is not what is causing the market to soften though. The softening is caused by the increase in supply. But don’t worry too much, as long as supply remains below demand, we will stay in a seller’s market.
NAR now has over 1.5 million members. In 2005 there were just under 1.3M members, in 2010 there were about 1M, and in 2015 there were just under 1.2M. That is a 50% increase in 11 years. At the same time, Realtor incomes are declining because of increased competition. In 2020, 54% of Realtors made less than $50,000.
Differentiation is the key to survival. This week, Mike DelPrete, the premier real estate disruption expert released his 2021 Emerging Models in Real Estate report. Ultimately, the most successful model includes both tech innovation and human interaction.
National Market Update:
This week, for the ninth week in a row, single family inventory increased to 374,000. That is an 18% increase since April 30. Despite the inventory gains, a healthy market has about one million active single family listings, and to reach a buyer’s market, inventory levels would need to be around 1.5 million listings. This also means that there are four Realtors for every single family listing in the country.
During Brian Buffini’s recent mid-year update he asked Dr. Lawrence Yun, NAR’s chief economist, what is the single most important thing all Realtors should know right now. Dr. Yun’s answer, “Do not overprice listings.” Buyers are more educated than ever before, and if a listing is on the market for 30 days buyers want to know what is wrong with the house and avoid it.
Most price gains are made in Q1 and early Q2, which was especially true this year. In 2020 it was the opposite and prices took off in Q3. As we continue to normalize, the ridiculous price appreciation will slow and buyers will be able to negotiate (did I mention we are starting to see seller concessions?). The year over year data is starting to get weird and will not represent the market accurately. Be sure to look at month over month data or compare to 2019. For example, this chart will continue a downward trendline, despite continued growth. Near vertical appreciation is certainly exciting but is not sustainable.
The AZ Market:
New home sales prices increased by 13% in the first four months of 2021. Annual new construction appreciation may reach 20% this year. The existing home median appreciation rate has started to decline, down to only 29% from 32% last month. Remember being nervous about 10% appreciation rates? I do.
To put those percentages into dollar perspective, in June, the median sales price for Greater Phoenix new construction is up by nearly $100,000 year over year! Also, in June, the median sales price for existing home sales is up by $90,000 year over year and up by $120,000 since June of 2019!
With appreciation like that, people are getting priced out of the market which led to a 16% decline in new home sales from May to June. Existing home sales declined by only 5% over the time period.
Purchase mortgage applications declined by 1% week over week, which is a combined decline of 6% over the past two weeks. The purchase applications are requesting larger loan amounts which is impacting first time home buyers the most.
The numbers continue to improve, despite a slight uptick in percentage due to a larger workforce. 15.6 million jobs have returned, about 70% of lost jobs.
Economist Elliot Eisenberg explains, “During June, employers created 850,000 new jobs, the best growth since August 2020’s 1.58 million. Leisure and hospitality led the way with 343,000 jobs. Better yet, unemployment rose to 5.9% from 5.8% as slightly more persons joined the labor market. Job creation totals a strong 3.25 million YTD, but employment remains 6.76 million below its pre-Covid-19 level. Hourly earnings rose an elevated 3.6% Y-o-Y. Taper talk will start relatively soon.” His last sentence is the most concerning. If not done well, tapering the Fed’s bond and MBS monthly purchases could spook the markets but that is a discussion for another day.
Real Estate News:
- The U.S. Treasury Department recently released information stating that as of May 31, only $1.3 billion or 6% of the $25 billion in renter allocated relief funds has been distributed.
- Zillow announced updates to its Premier Agent “Best of Zillow” criteria. In addition to requiring high customer service scores, agents “transaction history and their readiness to take on customer connections and grow with Zillow” will also be heavily weighted. Zillow is looking at conversion rates, local market conditions, number of monthly connections, and effectively using a CRM.
- Brokerage platform startup, Side, which reached a valuation of $1 billion, also known as unicorn status, only three months ago recently announced its IPO and that it is now valued at $2.5 billion.
- Nextdoor.com announced plans to go public via SPAC with a $4.3 billion valuation.
- In May, short term rental companies, Airbnb and VRBO both saw occupancy rates up by 21% over May 2019 and prices are up 8.3% year over year.
Not only will Phoenix get a big boost in downtown spending thanks to the Suns making the NBA Finals, but the entire state could get an economic boost due to additional exposure and publicity. Local economist Elliott Pollack said, “People tend to pick up things from watching TV. They like the area. They like what they see. They like what they hear and so if they’re looking to move … that might be the tipping point to come to Phoenix. If you’re a business, it could be the same thing.”
Those supply and demand fundamentals remain, we are adding inventory to satisfy the demand, regardless of where it comes from. While it is important not to oversupply demand, a more balanced market is crucial for the overall health of the economy. This is how home price appreciation is tamed and how inflation is calmed.
Copyright 2021 Sarah Perkins
Sarah has been with Lawyers Title of Arizona since 2004. As an award-winning sales executive, Sarah’s role is to bring transactions to Lawyers Title. To do this, she focuses on supporting her clients and helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.