Greater Phoenix Real Estate Update 8/27/2021

Residential real estate pulled our economy out of the shortest recession in history. As last year’s market frenzy cools, the severe imbalance of supply and demand lessens and prices continue to increase, just at a slower rate. According to the 2020 US Census, housing units increased by 6.7% while population grew by 7.4%; both were declines from previous decades, but it doesn’t change the fact that demand (population) outpaced supply (housing units). Over the past 10 years, Maricopa County’s population increased by 15.8% and housing units increased by 8.3%.

Demand outpacing supply combined with 10 million job openings and only 5.7 million jobs left to recover; residential real estate has garnered significant attention from investors. When an asset class or sector underperforms, investments are redirected into performing asset classes/sectors. Investors do their homework and invest where money will likely grow the most. Year over year rental rates are up along with property appreciation. John Burns of John Burns Real Estate Consulting said, “Investors won’t be slowing down at all. They’re only accelerating.”

And don’t worry about the coming year over year negative reports. 2020 was an anomaly and is not a good comparison for a normalizing market.

Rentals & the Eviction Ban:

Yesterday the Supreme Court lifted the CDC’s eviction ban, stating that the CDC did not have the authority to create the ban in the first place, ending it six weeks earlier than the planned October 3 end date. In June, the Supreme Court ruled that the only way to further extend the eviction ban was through an act of Congress, which did not happen. Through the end of July, only $5.1 billion of the $46.5 billion in rental relief funds had been distributed.

According to a new report from Zillow, nationwide rent prices were up 9% in July, year over year. Greater Phoenix saw the largest year over year rent increase, at 23%.

In 33 of the 50 largest American cities, the typical rent is higher than the typical monthly mortgage payment. This is true in Greater Phoenix.

National Real Estate:

On Monday, NAR released its existing home sales report for July. Some interesting data points:

  • Total inventory is up 7.3% from June to 2.6 months of supply but down 12% from July 2020 when it was 3.1 months.
  • Nearly 90% of total sales in July were listed for less than a month.
  • 23% of sales were all cash, up from 16% in July 2020.
  • 30% of July sales went to first time homebuyers, down from 31% in June and from 34% in July 2020.

“We see inventory beginning to tick up, which will lessen the intensity of multiple offers. Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren’t seeing as much growth because there are still too few starter homes available.”

– Dr. Lawrence Yun, NAR’s chief economist

Total inventory (including both new and existing) peaked in 2008 then started declining. The declines have been consistent since 2014. While inventory has been rising since February and the market started showing signs of seasonality, which is good, we do not want to see inventory drop again, as it usually does in the fourth quarter. If demand remains the same and inventory declines then we see a faster rate of appreciation, which at its current levels, is unsustainable and has only just started to slow.

Available Inventory

The AZ Market:

In January the Greater Phoenix median sales price was $340,000; now it is $405,000. That is over a 19% appreciation rate in this year alone. Most of those gains took place at the beginning of the year with 15.5% of the gain occurring from January to May. The median sales prices from May to August increased by 3.15% and from June to August the increase was 1.25%. The appreciation rate is slowing, and this is good for the overall health of the market.

There are 62% more active listings with an asking price over $400,000 than under.

In July, iBuyers accounted for 8.1% of all home sales in Maricopa County.

In Q2 2021, 17 houses sold for at least $1,000,000 over the initial list price, up from 8 in Q1 2021. Fifty houses sold for at least $500,000 over the initial list price in Q2 2021, up from 15 in Q1 2021.

85224 in Chandler is the only Arizona zip code to make it in the top 50 in’s 2021 Hottest Zip Codes in America list.

Greater Phoenix, through July, has recovered 99% of jobs lost due to the pandemic and only needs 2,500 more jobs to match February 2020’s employment rate. Arizona has recovered 93.7% of jobs lost.

According to the 2020 Census, at an 11.2% increase, Phoenix grew faster than any other major city over the past 10 years and passed Philadelphia as the nation’s fifth largest city. Buckeye took the top spot for fastest growing city in the country, among cities with at least 50,000. It grew by 80%!

For more on the Greater Phoenix market, click here for my update from last week which is exclusively about our local market.

New Construction:

Lumber prices are down from the peak in May at $1,515 per 1,000 board feet to $472 per 1,000 board feet in early August. Due to the backlogs, it is unlikely that new home buyers will feel the pricing relief anytime soon.

Month over month builder confidence declined by 5 points in August to 75, the lowest reading in 13 months. The decline is attributed to high material costs and labor shortages. Any reading over 50 is considered a good market. In April 2020 the index dropped to 30.

“There are now almost 690,000 single-family homes under construction – the largest number since 2007. This is clearly a positive sign given the remarkably low levels of inventory on the market.”

– Mike Fratantoni, the MBA’s chief economist

After three months of declines, new home sales in July increased by 1% from June, beating expectations. June’s sales numbers were revised up. New home inventory is up 5.5% to a three-month average of 5.9 months. Builders tend to pull back once they hit 6.5 months.

Commercial Real Estate:

Much of commercial real estate has recovered from the pandemic and is now beating out February 2020 prices. The Green Street Commercial Property Price Index, which is based on REIT net asset values, beat February 2020’s ranking by 1.3%. In July, prices were up 14% year over year and up 2.4% from June.

With prices growing over 20%; mobile home parks, self-storage, and industrial grew the fastest. In Greater Phoenix, the industrial vacancy rate is down to 4.7%. However, some asset classes are still down. The year over year prices for retail and lodging are down 7%, office is down 8%, and mall values are down by 18%. In Greater Phoenix, the office vacancy rate has increased for five consecutive months and the vacancy rate is up to 19.7%.

Real Estate News:

  • Offerpad is the first iBuyer to turn a profit. In Q2 2021 they brought in $9.2M in profit. Based on the overly inflated offers from Opendoor and Zillow, it is likely the only iBuyer that will be profitable for some time.

Final Thoughts:

Danielle Hale the chief economist for summed it up well when she said, “Continued economic recovery is key to maintaining (real estate) sales momentum, and anything that disrupts progress, such as rising COVID cases, could knock home sales off course. We’ve already seen a pullback in builder confidence and mixed construction data as builders balance buyer interest with supply challenges, rising costs, and concerns about the future of the economy and housing affordability. Still, with listing price growth beginning to recalibrate in response to shifting supply and demand dynamics, we should see a steady pace of home sales over the next few months, especially if mortgage rates remain low.”

Copyright 2021 Sarah Perkins

Published by Sarah Perkins

Sarah Perkins is an award winning account executive and has been in title sales since 2004. As the Director of Industry Research & Senior Account Executive, Sarah’s role is to bring real estate transactions to Navi Title. Sarah supports her clients by helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.

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