Greater Phoenix Real Estate Update 9/17/2021

Looking at housing, things look good and the market is attempting to normalize, but we do not see the whole picture. Wall Street, federal policy, a worldwide pandemic, labor and supply chain shortages also impact housing. But there is still more to consider: the intense and seemingly ever-increasing battle between the Department of Justice (DOJ) and the National Association of Realtors (NAR).

NAR & DOJ:

On Monday, NAR submitted a petition to prevent the DOJ from pulling out of their agreed upon settlement. Despite the lack of precedence and ongoing efforts, on July 1 the DOJ announced that it was pulling out of the November 2020 settlement. The DOJ stated that the settlement was not sufficient and that the DOJ wanted the freedom to investigate and pursue NAR further than the five items covered in the settlement, which include publicly sharing buyer agent commission, no longer calling a buyer agent’s services free, and lockbox access. Five days after pulling out the DOJ requested more data from NAR specifically regarding pocket listings and buyer agent commissions.

The Clear Cooperation Policy, also known as the pocket listing ban, requires all listings to be entered into the MLS within one business day of public listing marketing. And is one of the items that the DOJ plans to further research. A number of opinion pieces promote the removal of the “Coming Soon” status as it is inconsistent and unfair to smaller companies. Real estate analysts are not able to use Coming Soon status data which ultimately skews the numbers as listings often go from Coming Soon to Pending, skipping Active status completely, thus confusing true inventory counts. The DOJ is researching the size and scope of the policy as it is very far reaching with few exceptions. TAN and PLS sued NAR for implementing this policy. Both cases are ongoing.

The DOJ is also researching NAR’s rule that requires MLS and non-MLS listings to be displayed separately, steering based on commission offered, buyer/seller rebates, and the several class action, antitrust commission lawsuits. Given the size and scope of the requests, experts wonder if the DOJ has a game plan for execution.

Andrea Brambila of Inman News wrote an extensive article outlining the four years of on-going strife between NAR and the DOJ which can be found here.

National Real Estate:

Last week single family inventory declined by 1.4% to 431,000 from the previous week’s 437,000. Declines are typical over holiday weekends. With nearly 400,000 forbearance exits expected this month, inventory is expected to increase slightly, not decrease. The majority of forbearance exits either restructured their loan or continued paying throughout the forbearance period.

Home sales dropped by 1.4% from July to August and are down 6% year over year. Year over year comparisons are not useful because the pent up demand drove an end of the year purchasing frenzy that is unlike anything real estate has ever seen before.

Builder costs declined by 1% in August. Lumber and other costs have been slowly declining in recent months and last month was the first time that builders saw any benefit to the declines in prices. It is unlikely that consumers will feel any savings for some time.

The AZ Market:

As previously mentioned, we do everything faster and bigger here, at least in regards to real estate. The shifts hit us first and usually with a greater magnitude. From 2008-2011 homes lost roughly 45% of their value while the country as a whole lost about 25%. While the rest of the country started seeing inventory levels flattening and even declining by 0.2% from July to August, our inventory has started to grow again after a few weeks or staying flat.

July and August had a median sales price of $405,000. Since demand has increased, unseasonably, lately, September’s projected median sales price is $410,000.

Absorption rate is a great way to monitor supply and demand. It is very seasonal and from the chart below you can see the four-year trend and see that August 2021 is an outlier. Absorption rate actually increased from July to August versus decrease.

Tom Ruff of the Information Market wrote, “In August of 2020 nearly 91% of all homes purchased were by traditional buyers, for this analysis, we define a traditional buyer as individuals or married couples. In 2021 this number fell to 75%. We saw a significant increase in the number of properties purchased by iBuyers, large institutional investors as well as small investors.”

Despite our recent affordability decline, for details see my update from 8/20 here, Greater Phoenix remains among the most affordable big cities in the country. According to a recent report by Roofstock, the cost of living in Greater Phoenix is 1.3% below the national average. About 56% of households can afford the median priced home which is lower than the ideal 60-75% range but is significantly better than California, Washington state, and New York who range from 13% to 41%.

Nearly 300 companies are considering expanding or relocating to Greater Phoenix which means a potential of 16,000 new jobs and over $50 billion in capital investments.

“On the business-attraction front, there really never has been more interest than greater Phoenix is seeing right now from firms across the globe looking to make investments and expanding and relocating to the region.” – Josh Reed with the Greater Phoenix Economic Council

According to Realtor.com’s Best Time to Buy Report, nationally the best time to buy is from September 12 to October 17. In Greater Phoenix it is from January 10 to January 16. Buyers have, on average 31% more listings to choose from and sales prices are about $10,000 below seasonal highs.

These are the first 10 markets in chronological order of the Best Time to Buy weeks.

Lending:

The Treasury and FHFA announced on Tuesday that they are suspending the 7% rule which limited Fannie Mae and Freddie Mac’s loan portfolio to allowing only 7% of their total loans to be secured by investment properties and second homes. This is good news!

Next week the FOMC meets and many expect Fed Chairman Powell to announce bond and MBS tapering starting in Q4 2021. The tapering will increase mortgage interest rates anywhere from a quarter of a percent to a full percentage point. 54% of mortgage holders have an interest rate of 3.75% or less. If rates go above this amount, affordability will be pushed further. Remember in Q2 2021 housing affordability decreased below the healthy affordability range. Further pressure on affordability will push more buyers out of the purchase market. And this is challenging given that rents are up over 20% year over year. The pressure is not only on perspective buyers, but higher interest rates also prevent potential sellers from selling.

Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting said, “Purchase applications – after adjusting for the impact of Labor Day – increased over 7 percent last week to their highest level since April 2021. Compared to the same week last September, which was right in the middle of a significant upswing in home purchases, applications were down 11 percent – the smallest year-over-year decline in 14 weeks.” The long term growth is consistent and doesn’t look like the bubble of 2005.

Real Estate News:

• High profile sellers are being exposed by high resolution images, tours, and video used to market listings. Identifying home décor, awards, plaques, etc. are readable. Several celebrities with listed homes have been identified through marketing.
• HUD does not have to disclose flood risk on properties. HUD REO homes that sold from 2017-2020 were 75 times more likely to be in a flood zone than other homes sold during the same timeframe.

Final Thoughts:

This business is anything but boring (no matter what my brother says)!

Copyright 2021 Sarah Perkins