Greater Phoenix Real Estate Update 11/12/2021

The relationship between supply and demand establishes pricing whether it is for toothpaste, a mani/pedi, Bitcoin, or a house. Demand moves based on consumer sentiment. This is true for Wall Street and Main Street and that is the extent of the similarities between the two.

Earnings:

Aside from Zillow’s, many of the Q3 2021 earnings calls were filled with optimism. There were clear winners like eXp and Fathom who both experienced massive growth. There were also companies pleased at losing less than in previous quarters. Redfin’s total revenue was up 128% year over year and its net loss improved from $34.2 million in Q3 2020 to only losing $18.9 million in Q3 2021.

Redfin’s iBuying revenue was up 1,000%. While Redfin is the country’s fourth largest iBuyer, CEO Glenn Kelman said iBuying is only part of what they do but is not the company’s primary focus. He went on to say that iBuying isn’t going away, despite Zillow’s challenges, nor will it be a huge part of the market, forecasting that iBuying will likely max out at about 10% of the market.

iBuying is not dead but it is still not profitable. It broke Zillow, who after $1 billion in losses in 3.5 years, expects to lose another $250 million in Q4 2021. Opendoor increased revenue by 91% to $2.3 billion from Q2 to Q3 2021 and decreased its losses from $144 million to $57 million over the same time frame. At $540.3 million, Offerpad’s revenue increased by 185% year over year, but still sustained a net loss of $15.3 million.

Other winners include 18 publicly traded homebuilders who successfully doubled their market caps since March 2020. Hovnanian Enterprises had the greatest market cap increase at 1,207%. The nation’s largest home builder, D.R. Horton had an increase of 176%. Despite the labor and supply chain shortages, homebuilders are turning substantial profits.

National Real Estate:

Demand is increasing, which is seasonally unusual. The rising interest rates and super high rents are possible culprits. Homes continue to sell quickly (in about 42 days on market, up from 21 in May, but well below the normal 70 expected this time of year) and with multiple offers, though declining. Single family year over year appreciation is high but slowing from 22.9% in Q2 2021 to 16% in Q3 2021.

“Home prices are continuing to move upward, but the rate at which they ascended slowed in the third quarter. I expect more homes to hit the market as early as next year, and that additional inventory, combined with higher mortgage rates, should markedly reduce the speed of price increases.”

-Dr. Lawrence Yun, NAR’s chief economist

The AZ Market:

Buyer demand is increasing, why? Zillow pulled out and yet demand is over 22% above normal. Inventory remains persistently low at 65% below normal. The iBuyer frenzy has settled down. The best thing for our market is to have a lot of owner occupied buyers. 18 months ago, 93% of buyers were owner occupied and in September it was only 74%.

At 17.4%, Arizona had the highest percentage of homes sold to institutional investors in the country in Q3 2021. AZ was followed by Georgia at 13.9 and Mississippi at 12.8%.

BeachesMLS in Southeast Florida recently joined MLS Aligned as it gears up to release Aligned Showings, a new showing service. Created in 2018, MLS Aligned is a joint venture founded by ARMLS, Metro MLS in Wisconsin, MLSListings in Silicon Valley, RMLS in Oregon, and UtahRealEstate.com.

ARMLS policy states that a product vendor cannot also be a member, which means that ShowingTime (owned by Zillow, an ARMLS member) will not be able to extend its contract into 2022.

Below is ShowingTime’s traffic report for Arizona. The increasing demand is reflected.

Scottsdale came in at number four for cities that have increased the most by both actual dollars and in percentage growth. In September 2019 the median sales price for a Scottsdale home was $477,000. By August of 2021 it was $715,000. Nearly a 50% increase!

According to a city analysis from 2020, Phoenix is short 163,067 housing units. Combine that with Phoenix’s average retail space per capita is 40.5 square feet, compared to 28 square feet nationwide, and city officials are creating a plan to convert vacant retail spaces into apartments and condos.

Real Estate News:

• For 10 months, from October 2020 to August 2021, Fannie Mae and Freddie Mac applied the adverse market fee to refinances and collected nearly $5.3 billion, covering nearly 70% of the GSE’s Covid relief programs.
• Pretium Partners has agreed to acquire 2,000 of Zillow’s homes to add to its portfolio of 70,000 single family rentals throughout the country. Zillow still has about 18,000 homes to sell before it can fully shut down its iBuying segment.
• Created for long term sphere marketing, Navigate by Cryano is a conversation analysis tool that uses communication styles from Gmail and Zoom to develop follow up strategies for Realtors.
• Opendoor purchased a digital mortgage company, RedDoor, that can provide pre-approvals in one minute.

Final Thoughts:

While the residential real estate market changes slowly, it has never before moved this quickly. Change is unnerving but not always bad. Remember, it was housing that pulled us out of the shortest recession in history.

If the COVID-19 crisis didn’t happen, we would still enjoy the most prolonged economic and job expansion in history. But the pandemic did happen, and we are more vital for having weathered that horrific storm. We now continue this journey together in this new expansion. Economic cycles come and go: My job is to guide you through this process and show you that boring economic models work. They may not be sexy, but they can be precious when you have a good one tested through time. Trust the data and keep moving forward.

-Logan Mohtashami, Housingwire’s Lead Economist

Copyright 2021 Sarah Perkins