Greater Phoenix Real Estate Update 12/17/2021

Remember at the beginning of the year we hoped for answers and less political strife? Whether or not those were accomplished remains to be seen but one thing is for sure, 2021 was a year of records. Nationally, median sales prices peaked, for sale inventory bottomed, average days on market bottomed, over-asking price sales peaked, mortgage rates hit all-time lows, and second home demand surged.

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National Real Estate:

Yesterday Mike Delprete wrote, “As the Zillow Offers collapse has demonstrated, pricing is a true potential competitive advantage for iBuyers (sellers). Getting it right is a prerequisite for success, while getting it wrong can lead to catastrophic failures.” This applies to all sellers.

The most recent Swanepoel Trends Report created by real estate consulting and research firm T3 Sixty, author of NAR’s Danger Report (published in 2015 detailing the biggest dangers to the residential real estate industry which have all essentially come to pass), states that in 2021 real estate went into “hyperdrive” and is labeling this year the start of the “Great Acceleration” which could last as long as 10 to 15 years. The growth of available capital has enabled an “increasing concentration of production and market share among the nation’s largest real estate companies.”

Last week, available single family inventory declined by 7%, this week it declined by another 3%, we are now down to 339,000 actives. On April 30, we hit the 2021 low of 307,000 listings. Inventory may fall below that by the end of the year.

Experts suspect a cause of the low inventory is due to homeowners keeping their properties to rent out rather than selling when they move. About 16 million or 19% of single family homes are rentals. Of those about 300,000 are owned by institutional investors and 176,000 are owned by the 4 largest corporate investors, Invitation Homes (the largest with 80,000 homes), American Homes 4 Rent, Progress Residential and Cerberus Capital Management.

Each week for the past 6 months, about 25% of new listings sold within 24 hours of going active. This is a leading indicator of demand, when this number shrinks, we will know demand is declining.

The AZ Market:

Inventory is dropping, quickly, again. Inventory is 67% below normal while demand is 23% above normal. The supply-demand imbalance continues, pushing prices ever higher. We may end this year with a 30% year over year appreciation rate. We will have more existing home sales than in 2005! Given that our available inventory levels have been declining for years, we will start 2022 in a robust seller’s market.

The $750 million redevelopment of Metro Center is expected to start in the second half of 2022. The plan includes 2,600 multi-family units, retail, restaurants, bars, parks, and commercial and entertainment venues.

The Optima Kierland and Optima Sonoran Village both won the American Architecture Awards, the nation’s most prestigious architecture awards.

Fed Tapering:

After reaching an increase of 6.8% in year over year inflation, a 39 year high, inflation concerns have replaced unemployment concerns. The Federal Reserve has opted to, starting in January, increase the speed in which it tapers its bond and MBS purchases. With the new schedule the tapering will be completed by March rather than June. Upon completion, the Fed will be ready to implement its first short term rate hike as early as April. By raising the rates, inflation will cool. (Devil’s advocate, they can’t raise rates too much or the Federal government will not be able to make its debt payments because it be able to afford the interest rates.)

Industry News:

NAR’s Home Buyer & Seller Survey:

Research-based on transactions from mid-2020 to mid-2021

• 87% of buyers and 90% of sellers worked with a Realtor.
• Majority of buyers who did not use a Realtor worked directly with builders.
• 82% of sellers interviewed only one agent.
• 73% of buyers interviewed only one agent.

Brian Buffini’s 2022 Bold Predictions with NAR’s Dr. Lawrence Yun:

Buffini is proud that of the 33 bold predictions he has done (year-end and mid-year), he has gotten it right 31 times.

This fall we experienced a mini-surge in demand, making this fall the second busiest fall in 15 years, behind 2020. The increased demand is unusual for this time of year.

2021 in Review:

• In 2019 Realtors had an average of 9 years of experience. In 2020 that numbers dropped to 8 years, the largest one year decline in history.
• In 2021 first time home buyers made up 34% of buyers, up from 2020’s 31%.
• 15% of buyers purchased new homes (it was 29% in 1989).
• 29% of buyers paid over asking.
• 90% of homes went under contract within 30 days.
• Estimates 6 million existing home sales, up 7% from 2020’s 5.7 million sales.
• NAR’s has roughly 1.5 million members, which means that there were 8 transaction sides for every Realtor.

2022 Predictions:

• Expects a very busy spring and summer. The cheaper markets will cool first and luxury will remain strong. Asset purchases, particularly real estate purchases are a great hedge against inflation and those who can (buy), will.
• 2% decline in existing home sales; to 5,880,000 or 7.8 transaction sides per Realtor.

• Inventory increases due to new construction completions and the expiration of mortgage forbearance. (I agree with the new home availability, but the mortgage forbearance numbers are too small to make an impact. At the end of October there were 1M borrowers in forbearance and 17% exited still behind on their payments with no loss mitigation plan in place. These exits only add 3,400 listings per state if divided evenly)
• By December 2022 interest rates will be at 3.7%. The increased rates slow price appreciation.
• Fewer sales over asking.
• It will be harder to get business and more market share will go to the highly trained.
• After two years of record numbers entering the industry and due to the increased difficulty in obtaining business, not everyone will be successful, more agents will fail than will succeed, likely furthering the decline in years of experience.
• Real estate is no longer for hobbyists, it is for the highly trained, skilled, funded agent who runs the business like a business.

Real Estate News:

• In an effort to stifle money laundering and other criminal activity, the US Treasury Department is looking to expand reporting requirements for all cash purchases. According to NAR, one-third of home sales are all-cash. (in Greater Phoenix it is closer to 40%)
• Since the definition a “safe neighborhood” is subjective and has the potential to reinforce racial biases, Redfin and Realtor.com are removing crime data from their sites and Redfin is encouraging other portals to do the same.
• Zillow launched a new feature that connects buyers with local down payment assistance programs.

Final Thoughts:

As we look to 2022. We are watching the leading indicators, ready to pivot upon market instruction. I remain cautiously optimistic. Remember last year residential real estate pulled us out of the shortest recession in history. This year it broke all of the records. What will real estate do in 2022? I look forward to finding out!

Have a Merry Christmas and a Happy New Year!

Copyright 2021 Sarah Perkins