Greater Phoenix Real Estate Update 2/4/2022

Inventory is still declining, demand remains consistent, and prices are still increasing. There is no relief in sight. The anticipated January inventory increase never materialized. The expected foreclosure boom didn’t come. The builders are constrained as ever. Mortgage rates are up. Something has to give, but what and when? Our buyers are exhausted and potential sellers don’t know where they will go when they sell.

National Real Estate:

Available national single family inventory hit another new all time low this week at 272,000. Down 1.9% from last week and 11.4% below the record low on April 30, 2021. In normal markets, early to mid-January is the low point of inventory for the year. By February, inventory has already started climbing. Inventory hasn’t slowed its weekly decline yet. Like last year, it may not be until the end of April before we start to get a little inventory increase for the year.

It is too soon to see the impact of the financial corrections on housing. It will take a couple of months to show its impact. Home buying is more driven by life events (married/divorced/babies/empty nest) than it is by financial events. Second homes and vacation rentals are more impacted by the market volatility. This has the potential to create opportunities for first time home buyers.

First time home buyers gained some ground in 2021, making up 34% of the year’s buyers, up from 32% in 2020. Prior to the market crash in 2008, first time buyers made up 40% of the market. With the largest group of the largest generation aged 28-34, this number is expected to rise. Affordability and lack of available homes will likely dampen growth though.

Despite expectations, foreclosure filings declined in December making 2021 the all time low for foreclosure filings. The forecasted increase did not materialize and bring additional inventory to market.

Fannie Mae expects existing home sales will decline in 2022 by 3.2% due to increased mortgage interest rates creating affordability challenges. Fannie also predicts that 2022 will be the second biggest resale year in the past 15 years only behind 2021.

Source: Fannie Mae Economic and Housing Outlook, January 2022.

Prices increased so much nationwide that the value of our housing market grew by $6 trillion in one year!

The AZ Market:

Join us on February 16 for our next Cromford Market Update with Tina Tamboer. She will spend an hour doing a deep dive into the Greater Phoenix real estate market. For details and registration, click here.

To see my notes on our recent deep dive with Tina, please click here.

According to the Marcus & Millichap annual US Multifamily Index, Phoenix ranks number five in top investment markets due to the job growth and household formation rates.

Tom Ruff with the Information Market summed up 2021 and the challenges we face in 2022 beautifully. He wrote:

“What we do know, we begin 2022 with the lowest number of active listings at year’s end on record. And, while we all know the 28% year-over-year increase in the median sales price last year is unsustainable, there is nothing holding back continued price gains in the short term. We know a change is coming, but there are two questions I can’t answer: When will our market moderate? Where will the increase in supply come from? We do know, it isn’t going to moderate tomorrow. New construction and distressed sales will not increase our supply as new construction did in 2004 and 2005, and distressed properties did in 2009, 2010 and 2011.

It’s time for your year in review records:

• Highest year-end sales units: 104,850

• Highest year-end average sales price: $528,940

• Highest year-end gross dollar sales volume: $51.763 Billion

• Highest year-end median sales price: $427,000

• 11 consecutive years with year-end gain in the median sales price

• The number of new builds sold in Maricopa County declined this year after increasing 6 straight years”

New Construction:

Recently I attended an event that discussed the future of land development and building. There were multiple national and local builders who all believe we will see new builds appreciate 10% in the next 6 months. They anticipate increased delivery of backlogged product later this year. Labor is the number one struggle for builders and is why a regular house now often takes over 12 months to complete. Supply chain issues are a close second. Builders expect to see an increase in completions during the second half of the year, but it will be sometime before the low inventory struggles improve.

Nationally, a record high of 34.1% of homes on the market in December were new construction, up from 25.4% a year ago.

According to Ivy Zelman of Zelman & Associates, about 70% of mortgage holders are locked into a mortgage interest rate at or below 4%. That is a big disincentive to move as rates incrase. Zelman thinks that the rate increases will hurt the primary buyer but not the investor who is paying cash and buying and holding.

Before covid each year about 2.3 million renters converted into homeowners. By the end of 2020 and Q1 2021 that number increased to 2.8 million and has since moderated to about 2.4 million. The increased demand we are seeing now is from the investors who were 20-21% of the market and now are 26% of the market. A substantial amount of the surge in prices has been from corporate buyers. Second home buyers have also been a big part of the market and pushing up prices.

Inventory is coming from the new builds. A ton of product is coming. Backlogged single family inventory is at 2007 levels. The pipeline is massive in the mountain west. Tons of options coming both for build for sale and build for rent.

Real Estate News:

  • AIG is not renewing 9,000 homeowner insurance policies for high end homes in CA due to future flood and fire risks. Backup insurance is offered with premiums of upwards of $40,000 a year for a $10 million house, or $100,000 a year for a $30 million home. This could have a significant impact on CA home values.
  • With the goal to reduce inflation, the Federal Reserve announced it will begin raising rates on 3/16/22 after it completes the bond and mortgage backed security purchase tapering.
  • In an effort to boost homeownership, a quasi-governmental group in Cincinnati out-bid 12 other investors to purchase nearly 200 homes. The properties will be renovated and sold to local residents.
  • 42% of homeowners with a loan are equity rich, which means their home’s value is at least double the loan amount. The top three states are 1. Idaho, 2. Washington, 3. Arizona.

Final Thoughts:

For years, the simple rule of thumb has been if a city has a solid job market and a growing population to handle those jobs then the city would have a healthy real estate market. That seems easy enough. But what happens when you have a growing job market and growing population of over 5 million with ever declining resale options and new homes are taking 12 months to build? I do not know but we will find out soon enough.

Copyright 2022 Sarah Perkins

Published by Sarah Perkins

Sarah has been in title & escrow sales since 2004. As an award-winning sales executive and now the Director of Strategic Accounts, Sarah’s role is to bring real estate transactions to Clear 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.

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