Greater Phoenix Real Estate Update 3/4/2022

People are resilient. There is chaos in the world and uncertainty is looming in every corner. This is as true today as it was two years ago. Quite frankly, it has always been true. In January 2020 when Tina Tamboer stood in front of a packed room and told us that we could see a 10% appreciation rate in the coming year, I thought to myself, “Oh no, we can’t handle that, that is way too much, it will be terrible for our market!” 2020 ended with an appreciation rate of 18%. Not only did our market handle it, it did so during a pandemic, civil unrest, and a presidential election. Residential real estate quickly became the solution to the shortest recession in history. Then we handled the 2021 market and now we will figure out how to handle the 2022 market.

War & Economics:

In order to slow inflation, which is currently 7.5% year over year, the Federal Reserve is planning to raise rates from 0% to 0.25% during its meeting on March 15-16. Economic sanctions often lead to even greater inflation which could lead to additional rate hikes or larger hikes. Some analysts predict that rates could be increased as much as 0.5% during the upcoming meeting.

Georgia Kromrei of Housingwire explains, “Economists have said that the conflict in Ukraine could bring a short-term reduction in mortgage rates, as investors flock to safe haven assets like mortgage-backed securities and bonds. But longer term inflation brought on by the conflict will cause mortgage rates to rise.”

The Fed is also concerned with home price appreciation which is another to say home price inflation. Fed Chairman Powell expects that by raising the rates, home buyer demand will weaken, slowing the rate of growth. This will not cause prices to decline.

“We won’t get back to pre-pandemic levels. We’re not trying to get prices back down, we’re trying to limit future prices.”

-Fed Chairman Powell

Supply & Demand:

Nationwide, available single family inventory declined by 1.4% last week. There are now fewer than 245,000 homes on the market. That is 25% lower than 2021’s bottom on April 30. And over 66% below January of 2020.

In 2018 inventory increased as interest rates increased. Rates declined in 2019 and inventory decreased. The expected inventory increase due to increased rates has not yet emerged in the national data. Declines in demand will emerge locally before it does on a national level.

According to NAR, pending home sales declined by 5.7% month over month in January, continuing a three-month decline in transactions. Of the four major U.S. regions, only the West had an increase in month over month pending sales. All four regions saw a year over year decline. The declines are likely due to lack of homes available for purchase.

In Greater Phoenix, demand has been declining slowly since early January when demand was 23% above normal. Yesterday’s demand was about 15% above normal. Because inventory is 75% below normal (about 4,000 available single family homes in Greater Phoenix), the decline in demand is nearly unnoticeable. Listings may now only receive 10 offers instead of 20. Despite the decline in demand those remaining buyers still want to buy that property which usually only goes to the highest bidder.

“The last time the Valley saw a ‘normal’ supply of inventory was in January 2019 when there was a four-month supply. The last time there was a five-month supply was January 2016. From March 2019 to January 2022, we have not hit three months (worth) of inventory. That’s crazy.”

-Thomas Brophy, Colliers Phoenix housing research director

One reason given for the tremendous lack of available supply is homeownership tenure. According to Redfin, the typical homeowner is staying their home for 13.2 years, up from 10.1 years in 2012. At 18 years, Los Angeles has the longest median tenure in the country.

Appreciation Rates:

In Greater Phoenix, February’s median sales price was $450,000. That is $100,000 more than the median sales price in February 2021 of $350,000! And is nearly a 29% increase year over and year. Wow!

The Case-Shiller Index released its 2021 report last week showing that US homes appreciated 18.8% last year which is the biggest increase in the 34 year history of the index. 2020’s appreciation rate was 10.4%. Phoenix topped the charts with a 32.5% appreciation rate in 2021. Behind Phoenix, Tampa’s appreciation rate was 29.4% and Miami’s was 27.3%.

While the Case-Shiller Index is not often used in residential real estate pricing because of its lag time, the data is used by Wall Street, the federal government, and many other businesses. The index calculates price changes monthly by looking at the three month moving averages of single family home sales.

New Construction:

Labor and supply chain challenges continue to pressure new home builders. The timelines are difficult to estimate, each week there is something else slowing things down. The latest hold up: garage doors.

“It used to take us 20 weeks to build a house and now it takes us 20 weeks to get a set of garage doors.”

-Adrian Foley, Brookfield Properties President & CEO

These delays have made new home inventory difficult to track. In years past, the number of permits pulled and the number of new home sales was essentially the same. In 2021, there were 31,069 permits pulled (up 7.26% from 2020) and only 24,039 new home sales (down 1.33% from 2020). While these counts exclude single family rental permits, RL Brown Reports is tracking 144 build-to-rent communities in Maricopa, Pinal, and Pima Counties. Thank you, Jim Daniel – President of RL Brown Reports for sharing these numbers with me.

Both locally and nationally, new home demand is consistent and sales are increasing but not at breakneck speeds. The reason demand feels so strong is because available supply is nearly non-existent.

Real Estate News:

• Blackstone, the nation’s largest commercial real estate holder, continues its investment in rentals with its recent $5.8 billion acquisition of Preferred Apartment Communities with about 12,000 rentals units in the southeast United States. Real estate accounted for almost half of Blackstone’s $5.66 billion earnings in 2021.
• The Property Listing Service (formerly the Pocket Listing Service) has rebranded to the National Listing Service. The company’s federal antitrust lawsuit against NAR and the Clear Cooperation Policy remains ongoing.
• After Airbnb surpassed its goal set in August of providing 20,000 Afghan refugees with free, temporary housing; the company has set a new goal to help another 20,000 refugees.
• Last week Fifth Wall, a venture capital firm, withdrew its request for a SPAC with the SEC. Fifth Wall had planned to raise $150 million to take a real estate tech company public. The withdrawal is likely due to the stock market volatility, particularly surrounding proptech stocks.
• The Host Co. is a digital market place that allows short term rental owners to sell items like furniture, artwork, crafts, and even food. Guests are able to pre-order items or purchase on-site.

Final Thoughts:

Today’s uncertainty is different from that of 2020 and 2021. After all that we have been through, I am more optimistic about our ability to adapt. I know we can because we have done it before. And as Logan Mohtashami of Housingwire always says, “Be the detective, not the troll, listen to serious people who don’t need money from clicks.”

Copyright 2022 Sarah Perkins