Greater Phoenix Real Estate Update 3/18/2022

Brad Inman recently wrote, “Realtor optimism can be necessary for survival” but giddy over-confidence is a bigger problem. He went on to say, “In our industry, the euphoria is characterized by a common sentiment that a real estate market boom can go on forever. It never does.” The newness of a growth market is exciting. Residential real estate has a lot to be proud of; housing demand and low rates pulled us out of the shortest recession in history. Home appreciation made a lot of money for a lot of people and gave options to struggling borrowers. This all happened in the face of some very real headwinds.

Those headwinds are changing and getting stronger. The excitement is shifting into uncertainty. Sky-high inflation (reaching 7.9% in February with expectations that March will be significantly worse), the Federal Reserve’s short term interest hikes, stock market volatility (SPACs have all but disappeared), mortgage rate spikes, a war that only one person wants, and a pandemic that just entered year three.

National Real Estate:

Demand is stable. Do not let the headlines fool you, demand is not crazy high right now, it is stable. It seems that demand is so high because of the extremely low inventory. Remind sellers on the fence that it will not last forever. Demand may further weaken, or inventory could rise; both of which limit the strength of the seller’s market.

February’s median home-sale price increased 16% year over year, reaching an all-time high of $363,975, according to Redfin. The median asking price is up 15% year over year and up 27% since 2020.

Available single family inventory increased by 3% this week! This is the first increase in months. There are now nearly 249,000 homes on the market. Available inventory remains 21% lower than this time last year. This is good news for buyers but is too early to be a trend. Typically, it takes three weeks for a trend to emerge. This increase is due to a supply side addition versus a decline in demand.

23% more new listings hit the market this week versus last week. About 33% sold within 24 hours; the same week over week. If demand were declining, fewer homes would sell immediately.

Flip investor profit margins reached an 11 year low due to increased holding costs, additional competition from consumers, iBuyers, and institutional investors.

Second home demand declined quickly to its lowest level since May 2020. While second home demand remains 35% above pre-pandemic levels; in January that demand was 87% above pre-pandemic levels.

A record, 1 in 12 homes is valued at or over $1 million or roughly 6 million homes.

US homeowners gained $8.2 trillion in equity over the past 10 years.

“Owning a home continues to be a proven method for building long-term wealth. Home values generally grow over time, so homeowners begin the wealth-building process as soon as they make a down payment and move to pay down their mortgage.” 

-Dr. Lawrence Yun, NAR’s chief economist

Rentals:

Nationally, in 2021 rents increased by 11%, triple the typical increase in a normal year. In Greater Phoenix rents increased by 30% in 2021, among the highest increases in the country. These increases have caused more than 12 states to re-open rent control policy talks. Wages are not growing quickly enough to keep up with prices. In the past rent control talks have slowed new build projects so this time new builds may be exempt from the rules. Many cities currently have rent control policies in place with annual increases capped anywhere from 3% (St. Paul, MN) to 10% (CA).

In Greater Phoenix rents are up nearly 80% over the past five years while wages are up on 22% over the same time period.

The AZ Market:

In Greater Phoenix, the median sales price in February reached $450,000 – an all time high. That is a 28.5% year over year increase and there are no signs of slowing. The median sales price for properties in escrow, likely to close in the next 45 days is $470,000!

In February, 64% of the buyers purchased with the intent to live in the property, this is a decline from 2015-2019 when this number was closer to 73%. A huge group of those absentee owned properties are owned by institutional buyers who purchased more than 9,000 homes since the beginning of last year to use as rentals.

STAT writer, Tom Ruff with the Information Market quotes Michael Orr with the Cromford Report, who explained that single family rentals on the market have increased by 99% year over year. And rents are down to $1.80 per square foot versus $1.93 a year ago. In May 2021, prices reached $2.01 per square foot.

“These conditions suggest that the era of quickly rising rents in Greater Phoenix may be coming to an end. A large amount of new rental supply is coming on board this year, judging by the number of multi-family permits issued in the last 2 years. Rent looks likely to stay fairly flat, which will change the buy versus rent equation as home prices and mortgage rates continue to increase. In the longer term, this could seriously dampen demand for homes to buy.”

-Michael Orr, Cromford Report

Diamond Age, a home construction startup, recently moved its headquarters from CA to AZ, and plans on building 20 homes this year using a combination of 3D printing technology and traditional building processes.

Federal Reserve:

Earlier this month, the Fed ended its bond and mortgage backed securities purchases. And has shifted its focus on combating inflation. At this week’s meeting, they raised the short term interest rate by 25 basis points to 0.25% – 0.50%. The Fed expects to increase rates six more times this year and three more times next year. With the seven planned rate hikes, the Fed expects to be back at a 2% rate of inflation after 2024.

Lending:

Interest rates are up nearly 1% in eight weeks. While yes, rates are still at historic lows and yes, in 1980 rates increased 3.5% in eight weeks, today’s buyers are not connected to 1980’s buyers (my parents bought their first house in 1980 at 18% interest). However, we can easily connect with the 2018 rate increases that totaled over 1%. Inventory increased some, home price appreciation slowed but stayed positive, and homes took a little longer to sell.

“The bottom line is that rates were never going to hold at the record lows we have seen, and we need to just accept the fact that they will continue trending higher as we move through the year but are not yet at a level that suggests impending doom for the housing arena.”

-Matthew Gardner, Windermere’s Chief Economist

Loan servicers support a permanent forbearance option. It has been a very successful program and the program as it exists today is winding down over the next few months. Of the roughly 8 million borrowers that entered into forbearance, only about 3% or 275,000 remain behind on their payments.

While yes, cash out refinances did hit a new record in 2021 with a volume of $1.2 trillion, the loan to value ratio declined, meaning the amount owed compared to the house’s value decreased. 60% of 2021’s refinances included cash out and values increased. Despite continued equity gains, due to an increase in rates, cash out refis declined by over 10% in February.

Real Estate News:

  • Judge rules that Oregon’s real estate love letter ban violates free speech and struck down the proposal.
  • The state of Washington has proposed a bill to make real estate love letters illegal stating that they may violate fair housing laws.
  • Power buyer, Knock.com, has abandoned its plans to go public via SPAC, was nearly acquired in December, recently laid off half of its employees, and is now attempting to hit profitability by the end of the year.
  • Matterport added virtual staging company, Sketchfab, to its platform which also allows agents to take screen shots and use virtually staged Matterport images as photos too.
  • Six former Realtor.com employees are suing Move, operator of Realtor.com, for discrimination, abusive work environment, and being forced to lie to Realtors among other complaints.
  • President Biden signed an executive order urging the Federal Reserve and Treasury Department to study and identify cryptocurrency’s impact on financial stability and national security and establish whether or not the federal government should create its own, regulated, cryptocurrency.

Final Thoughts:

And yet we move forward in spite of it all. Human resiliency never ceases to amaze me. Let’s hope that resiliency can help all of those who are suffering through the humanitarian crisis in eastern Europe.

I regularly quote several of my subscribers. Thank you for your input and contribution to our industry and your support of the AZ market!

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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