Greater Phoenix Real Estate Update 3/25/2022

“A great sense of enthusiasm could be found in the housing market in February, but something else started to creep in – a mild sense of panic.”  -Ali Wolf, Zonda’s chief economist

That mild panic may be caused by volatile interest rates, low inventory, 7.9% and growing rate of inflation, housing affordability challenges, labor shortages, supply chain disruptions (growing problem as more and more of China goes into lockdown), giant annual home appreciation rates, war, pandemic, etc.

The newness of the market frenzy has worn off. Buyers are exhausted and sellers hesitate to list, unsure where they will go. While we know that this market will not last forever, no market ever does, we do not need to wait for the other shoe to drop. Real estate moves slowly and as long as we watch it closely and carefully, we should have a general idea of what to expect.

National Real Estate:

• Available single family homes nationwide saw a tiny decline last week of 0.4%, leaving total inventory at about 248,000. This means the previous week’s increase of 3% held steady. In the past mid-March was the time of year with the largest inventory increases. Two years ago, available inventory was three times higher.
• Sales velocity remains strong with 31% of last week’s new listings going under contract within 24 hours of going active.
• At 81,000; there were 10% fewer new listings to hit the market last week versus the previous week (just shy of 90,000), last week had the second most new listings come to market this year.

• Over the past 10 years, about 8 million single family homes have moved from resale inventory to rental inventory. That is 9.5% of all single family properties in the country! Due to low mortgage rates the most common way properties transitioned is when would-be sellers opt to keep their previous home as a rental rather than sell it when they move to their next home. As rates go up and money is more expensive the frequency of this declines. In 2018 when rates increased fewer homes moved from resale to rental inventory. Listing inventory increased and the appreciation rate slowed (but did not go negative). This could cause inventory to rise later in the year.
• Existing home sales declined by 7.2% in February, month over month and by 2.4% year over year, likely due to low inventory and increasing prices.
• After 120 consecutive months of annual price increases, national home appreciation is running at 15% since February 2021, despite the fact that monthly payments are up 28% year over year.

“Monthly payments have risen by 28 percent from one year ago – which, interestingly, is not a part of the consumer price index – and the market remains swift with multiple offers still being recorded on most properties.”

-Dr. Lawrence Yun, NAR’s chief economist

The AZ Market:

According to Redfin, in Q3 2021 30% of the homes sold in Greater Phoenix were purchased by investors and rents increased by 30%.

According to AZ Family, using data from the Maricopa County Assessor’s Office, the 700 largest investors own more than 71,000 residential properties in Maricopa County. Invitation Homes is the county’s biggest investor, owning 8,744 homes.

Zip codes with the highest concentrations of investor-owned homes include:

• Mesa – 85209 with 3,251 investor properties
• El Mirage – 85335 with 2,155 properties
• Scottsdale – 85260 with 1,596 properties
• Mesa – 85202 with 1,438 properties
• Buckeye – 85326 with 1,223 properties
• Phoenix – 85015 with 1,194 properties 

Click here to see an interactive zip code map that shows how many properties are owned by an entity/person with 20 or more properties in the county.

In 2021, residential real estate in Sedona appreciated by 35% and the inventory is currently running 85% below normal. Sedona’s median asking price for new listings is $1,295,000!

75% of this Tempe Habitat for Humanity house was made with a 3D printer, a first for Arizona. Printed using laticrete or “fancy concrete” the building is highly efficient in minimizing future energy costs as well as creating less waste during the build.

New Construction (national):

“Buyers are out in force and builders are ready to sell them houses, but unpredictable interest rates and a lack of materials are making it almost impossible to gauge the market.” Ali Wolf, Zonda’s chief economist recently wrote. Demand is slowly declining and yet there are still bidding wars and homes are selling above asking. 97% of builders raised their prices from January to February.

• February’s housing starts increased 6.8% month over month and are up 22.3% year over year.
• Single family starts reached their highest levels since 2006.
• Housing permits declined by 1.9% from January to February.
• In February, for the second month in a row, new home sales declined. They are down 2% month over month, and down 6% year over year. At the same time, new home inventory is up 3.3% month over month and up 40% year over year.

The new home market has a greater impact on the overall economy than does the resale market, more money flows to more sectors. Rising interest rates impact the new home market more also; builders must budget their projects accordingly. Completions are slow and there are a lot of homes under construction, which allows for more opportunities for a buyer to cancel.

Real Estate News:

• According to Redfin, national rents increased by 15% year over year in February. At the same time mortgage payments increased by 28% (NAR) to 31% (Redfin). As rental prices do not keep up with purchase prices, would-be buyers may opt to rent. Another factor that could lead to inventory increases.
• Redfin’s portal will now include homes and apartments available for rent. Last year Redfin acquired RentPath which operates Rent.com, ApartmentGuide.com, and Rentals.com.
• IWG PLC, a flexible office company which operates brands like Regus and Spaces, is teaming up with Instant Group, an online listing portal for office space, to create the largest online marketplace for flexible office space rentals. Offices can be booked by the hour, day, week, etc.

Final Thoughts:

These are a series of recent tweets from Redfin CEO, Glenn Kelman, he captures the nature of our market nicely.

“It feels crazy for demand to be so strong in the midst of war, market volatility, and inflation. We expected rates to increase over 2022 from 3.3% to 3.8%. That happened just in January. Then, mostly yesterday in a few hours, we got a hike of nearly the same size, to 4.4%.”

“Even still, we’re supply-constrained. Last quarter, 18.4% of homes sold to investors, a record; the 10-year average prior to the pandemic was 12.6%. Another record: 71% of homes in February sold in bidding wars. Pre-pandemic, when inventory was still low, the average was 55%.”

“Year to date, the number of new listings is down, but only 6%. The average number of homes for sale is down much more: 24%. The amount of food being served is nearly the same, but it’s being eaten much faster.”

“Even when the market cools down, it may not slow down: good homes’ll sell in a weekend. The rest’ll be discounted after two. Pundits gauge our impact on commissions, which in 30 years fell from 6.1% to 4.9%. Brokers are a bit cheaper, but a lot faster: a lifestyle gig is now 24/7.”

“Another misconception: that rising rates affect home-buyers more than owners, limiting demand not supply. But the monthly payment for a median-priced U.S. home with a 2.65% mortgage is $1,264. That home will rent for $1,900. Many would-be sellers would rather have ~$600 a month.”

“That difference is why investors & individual homeowners would rather rent than sell. The Fed’s actions saved the economy in 2020 but will limit housing inventory for 30 years to come. The bidding wars created by this inventory crunch have been the worst I’ve seen in 17 years.”

Copyright 2022 Sarah Perkins