After reading my update from last week, a friend and client said she was confused. While the market is softening, as discussed, her listings are still selling immediately, above asking, and with multiple offers. That is just it. These things are all still happening. Houses are actually selling faster than they were last year. The supply/demand imbalance isn’t new and yet today’s market doesn’t make a lot of sense.
Over the past two years, we have spent so much time analyzing and watching the market. It seemed to change almost every day. It is still changing but not to the extent it was. I am not sure if it is that our industry is still running on urgency, waiting for the other shoe to drop, which ultimately provides no protection from the pain if and when that happens.
Was the other shoe, when mortgage rates increased? They have. The interest rates have removed some buyers from the market. It isn’t just about interest rates though. Demand remains about 350% higher than supply. And that isn’t because demand is crazy high, it is because supply is crazy low.
After interest rates increased last week by 0.5%, Amber Kovarik, Senior Loan Officer with Guild Mortgage wrote on Monday, “This is an environment, unlike anything we have ever seen. We have a gas crisis like the 70s, inflation of the 80s, a stock market correction like the late 90s, and housing affordability nose-diving like we had in the early 2000s. All of these independent events up until now have been unprecedented. Now they are all occurring at the same time. Nobody can know for certain what the FED is going to have to do to rates to stop inflation.”
According to the Wall Street Journal, Greater Phoenix is the metro area with the highest inflation rate in the country. From February 2021 to February 2022, Phoenix’s consumer price increase is at 10.9%! The national average is a frightening 7.9%.
Inflation is defined as too much money chasing too few goods. At a time when production was low for everything, Maricopa County, the fourth most populated county in the country, grew more than any other county. The state as a whole gained 98,330 people from July 2020-July 2021. 90% of our growth came from out of state relocation.
Greater Phoenix ranks fourth on the 2022 Milken Institute Best Performing Cities Index, up from the seventh spot last year. Phoenix is only behind Provo, Austin, and Salt Lake City. The ranking is based on wage, job, and economic growth. The job growth is why our current unemployment rate at 3.6% is lower than the national rate of 3.8%. We were fortunate to recover all of the jobs lost due to pandemic shut downs very quickly. The job growth has been a big driver in bringing people to the area. Many come from high-cost coastal regions.
The jobs have brought the people who brought the demand. Locally and nationally we were already facing a low inventory market. The new demand brought the inventory to new all time lows so prices spiked. As noted by the recent Case-Shiller Index report, January was the 32nd month in a row that Greater Phoenix led the country in year over year gains with an increase of 32.6%. The national average was a healthy 19.2% gain.
Investors took notice and saw the double-digit growth and dove in. The rental market exploded and rental rates in some places increased by 30%. That sizeable increase got the attention of more corporate investors.
Not being able to keep up with all of the demand and sheer amount of capital coming into the market birthed the build for rent (BFR) market in a big way. And true to form, when Greater Phoenix housing sees success, we jump in headfirst and all in. At 20% market share, Greater Phoenix has more BFR projects than any other city in the country, by more than double!
Last week Mike DelPrete wrote:
“The bottom line: Opendoor (and Offerpad) are going to benefit tremendously from rising home price appreciation in the first half of 2022.
It’s worth noting that this key financial driver isn’t within Opendoor’s control. Wildly rising home price appreciation isn’t a business strategy, it’s the market.”
This is true for all of us. The bottom line is that this will not last forever. Nothing ever does. We must stay students of the market and pivot accordingly, so hopefully, we will never be too surprised by the market shifts.
Copyright 2022 Sarah Perkins
Sarah Perkins is an award winning account executive and has been in title sales since 2004. As the Director of Industry Research & Senior Account Executive, Sarah’s role is to bring real estate transactions to Navi Title. Sarah supports her clients by helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.