the AZ market

Category: AZ Real Estate

  • All The Things

    Greater Phoenix Real Estate Market Update 7/31/2024

    You know when you have a million things on your mind and you want to talk about all of them at the same time? We went to the Jersey Shore, my kids started school (thank God!), we renovated our house, the August 1st deadline is looming, Angela Gonzales just quoted me in the Phoenix Business Journal (see article here), and last week NAR stated that we are running 3.89M sales annually (YIKES).

    These are my thoughts on a few topics.

    Commission Changes:

    August 1st will be the start of some chaos that will not last forever, although I expect disruption for a number of months. The industry is changing. Like a lot. Regardless of your opinion on what happened, it happened. On 10/31/2023 the Sitzer verdict came down and the jury found in favor of the plaintiffs and not the defendants. The bottom line of what that means is that how buyer’s agents are paid now changes permanently. No longer is a buyer’s agent compensation regulated by the MLS and shared, uniformly, by the listing agent. It is now based on the buyer broker’s agreement with the buyer and their buyer’s agent which still can be negotiated with the seller via the purchase contract and addendums. The Arizona Association of Realtors released 18 new documents that may be used by licensees in AZ at their broker’s discretion to assist with this change.

    On Thursday, August 1, all mention of compensation to the buyer’s agent will be removed from the MLS that serves Greater Phoenix (ARMLS). This is the source of active/under contract/sold data for essentially everyone in the real estate industry.  Needless to say, most industry players are bracing themselves for chaos, fear, change, and a new path forward.

    Below illustrates the changes in co-broke offered to buyers agents in the 9 months since the Sitzer verdict. Commissions have been changing for many months and as of tomorrow we will no longer be able to track these changes.

    New Construction:

    While new construction is running about 20% market share for all closings in Maricopa County, it tells us a very clear story, one that is reflective of the overall market. Today’s buyers want to buy homes that are move-in ready. Historically speaking, new construction makes up only about 10%-14% market share for all closings.

    These heat maps illustrate new construction supply (June’s permits) and demand (June’s closings). Unsurprisingly, both maps show new permits and new home closings are happening mostly in the southeast valley and northwest valley. I expect these areas to continue to grow and develop. It is where there is available land to build on and, particularly in the northwest valley, tons of new jobs.

    2023 was a very good year for new home builders. The big public companies did very well on the stock market. Both the public builders and the regional builders did well due to lack of resale supply and the additional financing options many builders are able to offer. Several builders are now offering permanent mortgage rate buy downs for their buyers.

    Year to date new permits are up 45% year over year, showing builders early 2024 enthusiasm. In June, permits were down about 1% year over year. Expect supply to continue to grow. Demand for new homes is a bit more muted than the coming supply. Year to date new home sales are up just shy of 2% year over year. While the June new home sales were down over 2% year over year.

    Demand often moderates during the summer and July’s numbers will be interesting. The potential September Fed rate cut could stir some pent up demand into action. Meanwhile, the looming elections may create some headwinds against a Q4 bump.

    Supply & Demand:

    This is a snapshot of the overall market. Inventory is up over 50% year over year but it has flattened in the past few months. While new contracts still outpace the new listings, there is an above average rate of cancellations. Today’s market is stifled. There is pent up demand, waiting for lower mortgage rates. And price increases have moderated, and remain stable. Many analysts expect prices to soften through the rest of the year. Our current environment is a lot like the 2014 market. It was balanced with an above average amount of price reductions and cancellations. Both sides have negotiation power. The best houses are selling immediately. This is the time of making those updates and fixes prior to listing, versus offering a concession to the buyer. Buyers who are paying today’s prices at today’s interest rates are not looking for fixers, they want move in ready. This is another reason why new construction has seen so much growth. Buyers don’t want to fix anything.

    Case Shiller Home Prices:

    The Case Shiller Index for May’s home prices was released yesterday. As we have discussed in the past, this data is old so it isn’t great for anyone who is trying to buy or sell a home right now. They need to rely on more current comparables. However, for historic reflection and understanding long term trends, Case Shiller is great. The year over year changes are useful for gauging the overall market and its 12 month evolution. A lot can happen in 12 months. If interest rates dropped to 5.5% tomorrow everything would change, immediately. Anyway, I digress, the Greater Phoenix numbers are trending well below the national consensus. The May, year over year, appreciation rate is 4.4%. In May the CPI had a 3.4% year over year increase which means that homes effectively increased by 1% over the past 12 months. May was the high point in our spring market. The second half of the year tends to have a lag versus the first half for price appreciation. And the Q4 boost we often get when the temperatures cool tend not to happen during election years. Typically, we see Q4 slowness during election years. Consumers want certainty which means they want to know WHO will be in the White House. The ultimate winner has less impact than the uncertainty of the unknown. Those buyers typically defer from Q4 to Q1 the following year, because they have certainty.

    I find the month over month data to be more compelling. Greater Phoenix is the only city in the seasonally adjusted 20 city composite to show a 2 month decline. Portland is the only other city to show a one month decline. Our local prices peaked around May 10th this year and have been under pressure since. While, overall, our prices have shown resilience, more so than some expected, they are flat. Today’s buyers have more options than they had a year ago and they are exercising those options. Sellers are not desperate and may or may not agree to buyer’s demands. This is why prices haven’t come down in any meaningful way. I am a bit more bearish on the market than many of my colleagues so I do anticipate more softening as we go later in the year.

    The recent Q2 GDP report may extend the period of strength but what ultimately makes me skeptical of lasting growth is the American savings rate, which has declined precipitously over the recent months.

    Final Thoughts:

    They say when it rains, it pours. Indeed. These are times of big changes and a lot is at stake. The dust will settle, and a new path forward will emerge. And despite it all,  I am optimistic about the future because we are resilient, creative, and tough.

  • Buckle Up and Wear a Helmet

    Greater Phoenix Real Estate Update 6/27/2024

    It has been a minute since my last post and I appreciate you for reading this now, after all of this time. It seems like millions of things have happened over these past few months. I celebrated my 20th year of being in title insurance sales in Greater Phoenix. That was exciting for me but the biggest news has been the commission lawsuits and the NAR settlement. This continues to be fluid and the DOJ has strong opinions. How things actually transpire remains to be seen. I have my suspicions and as an avid industry watcher, so far my predictions have come to fruition. NAR’s danger report, released in 2015 was the start of it all. It can be tough to find, and you can view or download it below.

    NAR_Danger_Report_Part_1_of_2Download

    The new listing and new contract numbers are running very close together. Inventory isn’t growing super quickly but if you compare it to where we were a year ago, it is up a lot, over 50% higher. Demand remains low. It was low last year and it is about 8% lower this year than it was. The relationship between supply and demand is no longer benefiting sellers. Arizona’s summer is here and the luxury buyers have left. Prices were flat from April to May with a median sales price of about $450,000. The expected median for June is $445,000. While it is typical for prices to moderate during the summer, it is early for them to already be declining. The persistently high mortgage rates are deterring today’s buyers. The demand is there, but they are sitting on the sidelines.

    While the overall economy remains strong, the cracks are beginning to show. The COVID money has all been spent and American’s savings rates are at the lowest in years. People feel poor and are pulling back on spending. The easiest way to see this is by going to your favorite restaurant. Restaurants are less full. We no longer have to wait for a table. Unemployment ticked up last month, despite a stronger than expected jobs report. There were more separations than there were new jobs. The thing to watch now is the workforce participation rate. That is declining now, nationally. The benefit we have here in AZ is that our unemployment rate is extremely low, it is around 2.6% which is lower than the national 4% rate. This gives us a bigger buffer should we go into recession soon. I am a bit more bearish on this front than several of my colleagues.

    The best thing we can do for today’s buyers and sellers is to tell them what is happening. Sellers MUST price their home right. This is not the time to push the market. Buyers are educated and watching everything that happens. A recent Redfin report stated that buyers view properties that have been on the market for 14 or more days as either overpriced or busted. Sellers have 14 days to put their VERY best foot forward. There are buyers in the market but they can be discerning. They have more options than they did last year and more often than not, they are flexing their negotiating muscles.

    On a side note, ARMLS released a recent update addressing the upcoming changes due to the NAR settlement. Navi Title’s own Lance Billingsley contributed to writing this and creating the path forward. NAR Settlement – ARMLS

    Roughly half of all listings on the market have taken at least ONE price reduction. This will likely increase in the coming weeks.

    If you do not regularly read ARMLS’s STAT, created and written by my friend Tom Ruff, I suggest you do, the full report can be found at https://armls.com/statistics.

    Properties priced well, sell faster and sell closer to their original asking price.

  • Change

    Change can be scary. Change is always messy. Change often hurts. The old guard hates change because they created the status quo. The status quo makes sense to them. They thrived in it and they are not bad people for wanting it to continue.

    But change creates new beginnings. New options. New ways of doing things. Cars didn’t replace horses overnight. For a while both horses and cars traveled the same roads. Over time, the faster, easier, more efficient option tipped the scales and the role of the horse changed.

    Our ability to adapt is why we survive. Our ability to create is how we thrive. In real estate, now it is time to create. The old rules are changing, by how much, we do not yet know.

    The residential real estate market is, well, not fun right now for industry participants. It is not great for buyers who waited too long on the sidelines. It is not great for the buyers who think it is a good time to continue to wait.

    I have been a title rep (I sell title insurance) for 20 years and I have yet to see a normal market. (I suppose, in 2014 we had one for a minute. But it was around then that buyers realized Greater Phoenix is an awesome place to live and the builders hadn’t meaningfully built anything in 6 years)

    As always, the law of supply and demand rules. From 2014, aside from a brief studder step in the spring of 2020, prices increased until May 2022. The Greater Phoenix median sales price bottomed out at $110,000 in February 2011 and peaked at $480,000 in May 2022. That is a 336% increase in 11 years.

    Prior to 2000, the residential average annual appreciation was around 3%. In the first 20 years of the 2000’s it jumped to 4-6% a year. The 45% we saw in 2005, the 28% we saw in 2021, even the 18% we saw in 2020 are anomalies. In 2019, we had 8% appreciation and in early 2020, when Tina Tamboer said we could see upwards of 10% appreciation in a year, I got nervous. 10% appreciation in a year is too much.

    As 2023 winds down and we reflect on the year that was and the year that is coming. I have a lot of hope for next year, always do, but I also always remember that hope is not a strategy. It does make the grind easier. Prices are actually up this year, despite the lack of expectation of appreciation.

    Today’s buyers have proven far more resilient than we expected. Why? Here is the secret, it is simple, in 2009:

    “We started originating traditional, boring 30-year fixed-rate mortgage loans with guidelines that ensured borrowers were qualified. So the risk we face now isn’t with the mortgage loan itself, like in the past — the risk is where we are in the economic cycle and people losing their jobs.”

    — Logan mohtashami, Housingwire

    We don’t talk about those boring borrowers. We don’t talk about those boring buyers. They are the foundation, not exciting, and they have always been there. The difference is today, they are our only buyers. The interest rate changes have scared off a lot of our buyers. 3% mortgage rates are not coming back, but neither are 18% rates. There is no current looming foreclosure crisis.

    Two weeks ago, we had a 3% week over week increase in purchase mortgage applications and last week we had a 4% increase. That 3% spike took place in 3 business days. Today’s buyers are watching the market so closely that, as soon as mortgage rates adjust down, the buyers immediately write contracts.

    For those of us in the industry, there will always be home sellers and home buyers. The number of them out in the market at any given time will always depend on outside influences, but ours is a market that always continues. Residential real estate is about 18% of GDP, the Federal government does not want to destroy such a large sector.

    It is not surprising that inventory has increased. Buyers are not excited about the price increases and higher interest rates. As interest rates fall more buyers enter the market. If and when the mortgage interest rate spread above the Fed funds rates gets shrinks, interest rates will fall and that will make a giant impact on our market. Typically, that spread is about 170 basis points or 1.7% but now it is running 300 basis points which is a 3% spread.

    NAR’s chief economist, Dr. Lawrence Yun predicts a 15% increase in purchase contracts if interest rates decline below 7%. Others predict we will have an even larger increase if rates go down to 6.5%.

    As I sit here, on a Monday afternoon, days after Thanksgiving, thinking about 2023 and hoping for a good 2024, I ask: what did we do right? What did we do wrong? What can we learn from what happened? What can we do better? These are important questions to ask as we face down another new year.

    • Roughly half of the industry players in Greater Phoenix, lived through the 2008 market crash. Those of us still around have a bit of PTSD but also have the confidence to know that this too shall pass. For the half that is new since after the Great Recession; this too shall pass.
    • We learned, we pivoted, we learned more. Bottom line: if you want to sell a house, do not overprice it.
    • If you are an industry participant, like me, we have to prove our value to the consumer. Every.Single.Day. No days off.

    These are the days of good, actionable advice, these are the days of listening and practicality. What matters is the consumer and their needs. If you don’t listen to them, someone else will.

    Change isn’t coming. Change is here. Are you ready?

    “It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself in a worth cause; who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”

    — Theodore Roosevelt

  • Math is Good

    Cady : “Yeah, I like math.” Damian : “Eww. Why?” Cady: “Because it’s the same in every country.” (Mean Girls, 2004)

    When I was in elementary school, I complained about math class too. And then I became a grown-up. It may be tough to figure out when someone rowing a boat at 8MPH will arrive in St. Louis but I bet most of my readers can tell me what 3% of $526,500 is pretty quickly!

    The best thing about math is that it doesn’t change. Two plus two equals four in a buyer’s market and in a seller’s market. That was true when Zillow and Opendoor were buying everything in sight and remained true nearly 2 years after Zillow’s iBuyer failed (hint – buying everything in sight is not a winning strategy).

    This is also true for the law of supply and demand which states that when demand outpaces supply, prices increase, and when supply outpaces demand, prices decline. At the end of 2007, there were 57,000 active listings in Greater Phoenix and only about 4,000 listings under contract. Supply significantly outpaced demand and prices fell for years. In early 2022 we only had about 4,400 available listings and over 11,000 listings under contract and prices increased quickly.

    Supply increased in the second half of 2022. Demand decreased. Prices fell. Supply started to tighten in January 2023 and has continued to tighten since the beginning of the year. Supply fell and demand stabilized. Supply continued to fall and demand started to slowly increase. And yes, that means prices started to increase. The current supply of available listings is over 48% below normal. The current housing demand is about 16% below normal. Despite demand being low, supply is lower, meaning prices are increasing.

    This is when the price story gets a bit more complicated. The housing market in early 2022 was still part of the pandemic housing market, which was not a normal housing market. 2020 through 2022 were unicorn years, much like 2005. We cannot compare to these years. They were truly unprecedented (remember when we got so sick of that word?).

    Year-over-year analysis is great for understanding market appreciation over time, but not for understanding today’s sales prices. And it is the current prices that matter to today’s home buyers and sellers.

    The relationship between supply and demand impacts today’s sales prices. Home prices are going up. (Pro tip: the relationship between supply and demand always impacts sales prices)

    Unfortunately, today, everyone is an expert, and everyone has an idea of what is going to happen. And sadly, very few are using MATH to figure out where we are going. Instead, they are using emotions, Youtube, and social media. None of those are the best sources for real estate info.

    In May 2022 the Greater Phoenix monthly median sales price reached $480,000. Today it is $445,000. While we remain under the peak we reached in May 2022, prices have increased from the bottom reached in December 2022 of $415,000. The monthly median sales price is up 7.2% year to date.

    Math doesn’t change but when the criteria are changed, the numbers change. Consumers pay attention to what is happening month over month. A buyer is not concerned with the median amount spent a year ago, but they want to know what people spent last month. The same is true for sellers.

    All of the price declines took place in 2022. 2023 is a year of positive growth. It was only recently that national housing analysts noticed this trend. While Case Schiller is super accurate, the info is super old (runs about 3 months behind). Today’s buyers and sellers are not interested in what happened months ago, they want to know what is happening now in order to make the best choices.

    To Mrs. White, my 5th grade teacher, you were right, math is good.

  • Housing is Stable

    Yes, we have more demand than we have supply. Yes, prices are going up. And no, this is not a hot market, a hot market has those and high velocity. Today’s market is low velocity. We have below normal buyer demand and far lower seller interest. The few buyers we have are easily outpacing the even fewer sellers we have.

    New contracts are significantly outpacing new listings on a weekly basis. New listing levels are at the lowest in 23 years (back when we had a million fewer people). And the gray area in the back shows the overall listing count decline through week 14. It is too early to tell if last week’s overall supply increase is the start of a trend or an anomaly. Q2 is the time when listings usually increase but so far there is not a lot of indication of that happening. The low mortgage rate lock-in effect continues unabated. We are seeing stability come into the market and demand recovered faster and has stayed consistent for longer than expected. With inventory as low as it is, interest rate fluctuations are not impacting sales prices, which have not only stabilized but are increasing.

    The laws of supply and demand do not change. Affordability is challenged and interest rate increases only further challenge it and yet demand continues to increase while supply continues to decrease. Under those conditions, prices will only go up.

    Now is not the time to overprice a listing. Now is the time to price it as close to the market as possible. Buyers are well-educated and with the few new listings coming each week, they are watching daily. When something comes up that presents well and is priced right, it is gone in less than a day.

    We continue to move through uncharted territory. The uncertainty of the 2020s continues which has been leaking fear into not only housing but the entire economy. Remember, people need real information about what is actually happening to make good choices. The real estate market is stable. Sellers have an advantage and prices are increasing.

  • Greater Phoenix Housing: Request, Beg, Plea

    Sex sells but fear sells more. The crashing housing market that is all over YouTube is not real life. One of the market’s biggest challenges is bad information. The sky is not falling. Fluctuating interest rates are not devastating the housing market like they did last fall.

    Buyers are buying. Fewer than in recent years but these buyers are buying for human reasons: new jobs, marriage, babies, divorce, empty nest, etc.

    There are not a lot of sellers putting their homes on the market, in fact, March had the fewest new listings in 23 years. For a market the size of Greater Phoenix, we should have about 20,000 available listings. Today, we have fewer than 13,000. This has not only stabilized prices but pushed them up. Prices are higher now than they were in January. We will see how the final March numbers play out, here is my preliminary assessment.

    There is a silver lining. Demand may be tempered right now. There is a lot of uncertainty out there. Always remember that in order to have a healthy housing market you need jobs and migration. The Greater Phoenix jobs market is bigger than it was pre-covid and Maricopa County grew the most last year. People are moving here and they need a place to live.

  • Bank Runs & Lower Mortgage Rates 3/14/2023

    “Those that fail to learn from history are doomed to repeat it.” 

    Winston Churchill

    Humans are incapable of making a decision without emotion. This was found when studying people who had lost the ability to feel emotions. They are unable to make choices. Fear and panic insight action. That is how on a non-descript Thursday, one bank could lose $42B in deposits. A bank run that took down 40-year-old Silicon Valley Bank (SVB) in one day.

    Bank Run

    It was a typical bank run on an unusual bank. And it was a perfect storm of shrinking deposits and dwindling new capital. SVB catered to Silicon Valley start ups, private companies, many with billion dollar status, with huge amounts of capital flowing in and out of the bank. However, when venture capital funding dried up as the tech sector lost value, the companies burned their cash reserves. Less investment and lower deposits.

    The bank’s doors were shuttered on Friday. Signature Bank, heavy into crypto went down on Sunday. And by Monday the FDIC had guaranteed all depositors all of their deposits, meaning everything was guaranteed, not just the first $250,000 in deposits.

    The banks themselves were not saved, but their customers were. Many may criticize the decision to bail out the tech start up sector, but it wasn’t for the billionaires, it was for their employees. If a company’s deposits vanish, making payroll gets complicated. Without the ability to make payroll, there is no company.

    The FDIC’s decision to completely cover the deposits goes further than that. Remember the emotional humans? They just heard that a bank went down and panicked without understanding why. The panic could lead to more bank runs. Preventing a bank run is hands down, the top priority.

    So far so good, the FDIC’s 100% guarantee calmed the panic. This is important because banks are fundamentally vulnerable. Revenue is generated by interest paid on loans so by nature, banks lend out more than they keep on hand. A bank run always has the ability to take down a bank. If the panic spreads to all of the banks, the entire financial system breaks.

    A financial crisis is different from a recession.

    If you look at the history of recessions, they are always caused by a certain sector and usually are not a total financial crisis. The stock market crash and the run on the banks in 1929 pushed the US into a complete financial meltdown and caused the Great Depression. It essentially took WWII to pull us out. (the New Deal helped but it was really the war)

    The Great Recession in 2008 created a financial crisis. It was a giant mess of fraud and greed and was started by the repeal of the Glass Steagall Act in 1999. It was enacted in 1933 and it prevented commercial banks from investing in each other. The banks bought each other’s bad loans and repackaged and resold them and everything crumbled because of the mortgage fraud with appraisers, truly a perfect storm that will never be able to happen again, at least not exactly the same. As Wall Street crumbled the Fed bailed out the banks which prevented a bank run that would have pushed the Great Recession into the second Great Depression.

    Good News!

    Let’s learn from this. Let’s help reduce the panic by giving clear information. And if you made it through my history lesson, you get to hear the good news. The banking chaos pushed bond rates up and mortgage rates down, by about half of percent, back below 7%!

    And there is pressure on the Fed to slow their rate hikes. The expected 50 basis point hike later this month maybe only 25 basis points. Some have called for no hikes this month. That is unlikely given another hot job market report and continued inflation. The lower Fed rate hike could lead to lower mortgage rates.

    This is very likely a short term thing. Once the dust settles after these bank closures, the Fed will refocus on fighting inflation and further rate hikes will come.

    Buyers should take advantage of the current rates, it is unlikely they will last more than a few weeks.

    Purchase contracts are up, especially as rates have fallen.

    Meanwhile, new listings continue to shrink and the overall available listings also continue to dwindle.

    In perfect, consistent order, the laws of supply and demand kick in. Prices are starting to increase. They are not increasing at the speeds we saw last year, which is a very good thing. Today’s buyers have their limits and they are holding to them. Today’s sellers are more flexible because they have to be.

    Final Thoughts

    Since we are all human, let’s help each other make the best, most rational choices possible. It is a good time to buy a house. And no more bank runs.

    Check it out! I was recently quoted in the Phoenix Business Journal. Angela Gonzales’ article gives a great update on MV Realty pausing business in Arizona.

    Copyright Sarah Perkins 2023

  • Housing Supply, Demand, and Psychology 2/21/2023

    It has been a minute since my last market update. Not only are we in a different market today than we were last November but I made some changes too.

    I am excited to announce that I joined Navi Title at the beginning of 2023. As the Director of Industry Research & Senior Account Executive, I get to continue my analysis of market data while working with top players in the real estate space.

    Navi Title is a two year old title company that hit the ground running. Despite the recent market shifts, we continue to grow and have big goals for 2023. Would you like to learn more? If so, click here.

    Market Update – Supply, Demand, and Psychology

    Housing demand data gets all of the attention, but to fully understand the housing market, you have to know the supply story too. It is actually the supply story that has been our saving grace, especially after the recent mortgage interest rate increases.

    Demand always fades before prices decline. In early January 2022 demand started declining and it wasn’t until June 2022 that prices started declining. If we compare the timelines of our previous market downturn (which was an absolute crash, but today’s correction is only a correction, not a crash) we can see how fast our current market cycle truly is moving.

    The speed of change spooked the 2022 housing market, not just the demand market, but the entire market. Interest rates skyrocketed, listings increased quickly, and demand dried up. And you know what else dried up? New listings.

    The graph below shows a near immediate increase in supply when mortgage rates increased. This was expected, the quick reduction in new listings was unexpected.  As the new listings remained low and demand increased at the end of December, prices stabilized, and our 5 week long buyer’s market came to an end. New contracts were up 53% in January alone. This is for Greater Phoenix:

    Then do you know what happened in early February? The Fed raised rates by 25 basis points as expected and the markets were happy. Mortgage rates dropped to a 6-month low of 5.99% on February 2. Until the unexpected January jobs report came out on February 3. Over 500,000 new jobs were created nationwide in January and only 187,000 were expected. Hot job markets = inflationary environment = more Fed rate hikes. Mortgage rates jumped. The following week, inflation data came out hotter than expected = more Fed rate hikes. Mortgage rates are back up to 6.80% and demand has declined. The data here is national:

    New listings have also declined. Prices are currently stable, and the median sales price is expected to increase by 1.22% in February to $415,000 from January’s $410,000. There are still sellers chasing the market down but all of these numbers have tightened over the past few weeks.

    Despite the slowdown in demand, we remain in a weak seller’s market, just a low velocity one. It is not bad for the market but this is tough on the real estate industry. We live off of transactions, not sales price. Real estate tech strategist, Mike DelPrete told me:

    “I don’t know how to say this politely, but Phoenix is such a f’d up market! It goes so extreme on both sides. Being in real estate in that market is a contact sport.”

    Mike DelPrete

    I am proud of his statement. Winning here in Greater Phoenix is like extra winning, especially in a tight market. I couldn’t agree more with Greg Hague (and I am sure he includes the whole industry 😊):

    “I believe in Realtors who want to win, need to win, will sacrifice to win, will help each other win, and won’t quit until they win.”

    Greg Hague

    While we hope for interest rates to decline, we have to remember, hope is not a strategy.

    Copyright 2023 Sarah Perkins

  • Greater Phoenix Housing Update 11/9/2022

    Economist Dr. Peter Linneman said that the roaring (20)20’s would see continued asset appreciation, job growth, GDP growth, and other good things from a healthy economy until – the one thing that ends all healthy growth emerges – and emerge it did. He was talking about greed.

    RIP Demand:

    During the summer of 2021 before the ridiculous iBuyer nonsense started, the Greater Phoenix housing market was starting to normalize. The spring frenzy cooled as the last of pent-up demand was exhausted. Initial evidence of seasonality appeared but not for long.

    Money was cheap so Opendoor, Zillow, and several other institutional investors were all flush with cash (AKA other people’s money) and were ready to spend. The investor frenzy commenced, and no one spent more than Opendoor and Zillow. Properties sold in minutes, far above asking. The median sales prices grew 1% to 2% a month.

    Institutional buyers purchased from each other. Many properties never even hit the market. The intensity of the frenzy killed Zillow’s iBuyer business by Q4 2021. Zillow realized that Q3 2021 losses shouldn’t have been $422M during the most intense seller’s market in 16 years.

    This Wall Street funded frenzy broke the emerging seasonality and pushed prices up and sidelined regular buyers. Inflation grew further and the Federal Reserve realized it wasn’t transitory. Demand peaked in early January 2022 as the increasing prices took their toll.

    Mortgage rates rose and demand dropped below normal levels in early May. Prices peaked in late May. The relationship between supply and demand that had treated sellers so well for so long turned its back on the sellers. The demand finally had some supply to choose from, but the demand was now priced out.

    The corporate investors and iBuyers outbid their competition, regular buyers, and now those same corporate investors and iBuyers are losing money on those investments. They forgot that in order to make a profit, their target consumer needs to be able to afford the product.

    Disruptors Disrupted:

    Eventually, investors expect profits or at least market sustainability. As the cost of capital increases and mortgage rates hang out around 7%, demand continues to fade further. The result, market caps decline and losses mount. Mike DelPrete shared this information on Opendoor’s Q3 results and Zillow’s final quarter of iBuying results. He also mentioned Opendoor shuttered its mortgage company, Opendoor Finance.

    Inflation & Rates:

    While the Federal Reserve is tasked with reducing inflation, it is limited to altering the Fed Funds rate. After artificially holding rates low for over two years, the Fed has increased rates 5 times this year which has pushed mortgage rates to around 7%. Unfortunately, despite the rate hikes, the inflation remains high.

    One big cause of inflation, that isn’t lowered by increased rates, is the country’s significantly increased money supply. There is simply a lot more money flowing through the economy. According to Shadow Stats, September’s money supply was 121.6% above the pre-pandemic high. The way to reduce inflation caused by increased money supply is to remove capital from the economy.

    Housing economists worry that the Fed has already over-corrected and is leading us to recession because the inflation data is a lagging indicator (tells us where we were). The Fed is expected to increase the Fed funds rate by 0.5% to 0.75% before the end of the year.

    The Fed does not use the CPI to gauge inflation. Instead, it uses the Personal Consumption Expenditures (PCE). Both the CPI and PCE weigh housing (rents) heavily, the CPI at 42% and the PCE at 23%

    • PCE is currently up 6.2% year over year and has already started to stabilize.
    • PCE is a survey of businesses and adjusts over time.
    • CPI is currently up 8.2% year over year.
    • CPI is a survey of consumers and doesn’t change.

    Notices & Foreclosures:

    A foreclosure crisis remains unlikely. The total number of residential notices of trustee sale declined by 2% from September to October. Notices of trustee sale and foreclosures remain below 2018 and 2019 levels.

    Demand Isn’t Completely Dead:

    In order to have a healthy real estate market, two things are required: 1) jobs and 2) inbound migration. Jobs and migration create new housing demand. While today’s demand has been sidelined by volatile mortgage rates and affordability challenges, it is important to note that the demand does exist. We saw a glimpse of it in early August went rates dropped down to 5% and we had a spike in new contracts for a few weeks. When rates went back up above 6% (and continued to rise) that demand cooled, waiting again. And we have jobs and people are still moving here.

    The Greater Phoenix Economic Council (GPEC) has been busy this year bringing more businesses and jobs to Greater Phoenix. During fiscal year 2022 (10/1/21 – 9/30/22):

    • 55 new businesses came to Greater Phoenix
    • 10,859 new jobs
    • $635M+ in payroll was generated
    • Average high-wage salary: $76,000

    Future prospects include:

    • 214 domestic businesses
    • 58 international businesses
    • A potential of 4,748 high wage jobs

    Final Thoughts:

    The Greater Phoenix median sales price peaked in May at $480,000. Through October the median is down to $436,000; a 9% decline in only five months. Prices will continue to decline through the end of the year. The high prices and high mortgage rates have sidelined most of today’s buyers.

    Yes, it is true that this is the second largest price decline since the end of WWII. And that sounds scary, but it is ok. It will ultimately help our market normalize. The 2021 housing market was unsustainable and unhealthy.

    We are going through growing pains, or shrinking pains, we need to go through in order to get back to a healthier, calmer market. It is only a matter of time.

  • How to Protect Real Property

    Founder and owner of the Keystone Law Firm, attorney Francisco Sirvent, discusses the best practices for property and asset protection in a volatile housing and economic environment. For more information visit keystonelawfirm.com or call 480-209-6942.

    Topics Include:

    • Should a real estate investor use one LLC or multiple per number of properties?
    • Is there a contingency plan if the primaries have incapacity issues
    • Are their techniques available to aid in legal avoidance of the Federal Estate Tax?
    • Inflation and Interest Rates Rising! How can protect my assets now?