the AZ market

Category: AZ Real Estate

  • AZ Forbearance Update 2/4/2021

    AZ Forbearance Update 2/4/2021

    In this 17 minute video, Lydia Wietsma and I discuss the latest in forbearance and updates on the new CFPB leadership.

    We do these videos to share the information with real estate professionals and struggling borrowers. People have options. There is no need to panic sell.

    Forbearance Numbers:

    This week the percentage of borrowers in forbearance remained flat at 5.38% or roughly 2.7 million borrowers. This number has remained unchanged for nearly 3 months.

    Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “While new forbearance requests dropped slightly, the rate of exits from forbearance was at the slowest pace since MBA began tracking exit data last summer.”  

    “Overall, the forbearance numbers have been little changed over the past few months. Homeowners still in forbearance are likely facing ongoing challenges with lost jobs, lost income, and other impacts from the pandemic.”

    With improvement rates and exits slowing, data analytics company Black Knight estimates there are only 860,000 forbearance plan expirations scheduled for January and February. That’s less than the industry saw in December alone, which Black Knight said could limit potential removal activity over the next 60 days.

    Forbearance by Stage:

    • The initial stage decreased slightly to 18.07% (versus 18.17% the previous week)
    • Extensions remained about the same at 79.30% (versus 79.31% the previous week)
    • Reentries increased slightly from 2.52% to 2.64%.

    Forbearance Exits from June 1, 2020 – January 24, 2021:

    44.2% of borrowers are current upon exiting their plan. Down from 44.4% the previous week.

    13.4% of borrowers exited forbearance with no loss mitigation plan in place. These are the borrowers who need help.

    This means that if all 2.7 million borrowers exited their forbearance plan today, about 362,000 would leave with no plan in place.

    New CFPB Leadership:

    The Biden administration appointed Dave Uejio as the new acting director of the Consumer Financial Protection Bureau (CFPB). Expect strict enforcement coming down from the CFPB under this administration, much like how it was under the Obama administration. The power of the CFPB was diminished under the Trump administration.

    Uejio said that the bureau will direct its attention to mortgage servicers, promising “aggressive action” to ensure companies follow the law. He went on to explain that in the coming months, his top two priorities are relief for consumers facing hardship due to COVID-19 and the related economic crisis and racial equity.

    “One thing we can do immediately is focus our supervision and enforcement tools on overseeing the companies responsible for COVID relief,” Uejio said in the email. “I am concerned about the findings described in last week’s Supervisory Highlights edition that companies are failing to properly administer relief through the crisis.” Here are some of the issues the acting director highlighted on servicers:

    • Mortgage servicers gave consumers incomplete and inaccurate information about CARES Act forbearances, failed to process forbearance requests and collected and assessed late fees despite having approved forbearances.
    • Servicers withdrew money even though consumers were in deferment.
    • Companies across markets misreported accounts to credit bureaus and violated CARES Act amendments that added protections to the Fair Credit Reporting Act.

    Uejio also stated that they will be expediting enforcement investigations relating to COVID-19 in order to send a message to the industry at large.

    “On COVID-19, we need to take swift action now, in order to make sure our actions help people in the middle of the crisis, rather than just cleaning up after the fact,” he said. “As you know, protecting economically vulnerable consumers is core to the mission of the CFPB and a key reason why the agency was created. It is going to take urgent action for the CFPB to step up to this challenge.”

    Home Valuation:

    For anyone who wants to know what their home is worth, check out Homebot, it is very accurate and available nationwide. Click here to enter your property info.

    If you are a Realtor and interested in offering Homebot to your clients, please let me know as I have a discount code available.

  • Greater Phoenix Real Estate Update 1/29/2021

    The frequency in which I am asked, “Is real estate headed for a crash?” is increasing, by a lot. Given the enormity of uncertainty we have lived with for nearly a year, the question isn’t surprising. Things are going well in real estate and with the limited good news, it is easy to wonder when the other shoe will drop.

    Research professor, Dr. Brene Brown, calls this foreboding joy and defines it as “we are terrified that joy (or a strong housing market) will be taken away from us so we push it away. We beat the pain to the punch. As a result, we don’t fully experience joy and all that it has to offer. We limit our joy.” The pain of the 2008 market crash is still very raw for real estate professionals and consumers alike.

    The headlines and talking heads do not help our human tendencies towards negativity bias and confirmation bias. Consumer sentiment drives our decisions which are then reflected in everything we buy from toothpaste to houses.

    National Real Estate:

    Supply:

    • Inventory dropped to the lowest level since NAR began tracking in 1982.
    • Demand continues to outpace supply. We are now down to about 380,000 single family active listings nationwide, a drop of about 9,000 listings. Despite the drop in active listings, about 48,000 new listings hit the market last week, down from a year ago, but up from a week ago. This shows how quickly things are selling.
    • The current market data is somewhat distorted because so many listings are going from coming soon status, which is not trackable, to pending status completely skipping active status altogether. This means there are actually more listings than the data shows. This is true on the national and local levels.

    2020 Sales:

    • It is official, 2020 had 5.54 million existing home sales, exceeding 2019 by 5.9%!  That is more sales than we have had since 2006.
    • If we had more inventory, economists believe we could have had upwards of 7 million sales.
    • December’s resale closings were up 0.7% from November and up 22.2% from December 2019.
    • Median sales price increased by about 13% in 2020.
    • December marked the 106th straight month of annual price increases.

    “Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic. What’s even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market.”

    Dr. Lawrence Yun, NAR Chief Economist

    Prices:

    • Patrick Kearns of Inman wrote, “The inventory and affordability challenges have led to disproportionate growth in higher-priced tiers, according to Joel Kan, the associate vice president of economics and industry forecasting at the Mortgage Bankers Association. December average loan sizes were the highest ever recorded in the company’s weekly market survey.”
    • The appreciation is putting pressure on affordability, significantly impacting first time home buyers, who make up one-third of all sales.
    • Listing price increases used to be unusual but look at this. Often a sign of fix and flippers; increases usually have a normal seasonal cycle. Demand increases then prices increase. It is usually only a few percentage points but now we are at a much higher level.
    • February and March sales prices will be way up due to today’s increased listing prices.
    • Also illustrates how sensitive the market is to interest rates.

    New Construction:

    Builder confidence did drop slightly in January to 83, its highest point in 14 years. Anything above 50 means favorable market conditions. Builders are faced with increased lumber costs, labor shortages, upward price pressures, and COVID. In the face of so many obstacles, the fact that confidence is so high is incredible.

    The AZ Market:

    In Greater Phoenix there are fewer than 3,200 single family active listings and only 4,500 total active listings. That is down about 300 from last week and down 42% year over year.

    Listings are down while pending sales are up 13% year over year and closings are up 28% year over year. This translates to inventory being 76% below normal while demand is 28% above normal. A true supply and demand imbalance benefitting home sellers over homebuyers.

    Elliott Pollack wrote, “Greater Phoenix saw increases for permits and new home sales while resales held their own with small contraction according to RL Brown. For the year, new home sales were up 21.3%, permits 13%, and resales were down 0.2%. Looking at the December data, median sales price for resales and new home sales increased 18.4% and 2.0%, respectively. Again the lack of resale supply continued to push prices higher in the metro.”

    CBRE’s US Development Opportunity Index evaluates the top 50 largest cities by population based on four metrics: 1. Construction costs, 2. Fundamental strength of existing supply, 3. Prior cycle performance, and 4. Property forecast. Phoenix ranked second for office and multifamily development opportunities, third for industrial, and 15th for retail.

    Ivy Zelman of Zelman & Associates, discussed the Great American Shuffle when she said, “From 2010 to 2020, the top ten states have grown substantially faster than the United States as a whole and, frankly, builders have been a big beneficiary of this because there is actually space and ability to develop land in these markets.”

    Arizona saw an 18% increase in household growth from 2010-2020.

    Delinquencies, Forbearance, and Foreclosures:

    The forbearance numbers remain relatively flat with about 2.7 million borrowers in a plan. About 44% of borrowers who exited their forbearance plan are either caught up or never missed a payment. 13.4% of borrowers exiting their forbearance plan do so without a loss mitigation plan in place. For more details, check out my post from Wednesday here.

    Keep in mind not everyone who is delinquent on their payments are in forbearance. According to Black Knight, after seven straight months of declines, at the end of December, there were about 3.4 million loans in delinquency or 6.08%, the lowest level since April. Loans that are seriously delinquent declined from 2.19 million to 2.15 million.

    The biggest unknown we are facing is the impact of the eviction and foreclosure moratoriums. They are set to expire on March 31st. The proposed $1.9 trillion stimulus includes extending both through September 30th.  While it provides relief to those who need it now; it also kicks the can down the road and doesn’t provide a real solution.

    Lending:

    • It is completely normal to have weekly ups and downs when tracking mortgage applications, the year over year data is what shows overall trends. One week to the next is too volatile.
    • Despite the headlines demand remains strong. Purchase loan applications are up 16% year over year.
    • Refinance applications are up 83% year over year.

    “Although mortgage rates are projected to increase, they will continue to hover near record lows at around 3 percent. Moreover, expect economic conditions to improve with additional stimulus forthcoming and vaccine distribution already underway.”

    Dr. Lawrence Yun, NAR Chief Economist

    Final Thoughts:

    Ivy Zelman also discussed the biggest challenge facing today’s market, the low inventory. There are not enough homes available to satisfy the demand in the market. Based on history, the imbalance protects the housing market from dips during tough economic times.

    After the 5.3% increase in sales from 2019 to 2020; Zillow predicts that 2021 will see an increase of 21.1% in sales over 2020. Zillow predicts 6.82 million existing home sales in 2021, roughly the same number of sales as 2005.

    Based on today’s data; there is no indication of a crash or even a fender bender.

    “When I think about the 2020 housing market, the big take-home is not the V-shape recovery in many of the housing metrics or even the hotter-than-expected price growth. The big take-home is that 2020, despite the COVID crisis, began a period in our country (the years 2020-2024) when we have both the best housing demographics ever combined with mortgage rates low enough to keep housing stable for years to come.”

    Logan Mohtashami, Lead Economic Analyst for HousingWire

    Please share this with your colleagues and clients.

    Copyright 2021 by Sarah Perkins

  • AZ Forbearance Update 1/27/2021

    In this 15 minute video, Lydia Wietsma and I discuss the latest in forbearance, delinquencies, and sneaky foreclosures.

    We do these videos to share the information with real estate professionals and struggling borrowers. People have options. There is no need to panic sell.

    Forbearance Numbers:

    Our forbearance numbers have been consistent over the past few months. There is a lot of movement, many are coming in and many are exiting their plans. We are still at about 2.7 million active forbearance plans. Week over week, we had a slight increase from 5.37% to 5.38% of all loans are in a forbearance plan.

    Forbearance by Stage:

    • initial stage increased to 18.17%
    • extensions decreased to 79.31%
    • re-entries increased to 2.52%

    Forbearance Exits from June 1, 2020 – January 17, 2021:

    44.4% of borrowers are current upon exiting their plan.

    The important number for us to watch remains the 13.4% of borrowers leaving their forbearance plan while still behind on their payments and with no loss mitigation plan. This is the group that needs help.

    This means that if all 2.7 million borrowers exited their forbearance plan today, about 362,000 would leave with no plan in place.

    Delinquencies:

    Keep in mind not everyone who is delinquent on their payments are in forbearance. There are about 3.55 million loans in delinquency.

    When the foreclosure moratoriums actually expire we will see a bunch of new foreclosures only because of the 13-month backlog on foreclosures, which will work itself out very quickly.

    Courtesy of Black Knight’s First Look Mortgage Data for December 2020

    Broker Price Opinions:

    Currently, the moratorium expiration is March 31st which means the prep work has already started. Lydia’s servicing company is preparing for some significant movement in the coming months. One of their major clients recently ordered upwards of 30,000 broker price opinions (BPO) on properties that are all in forbearance.

    There remains a lot of confusion around forbearance. Borrowers and the loan servicers themselves do not always know the full story. Borrowers are assuming they can refinance immediately after completing their forbearance plan, this is only the case when the borrower has made 3 consecutive, timely payments. Borrowers cannot miss payments and expect to refinance right away.

    Sneaky Foreclosures:

    Due to COVID no longer posting on house, posting on auction.com. Be sure to look there.

    While we are on the foreclosure topic, we wanted to share the scary thing we learned about last week.  And they are sneaky foreclosures.

    During the crash 10 years ago when homeowners negotiated loan modifications or filed Chapter 7 bankruptcy that allowed them to stay in their house and removed the monetary value of their second lien but did not remove the lien itself.

    Those second liens that “went away” are now toxic loans. 60% of foreclosures out there right now are notes being purchased from the banks, that are selling for pennies on the dollar. Random people are buying the notes and then moving forward with foreclosure on the seconds. That borrowers thought were charged off. The lien buyers add interest on non-payments for the past 10 years.

    Bottom Line:

    Borrowers today have options. Now is not the time to panic sell.

  • This Week in Phoenix Real Estate (video) 1/25/2021

    In this 9 minute video, Amber Kovarik and I discuss the latest in real estate, lending, and the economy. The biggest topics continue to revolve around shrinking inventory, sly-rocketing prices, and low-interest rates. Here is the latest:

    One – Inventory:

    Nationwide and locally our low levels of inventory continue to be a challenge. Nationwide we have fewer than 390,000 single-family properties available. Here locally we have less than 5400 active listings. According to the Cromford Report, we are 73% below where we should be for inventory to support our population. Demand remains over 28% above normal.

    “This is what we call the homeowner prisoner’s dilemma. There’s nothing to buy because nobody is selling, but nobody is selling because there’s nothing to buy.”

    Mark Fleming, First American

    Two – Appreciation:

    The classic supply and demand imbalance continues to push prices up quickly. Nationwide we had appreciation of 13% in 2020 and nearly 17% here in greater Phoenix. Nationwide, the seller’s market actually started in 2012 and here in Phoenix it started in 2014, the crash hit Phoenix extra hard. The 6 years leading up to 2020 our markets appreciated 8%-10% in each 2018 and 2019. The market intensity had been growing leading up to 2020.

    Three – Affordability & Policy:

    The main underlying theme for housing in 2021 is affordability. The speed of today’s appreciation combined with the years of significant appreciation make things really tough on our current buyers. Expect more policy and programs coming out of DC addressing this issue. The latest proposed stimulus includes eviction, foreclosure, and forbearance extensions through September 30, 2021 which above and beyond the recent executive orders extended those programs through the end of March. The proposed stimulus includes another $30 billion for rental assistance to help landlords.

    Four – Zillow News:

    Zillow is officially a brokerage with agent-employees who will represent Zillow for its acquisitions and sales through its iBuyer program, Zillow Homes. This changes a few things for consumers. The Zestimate will now be far more accurate as Zillow now as a direct IDX feed connected to the MLS versus negotiated feeds set up with brokers, companies, and MLS’s. Buyer agents will now be called “personal guides” and will be showcased separately from the listing agent for each listing on the site. Also, Zillow is no longer offering free rental listings. In order to post rental listings the agent either pays $9.99 a week or their brokerage has a contract through a Feed Connection Program.

    Five – The Economy:

    Many economists are bracing for a rough winter. Consumer sentiment may take a hit. There are struggles with continued lockdowns leading to continued layoffs and high unemployment. But as the vaccine continues its rollout and the economy reopens these economists expect a strong recovery in Q2 or Q3 of this year. Businesses will open back up, people will go back to work, people will spend money on entertainment again. Since it was not an economic event that stopped the machine, they expect it to start right back up again and go straight back into a bullish economy.

    Six – Lending:

    Borrowers continue to struggle when writing offers when they need down payment assistance or ask for closing costs. Nearly no one with closing cost requests are getting them. Finding other options outside of down payment assistance programs is best for getting offers accepted.

    At the beginning of the year rates went up after the Georgia election and rose more several days in a row before retreating again. Rates are now 1/8 point lower than they were last week.

    The Federal Reserve meets Wednesday. They are expected to vote to continue buying mortgage-backed securities at a rate of $40 billion a month. Their goal is to keep rates low to continue the buyer demand.

    For details and registration for Amber’s upcoming class, visit https://www.eventbrite.com/e/winning-offers-through-finance-tickets-137997092017

  • Greater Phoenix Real Estate Update 1/22/2021

    Earlier this week I did a podcast with HousingWire where we discussed the spike in title company mergers and acquisitions. Click here to check out this 18-minute podcast.

    Are we going to run out of houses to sell? Are we going to have a foreclosure crisis? What about all of the looming evictions? V shape, K shape, policy, stimulus, unemployment, vaccines, why can’t my buyer find a house?

    Between the emotional exhaustion and pandemic fatigue making sense of today’s real estate market is difficult at best. Add in some misleading headlines and it is no wonder why we have stressed out home buyers and sellers.

    Let’s start with what we know.

    National Real Estate:

    “The shortage of homes for sale has been an ongoing issue for the last couple of years, but in December the combination of the holiday inventory slowdown and the pandemic buying trend caused it to dip to its lowest level in history. Looking forward, we could see new lows in the next couple of months as buyers remain relatively active, but a surge of new COVID cases may slow the number of sellers entering the market.”

    Danielle Hale Chief Economist for Realtor.com

    Danielle Hale was right, as of Monday, total single-family homes available in the US dropped down to 388,678. That means that only 0.05% of all single-family homes in the country are available. With NAR’s 1.4M members, there are 3.5 Realtors for every house for sale.

    • Elliot Eisenberg shared, “While housing permits are running at 1.64 million/year, their best level since 9/06, the improvement is uneven. In the Northeast, permits are at 200,000/year and have been flat for decades. In the Midwest, permits are also at 200,000/year and have bounced between 200,000/year and 400,000/year since 1960. Out West, permits are 400,000/year, their midpoint since 1960. Only in the South, where permits are at 870,000/year, are they relatively high.”
    • ATTOM Data Solutions recently released its 2020 Grocery Store Wars and found:
      • The average home value near Trader Joe’s is $644,558
      • The average home value near Whole Foods is $532,224
      • The average home value near ALDI is $250,850

    The AZ Market:

    “This is what we call the homeowner prisoner’s dilemma. There’s nothing to buy because nobody is selling, but nobody is selling because there’s nothing to buy.”

    Mark Fleming
    • Phoenix had the highest year over year rental increase in the country at 9.9% for November 2020. (Corelogic)
    • As of yesterday, there are fewer than 5,000 active listings in Maricopa and Pinal Counties.
    • There are roughly 5 buyers for every listing available in greater Phoenix.
    • The chart below compares new listings in the first 20 days of January 2019, 2020, and 2021 for the southeast valley cities of Tempe, Mesa, Chandler, Gilbert, Queen Creek, and Apache Junction. Yikes!

    12 of Amazon’s 20 facilities in AZ opened in 2020. The company employs 20,000 full and part time Arizonans.  Three more facilities are planned to open in 2021. (AZ Big Media)

    “Growth and expansion is based on demand. Amazon’s business continues to grow exponentially, and with it, Greater Phoenix is a beneficiary. Greater Phoenix is the perfect location for distribution because of our infrastructure, talent pool, low business costs and advantageous operating environment. Businesses in Greater Phoenix can serve more than 33 million consumers in a single days truck haul, our shipping costs to California are up to 75 percent cheaper than other Mountain West markets and we have the third largest labor pool in the western U.S.”

    Chris Camacho, president and CEO of GPEC

    Commercial Real Estate:

    • With 292,000 new units, 2020 nearly kept up with previous years’ new market-rate apartments nationwide. Phoenix was a top performer with 17,215 apartment starts in 2020. (AZ Big Media)
    • JLL, one of the largest commercial real estate services companies, added a single-family investment advisory arm. Not only do they think that buying single-family properties to hold is a good investment, they created an entire branch to advise on it.
    • Peter Linneman of Linneman & Associates said, “If you have a long hold horizon, I just think you’re in a golden age for multifamily. The spread is so outlandishly attractive. A lot of money’s going to be flowing to the sector that I just think we’re going to look back and say, ‘This is the third golden era of longer-term-hold multifamily.”
    • 12,200 retail stores closed in 2020 which utilized about 159 million square feet or 1.4% of retail space. (Elliot Eisenberg)

    Policy:

    • One of the 17 executive orders signed by President Biden on Wednesday includes an extension of the eviction and foreclosure moratoriums through, at least, March 31, 2021.
    • Part of the proposed $1.9 trillion stimulus plan, called the American Rescue Plan, will extend the eviction and foreclosure moratorium through September 30, 2021. It will also include another $30 billion for rental assistance.
    • The National Multifamily Housing Council and National Apartment Association stated that while they support the rental assistance (for landlords) offered in the stimulus packages they fear it is not sufficient enough to address the outstanding debt. (Bisnow)

    Lending:

    In March, the Federal Reserve started purchasing bonds to stabilize interest rates. The Fed has committed to continuing the purchase rate as long as necessary, at an average of $120 billion a month, $80B in Treasuries and $40B in mortgage backed securities. Fed holdings now exceed $7 trillion.

    Interest rates run about 1.7% above the 10-year bond yields. Based on this, rates were not properly priced for the last 5 months of 2020. Logan Mohtashami, a senior economic analyst with HousingWire, expects the 10-year yield to reach around 1.33%-1.60% this year which would mean rates will likely rise to about 3.375%-3.625%.

    Forbearance and Foreclosures:

    • The total number of mortgages in an active forbearance plan decreased to 5.37% or 2.7 million loans. For a deeper dive into the numbers, click here for my most recent AZ Forbearance Update.
    • Due to the ongoing foreclosure moratoriums, the foreclosure levels are at historic lows.
    • During normal economic times, nationwide we average about 69,000 foreclosures a month. (KCM)

    Real Estate News:

    • Now that Zillow is officially a brokerage (only representing its iBuyer acquisitions and sales), it has shifted to IDX feeds allowing for greater accuracy but also changes in how listings are shown. Buyer agents are now “personal guides” and the listing agent is noted separately.
    • Zillow is no longer offering free rental listings. They now require contracts between Brokers, Realtors, and Zillow through its Feed Connection Program or for $9.99 weekly through Zillow Rental Manager. (Inman)
    • Compass, one of the nation’s fastest growing brokerages, filed paperwork with the SEC to go public via initial public offering (IPO) rather than merging with a special purpose acquisition company (SPAC) as many other real estate companies did in 2020.

    Final Thoughts:

    December’s 140,000 increase in unemployment claims, the first increase since April, was entirely lockdown based hitting leisure, hospitality, and private education the hardest. CA alone lost 600,000 jobs while other markets saw job growth. Real estate added 4,800 jobs in December and construction added 51,000 jobs. (US Department of Labor)

    More workers in construction will lead to more building, which will lead to more inventory, which will lead to more purchases and a more stable housing market. And the best type of housing market is a stable one.

    Elliott Pollack said, “Ignore the news about the poor economy over the next couple of quarters. It is unavoidable but also temporary. Focus on the period that will follow. Virtually all of the economic indicators will return or exceed February 2020 levels very quickly once vaccinations are available for enough Americans.”

    That light at the end of the tunnel is getting a little brighter.

    Please share this with your colleagues and clients.

    Copyright 2021 by Sarah Perkins

  • AZ Forbearance Update 1/20/2021

    In this 9 minute video, Lydia Wietsma and I discuss the latest developments in forbearance trends and how the latest proposed stimulus impacts struggling borrowers.

    We do these videos to share the information with real estate professionals and struggling borrowers. People have options. There is no need to panic sell.

    Forbearance Numbers:

    Total loans in forbearance decreased from 5.46% to 5.37% which is a nice decrease after several weeks of staying relatively flat. It keeps us around 2.7 million borrowers in a forbearance plan.

    Forbearance Plans by Stage:

    • Initial entries decreased slightly to 17.27%.
    • Re-entries increased slightly to 2.28%.
    • Extensions increased to 80.45%.

    Cumulative forbearance exits from 6/1/2020-1/10/2021:

    • 45% of borrowers are current upon plan exit.
    • 13.5% of borrowers exited with no loss mitigation plan in place, which is up from 13.2% from the previous week.

    Reminder, forbearance needs to be paid back so exit strategies are a must.

    New Housing Policies:

    President Biden’s proposed $1.9 trillion stimulus plan includes extending the national eviction and foreclosure moratorium through September 30, 2021.

    Forbearance is a solution and foreclosure moratoriums are a Band-Aid and do not fix the problem and the goal is to keep homeowners in their homes.

  • Greater Phoenix Real Estate Update 1/15/2021

    Today is all about the AZ market. Yesterday, Lawyers Title hosted a presentation with Tina Tamboer with the Cromford Report. She always shares pertinent and timely information. Below I have combined a lot of her information from her presentation, along with additional information from my research.

    Employment:

    The national unemployment claims through December increased slightly. Not enough to change it from 6.7%. Last week’s preliminary numbers show another increase in initial claims.

    The people with the lowest levels of education and the lowest income earners are struggling the most. Unemployment is impacting landlords and renters more than homeowners.

    Private sector earnings increased most dramatically in Q2 2020. More and more jobs in AZ have higher wages. Incomes are increasing.

    2018-2019 had earnings decreases.

    Forbearance:

    • Lately, we are seeing weak numbers and small decreases.
    • We will likely see this come to a head in March and April. All plans are in 3-6 months long with a maximum of 12 months.
    • There is a lot of misinformation and a lack of info on the borrower’s side. Some may get NOTs. Servicers have unclear guidelines and tracking could be better.
    • Even in the best markets properties still foreclose. On average, prior to 2020, there were about 69,000 foreclosures nationwide a month.
    • There will be an increase (not huge) in foreclosures because of the backlog due to the moratoriums.
    • As soon as the NOTs are recorded Realtors and investors will after those properties. People will want to buy the houses and the sellers will be able to have a normal sale.
    • This is on hold until the moratoriums are lifted.

    Click here to watch my 10 minute forbearance update video from Wednesday.

    Corporate Profits:

    The end of 2020 was surprising, for Q3 2020 corporate profits were way up. They bounced back and set a record which is what drove the demand for luxury real estate.  The strong stock market drove confidence up.

    Increasing corporate profits is a significant indicator for luxury real estate. Q3 2020 had huge corporate profits with an increase of 27.5% over Q2 2020. Nationwide luxury real estate is booming and Arizona is no exception. In October, the largest residential sale in the state closed at just over $24 million in Silverleaf in Scottsdale.

    Stock market is on the rise, again. Wall Street does not like uncertainty. It improves after elections, regardless of who is elected, because it likes to know who is in the White House and Congress. Political uncertainty is poison for the stock market.

    Why do we have a housing shortage?

    This is a housing shortage for real. This is not like 2005-2008. We are waiting for the census for the newest numbers, not yet for the county but soon. Expects all numbers by May 2021.

    In 2019 we were already in trouble. We under built the past 10 years. We had a glut of housing in 2008 and it has all been absorbed. Since then we have been behind. Overbuilt for 10 years and then underbuilt for 10 years. All housing types; rental, condos, townhouses, single family.

    From 2010 through 2019 our population increased by 18% while housing units increased by 9%.

    AZ ranked #3 for population growth from June 2019-June 2020. Behind Texas and Florida. CA lost people for the first time in over 100 years.

    23% of inbound migration to Arizona is from California.

    We have diversity of labor force and job growth. More jobs are coming because we have the lots of highly skilled workers. It is pushing out the people who cannot afford the housing prices. Work force housing is really being impacted.

    Moving Company Data:

    Moving companies United Van Lines, Atlas, and National share their client data trends. United provides a deeper dive into the data, but all are worth checking out.

    Since moving trend data is older, another way to gauge where people are moving from is based on home searches. Redfin shares the search trends for its users.

    The Cromford Market Index:

    Available on the main page of the Cromford Report: http://cromfordreport.com/ (without a subscription)

    • 100 is balanced and prices rise at the rate of inflation, below 100 is a buyer’s market, above 100 is a seller’s market, prices drop below 90, prices rise at 110.
    • On 2/5/2020 we were at 215.1
    • On 3/20/2020 we were at 241
    • On 5/15/2020 we were at 145.2
    • Yesterday we were at 461.4.
    • Prior to this run, the previous peak was 312.9 in the spring of 2005.
    • CMI is the predictor, it moves first and then appreciation follows.

    We are 30% above normal for demand. Supply is about 72% below normal. Our supply was stable for most of the year, just at a very low rate. In December inventory started dropping. Demand also started dropping in December. Supply dropped faster than demand and it is still in favor of sellers. Demand is down 4% but supply is down 5.6%

    On 1/1/21 we were at 432 and now we are in the 461.4, super-fast increase. We cannot even discuss prices going flat, let alone down until CMI starts dropping. This indicator needs to drop in order to even lead to a price decrease. It will still take us a year to get to a balanced, aka normal, market for prices to go flat. At this rate, if demand dropped now, prices would not decrease until at least 2022.

    Affordability:

    What could possibly slow this down? Affordability challenges.

    At the end of 2018 we dropped below the affordability range and we had an immediate decline in demand. We almost hit balance in 2018. Then in 2019 we got back into the normal affordability range.

    Normal is 60-75 in Q3 2020 we were at 61.9. For Q4 2020 Tina expects that we will drop below normal affordability. Makes it more expensive for buyers.

    The low-interest rates have kept the median monthly payment down. Since 2018 the monthly PITI has increased by $23 while the median sales price is up $68,000 to $328,000. The PITI for the median home is $1,574 with an interest rate of 2.67%. In 2018 median the median home was $259,995 and with a 4.87% interest rate, the PITI was $1,551 a month.

    Emotions:

    Supply is dropping and demand is still high. Until the demand and supply come closer to each other the prices will keep going up. The numbers simply do not support the theory that prices will go down.

    People are emotional about what they think will happen. But the numbers do not support it.

    Not a good idea to sell and rent for a year. Rents are increasing faster than sales prices. In 2005 with decreasing rental rates, it made sense. In 2020 rents increased $254 a month or 16%.

    It is not great to buy in a buyer’s market and then watch their value decline. It is best to buy at the end of the buyer’s market. The beginning of a buyer’s market has the highest prices.

    It is always good to buy at the beginning of a seller’s market and sell at the end of a seller’s market.

    Are we in a peak market? No, will prices appreciate from here? Yes. The numbers all point to yes.

    We are not at the peak.

    To truly time the market, buyers needed to purchase real estate in 2015. That was the beginning of our seller’s market.

    Inventory:

    • We are 52% below where we were at this time in 2020.
    • The first week of January is always the lowest supply week.
    • January 2021 was the lowest first week in January in at least 20 years. Historically low. Shockingly low.
    • Seasonally adjusted, we should have 21,000-25,000 the second week of January. Not 5,000!
    • About 10% of all listings in MLS are outside of greater Phoenix. We are way, way, way low.
    • We had 10% more listings in Q4 2020 than in Q4 2019.
    • We had 12.5% more listings in December 2020 than in December 2019 but have 31% greater demand.
    • In 2020, about 100,000 homes were listed, 38 than in 2019.
    • New listings are 36% below January 2020. There were only 2,088 new listings in the first 11 days of the year.

    New Builds & Developments:

    • Single-family permits are up 24.1% through November 2020.
    • Builders are struggling to maintain a healthy labor force
    • Lumber prices increased by 161% due to fires in the west and a beetle infestation in the east.
    • Multi-family permits are by 21.6% through November 2020. 90% is for rentals only about 10% is for sale.
    • Multi-family sales increased by 0% from 2019 to 2020.
    • In the past 8 months resale take off in sales past new home sales. New home sales are recorded once it closes and people move in, usually are negotiated 8-10 months prior.
    • New single-family median sales price increased by 6.1% in 2020.
    • New single-family sales volume increased by 15%.

    Builders are building in many areas throughout the valley around job expansion. Tons in Florence and Casa Grande. The Town of Maricopa is getting a hospital. Be sure to check out the Land Use Explorer http://geo.azmag.gov/maps/landuse/ on the Maricopa County Association of Governments website, https://www.azmag.gov/Programs/Maps-and-Data. The Land Use Explorer shows expansion, what is approved, proposed and pending.

    Demand:

    • Listings under contract are up 20.1% year over year. Tina expects to see a spike in under contract listings through May.
    • A lot of listings are selling before they actually hit the MLS. Coming soon never gets counted towards supply because it goes straight into under contract.
    • 33% of all closings in December were for over asking.
    • So far in January, we are at 35% over asking.
    • The median over amount is $5,500.
    • Very few concessions paid. Only 10% of closings had any seller concessions. Huge drop, 60% decrease a year ago.
    • Year over year appreciation for resale homes is 21.6%.

    2020 Records:

    • Q4 2020 the best Q4 ever. We had 27,804 sales, up 25% from 2019.
    • Sales only 4% more than in 2019 due to the slow spring.
    • Listed 111,000 listings.
    • Sold about 101,000 listings.
    • 90% of everything that was listed sold.
    • Luxury crushed it in 2020, pushed all averages up.
    • The heavy top end is pushing prices up.
    • In 2020 we hit #2 for MLS sales, beat 2019 by 4%. 2005 remains #1 for units sold.
    • In 2020 we #1 for dollar volume. Beat 2019 by 19.5% and blew away 2005.

    Contract Ratio:

    • Contract ratio is 171 right now.
    • For every 100 listings active there are 171 in escrow
    • January is always the lowest for contract ratio and December is always the second-lowest, until 2020 and now December and January are the top months for this year.

    Final Thoughts:

    New listings are under contract in a matter of days.  We are not at the peak, prices will rise probably all the way through 2021. You have time, markets move slowly. Things change over the course of years.

    Prices in 2021 will continue to rise most likely throughout the year. May slow down as demand wanes with rising prices.

    To sign up for a Cromford Report subscription visit http://cromfordreport.com/join-armls.html 

  • AZ Forbearance Update 1/13/2021

    In this 10 minute video Lydia Wietsma and I discuss the latest developments in forbearance trends and numbers.

    We do these videos to share the information with real estate professionals and struggling borrowers. People have options. There is no need to panic sell.

    The Numbers:

    Last week the total number of loans now in forbearance decreased from 5.53% to 5.46% or about 2.7 million homeowners are in forbearance plans.

    By stage: 18.49% of loans in forbearance are in their initial stage. Up slightly from 18.27%. 79.85% are in extension, up from 79.61%. The remaining 1.66% are forbearance plan re-entries, down from 2.11% last week.

    Of the cumulative forbearance exits for the period from June 1 through December 27, 2020 about 45% are current and 13.2% left with no loss mitigation plan in place. The others either sold, deed in lieu, loan modification, etc. It is the 13.2% of borrowers that are the ones who need extra guidance.

    “Surging COVID-19 cases caused economic activity to stall in December, with a monthly job loss for the first time since April, and with those jobs mostly concentrated in the leisure and hospitality sector. We expect that this slowdown will prevent any rapid improvement in the forbearance numbers over the next few months.”

    Mike Fratantoni, MBA’s Senior Vice President and Chief Economist

    One thing to note is that most forbearance exits happen at the beginning of the month and entries at the end of the month. As the size of the overall change diminishes, we will see the numbers decrease at the beginning of the month and either stay flat or increase at the end of the month.

    Equity & Inventory:

    Year over year inventory has dropped by nearly 51% while contracts are up nearly 26%. Monthly median appreciation is 16%. And closings are up 26% year over year. We have 0.7 months of inventory. The supply imbalance is pushing prices up quickly.

    With equity increasing , struggling homeowners have more and more options.

  • This Week in Phoenix Real Estate (video) 1/11/2021

    In this 12 minute video, Amber Kovarik and I discuss the latest in lending and real estate. We cover political implications and what that means for interest rates, inventory, headlines, and demographics. There was a lot of movement in the past 7 days.

    One – Politics:

    With the Georgia run-off results, we no longer have a split Congress, what does that mean for real estate?

    Real estate responds to policy, not to the controlling party. However, given that Congress and the White House will all be on the same side of the aisle, it will be easier for President-elect Biden to push through his proposed policies. While this is the case, both the house and the Senate majorities have TINY majorities. In the house, in order to have the majority, a party needs to have at least 218 seats. Currently, House Democrats have 222 seats, the smallest majority in over 20 years. The Senate is 50/50 plus the Vice President’s deciding vote. Since all of Congress is nearly evenly split it is unlikely super progressive policy will pass. Experts hope that this will lead to centrist voting.

    One thing that does bode well for housing is that it is very bi-partisan, both sides of the aisle support housing initiatives.

    As part of his campaign promises, President-elect Biden has two proposed policies that directly impact real estate.

    The first is getting rid of 1031 exchanges altogether. The 2017 Tax Cuts and Jobs Act eliminated all 1031 exchanges outside of real estate. Previously you could do a 1031 on anything from airplanes to artwork. Now the proposal is to cut the 100-year-old tax law completely. The additional tax revenue would then be slated for free pre-kindergarten and senior care. This impacts both commercial and residential real estate. This is very unpopular in commercial real estate. Experts are afraid that it will significantly decrease the number of transactions each year. NAR opposes this.

    The second proposed policy is a $15,000 first time home buyer tax credit that buyers will be able to use as part of their down payment. Lawmakers and politicians are trying to help first-time homebuyers compete in quickly appreciating markets but they do not understand real estate enough to know what kind of impact that will have on the markets. Creating more demand in an already tight market will only drive prices up further and faster. NAR supports this.

    Two – Headlines:

    Headlines continue mentioning month over month sales declines at the end of 2020 while they exclude the 26% year over year sales increase in existing home sales through November. Inventory shortages are the primary culprit. Buyers cannot buy houses that are not for sale. (NAR)

    Nationwide, available single-family homes dropped down to 419,000 as of Monday. That is 60% below normal. (Altos)

    In Greater Phoenix, we are running 70% below normal for inventory. Right now, in Maricopa and Pinal Counties we have fewer than 5300 active listings. Inventory continues to drop while demand remains at 30% above normal. A year ago demand was 2.4% above normal and it was a strong market.

    Three – Housing Demographics:

    Logan Mohtashami of HousingWire explains economics as housing demographics and the recent years have set the stage for an incredibly strong housing market from 2020 through 2024 due to the roughly 32 million Millennials aged 27-33; prime home-buying age. Not only is the Millennial generation the largest, but it is also the most highly educated generation. Not all 32 million will be buyers but First American estimates that 15 million of them will buy homes in the next 10 years. These are what Mohtashami calls replacement buyers, keeping the demand high and inventory low for years to come.

    He warns that the biggest problem facing this housing demographic is runaway prices and increasing mortgage interest rates.

    Four – Interest Rates:

    They are going up now and there is definitely a new sense of urgency.

    Amber shared, “The stock markets were down in all three major indices this morning as the markets continue to digest the implications of a Democrat controlled government to the U.S. economy.  Goldman Sachs announced today that they have updated their forecasts as a result of the Georgia elections and they are predicting greater fiscal spending, faster GDP growth, more inflation, and higher interest rates. 

    Mortgage backed securities prices have consistently trended down every day since January 4. (MBS prices trending downward causes mortgage rates to rise). The markets had expected that Republicans would win at least one race in the Georgia Senate runoff elections, and a divided government scenario would continue. In a divided government scenario, it would have been difficult for Democrats to do larger future stimulus packages and substantial increases in personal and corporate tax rates. The daily drop in MBS prices, and the daily increase in the yield on the 10-year U.S. Treasury bond are a reflection of the markets adjusting to the new perceived landscape for the next 24 months until the next mid-term elections would occur.

    Many people are wondering if mortgage backed security prices will rebound after a week of consecutive daily drops (MBS price drops, means higher interest rates). It is very possible that lower MBS prices are the new normal for the market. 

    Some people have asked if the Federal Reserve would increase their daily MBS purchase levels to try to offset the impact of the Georgia elections on the bond markets. The Fed has never previously communicated that they had a specific targeted mortgage rate in their stimulus strategy, so there appears to be a low probability that the Fed would be increasing the level of their stimulus efforts in the near term. The Fed is being very transparent to clearly signal the markets in advance on what their daily MBS purchase levels will be. 

    There have been no Fed communications that indicate the Fed is considering increasing the daily levels. The Fed communications so far have continued on the theme that they will hold to their current levels until they have clear signs that the economy is beginning to recover at which point they will allow rates to rise.”

  • Greater Phoenix Real Estate Update 1/8/2021

    Welcome to 2021. May this year bring the end of the pandemic, physical/mental/emotional healing, and full classrooms.

    Looking back at 2020, no one expected residential real estate to be the sector to save our economy. The years of underbuilding came to a head as demand increased fueled by record-low mortgage interest rates. Existing homes appreciated by 17% in Greater Phoenix.

    “Nothing sells like a shortage. We have underbuilt new housing relative to demand for a decade. Building will have to exceed household formation for a number of years to reduce the housing stock ‘debt’ we have accumulated.”

    Odeta Kushi, Deputy Chief Economist for First American

    Looking forward, 2021 looks like it will shape up to be another very strong year for housing.

    Politics:

    Just before the November election I wrote about politics and housing and discussed how markets are the strongest with a split Congress. Click here for that post. With the Georgia run-off results, we no longer have a split Congress, what does that mean for real estate?

    Real estate responds to policy, not to the controlling party. However, given that Congress and the White House will all be on the same side of the aisle, it will be easier for President-elect Biden to push through his proposed policies. While this is the case, both the house and the Senate majorities have TINY majorities. In the house, in order to have the majority, a party needs to have at least 218 seats. Currently, House Democrats have 222 seats, the smallest majority in over 20 years. The Senate is 50/50 plus the Vice President’s deciding vote. Since all of Congress is nearly evenly split it is unlikely super progressive policy will pass. Experts believe we will see more centrist voting.

    One thing that does bode well for housing is that it is very bi-partisan, both sides of the aisle support housing initiatives.

    As part of his campaign promises, President-elect Biden has two proposed policies that directly impact real estate.

    The first is getting rid of 1031 exchanges altogether. The 2017 Tax Cuts and Jobs Act eliminated all 1031 exchanges outside of real estate. Previously you could do a 1031 on anything from airplanes to artwork. Now the proposal is to cut the 100-year-old tax law completely. The additional tax revenue would then be slated for free pre-kindergarten and senior care. This impacts both commercial and residential real estate. This is very unpopular in commercial real estate. Experts are afraid that it will significantly decrease the number of transactions each year. NAR opposes this.

    The second proposed policy is a $15,000 first time home buyer tax credit that buyers will be able to use as part of their down payment. Lawmakers and politicians are trying to help first-time homebuyers compete in quickly appreciating markets but they do not understand real estate enough to know what kind of impact that will have on the markets. Creating more demand in an already tight market will only drive prices up further and faster. NAR supports this.

    There is also the question of mortgage regulation. The Biden administration is appointing new leadership for many agencies including the CFPB. Under the Obama administration, the CFPB was heavy into policing and fining financial institutions, like mortgage lenders and title companies. And under the Trump administration, much of the CFPB’s regulatory power was stripped. What it will look like under the Biden administration is still unknown.

    National Real Estate:

    • Nationwide, available single-family homes dropped down to 419,000 as of Monday. That is 60% below normal. (Altos)
    • In late December a second stimulus package was signed by President Trump. In this recent post, I discuss the stimulus’s impact on housing.
    • Headlines continue mentioning month over month sales declines at the end of 2020 while they exclude the 26% year over year sales increase in existing home sales through November. Inventory shortages are the primary culprit. Buyers cannot buy houses that are not for sale. (NAR)

    “In the short term, existing home sales and housing data will moderate to a more normal trend. And this will be a good thing, so don’t buy into any doom and gloom forecasts based on some moderation of the ‘not-normal’: parabolic data. Keep in mind that the years 2020-2024 have the best housing demographics ever recorded in history, which means we have a healthy number of replacement buyers. Only higher mortgage rates can cool off demand – and that could be a good thing because the best housing market is a stable one.”

    Logan Mohtashami, Analyst & Economist for HousingWire

    Housing Demographics:

    Mohtashami explains economics as housing demographics and the recent years have set the stage for an incredibly strong housing market from 2020 through 2024 due to the roughly 32 million Millennials aged 27-33; prime home-buying age. Not only is the Millennial generation the largest, but it is also the most highly educated generation. Not all 32 million will be buyers but First American estimates that 15 million of them will buy homes in the next 10 years. These are what Mohtashami calls replacement buyers, keeping the demand high and inventory low for years to come.

    Lending & Forbearance:

    After hitting all-time lows 16 times in 2020, mortgage rates did it again yesterday, hitting a new all-time low of 2.65% for a 30 year fixed mortgage. Despite the newest low, the chief economists of Freddie Mac and MBA both expect rates to move closer to 3% throughout the year. (Freddie Mac)

    In a recent article, Tim Glaze with HousingWire said, “Consider the state of mortgage rates over the last 40 years: In the 1980s, Len Kiefer of Freddie Mac noted, 30-year mortgage rates averaged 12%; in the 1990s, they averaged 8%; in the 2000s, they averaged 6%; and in the 2010s, rates averaged around 4%.”

    Frank Nothaft, Chief Economist for CoreLogic said, “The housing industry is the most interest-rate sensitive sector in the economy.  When mortgage rates are low, they drive buyer demand and owner refinance, fueling home sales and home purchase and refi originations. We expect home sales in 2021 to be more than in 2020. In fact, we expect home sales relative to the housing stock, a measure of home ‘turnover’, in 2021 to be above the average annual turnover rate of the prior two decades.”

    Forbearance info changes regularly. This post from Wednesday includes the most recent forbearance numbers and exits. The bottom line is that 13% of the forbearance exits, leave without a loss mitigation plan in place. (MBA)

    The AZ Market:

    • Join us on Zoom next Thursday as Tina Tamboer with the Cromford Report does a market update all about Greater Phoenix. Click here for details and registration.
    • Inventory is very low; 70.6% below normal and 53% below this time last year.
    • Demand remains high. It is 31% above normal, a year ago it was 2.4% above normal.
    • We have just over 4 buyers for every listing available on the market.
    • The preliminary census numbers are showing that AZ has had about 1 million people move here from 2010-2020. This could entitle us to another seat in Congress. California had its first-ever drop in population. The counties that drive the largest relocation to AZ is LA County and San Diego County. The full Census data should be released in March.
    • Valley new home permits are up 16% year over year. (Home Builders Association of Central Arizona)

    Real Estate News:

    • PLS, formerly The Pocket Listing Service, rebranded and relaunched as The Property Listing Service after altering its business to fit within the Clear Cooperation Policy and now shows exclusive listings to the public. (Inman)
    • CoStar purchased the URL houses.com, furthering its entry as a real estate portal with intentions to compete with Zillow. This came shortly after the FTC approved the $250 million acquisition of Homesnap. (Inman)
    • RedfinNow, Redfin’s iBuyer launched in Phoenix this month. Before Opendoor went public RedfinNow referred iBuyer business to Opendoor in markets where RedfinNow did not have a presence. It seems as though that referral partnership is no longer. (HousingWire)

    Final Thoughts:

    Continue being the voice of reason for scared sellers and nervous buyers. Use your market knowledge to bring value and confidence to your clients. And let’s continue being part of the solution.

    Please share this with your colleagues and clients.

    Copyright 2020 by Sarah Perkins