the AZ market

Category: National 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.

  • 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

  • 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

  • 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?

  • Inman Connect Las Vegas 2022

    After 8 years of wanting to go, this year I finally got to go to an Inman Connect conference. Earlier this month, I joined 3,000 other real estate professionals at the Aria in Las Vegas to talk about real estate. It was awesome! This is my summary from 36 pages of notes.

    Major Themes:

    • Customer service: this is a relationship business
    • Focus moves from growth to profitability
    • Increase efficiencies, streamline systems
    • Reduce expenses
    • The ultimate goal is to be efficient and transparent.

    Profitability:

    Sustained unprofitability was accepted 2 years ago and now it is a liability. Cash is still king. There are real estate tech companies that are hemorrhaging huge amounts of money, some have a longer runway than others. Opendoor can weather quarterly losses (Q3 will be brutal) and the FTC $62M fine for now, with roughly $2.5B in cash, it has months of operating costs covered.

    A profitable business allows for continued growth during tougher markets, not just survival.

    Big tech and start-ups are looking to continue growing and many of these companies are looking for a portion of Realtor commissions to fund that growth. Opendoor does so by lowering co-broke offered. Zillow and Realtor.com do so with leads, Compass plans to adjust up its splits to become more profitable by “improving economics with agents.”

    Profitability is a big struggle for many brokers. How do they attract talent by offering great tools and resources along with competitive splits? The answer, is they don’t. It isn’t possible. The race to the bottom is over and there are no winners.

    Brokerages are able to increase profitability by increasing headcount, and productive headcount. For example, not only does eXp’s model has lower overhead, it has grown substantially in agent headcount.

    Big tech and the overall market have stopped trying to eliminate the Realtor and have realized that technology doesn’t sell houses, agents sell houses. The technology enables them to scale. With the understanding that agents are central to the transaction, businesses are coming after commissions, which in 2021 were $20B higher than in 2019 due to more sales and increased sales price.

    What happens to these models if the DOJ’s suit against Realtor commissions finds on the side of the plaintiffs? What happens if buy-side commission is reduced or the requirement eliminated?

    Zillow’s recent partnership with Opendoor brings seller leads back into Zillow’s offerings, a strategic plan given today’s uncertainty.

    Real Estate Volatility:

    Real estate is less stable than it used to be. Redfin’s CEO, Glenn Kelman explained why changes are speeding up in real estate, “I just think as Wall Street owns more of Main Street, the housing market will look more like the stock market, which is extremely volatile.” He went on to explain that investors are more likely to make drastic price drops to move inventory, which complicates selling for regular homeowners competing with institutions – which represent one-third of the available market.

    The Consumer:

    Derek Thompson, a journalist with the Atlantic, explained what people want. He said, “we have a deep bias for the familiar.” Meaning that while people think they want novelty and newness, they also want at least a hint of something similar to what they already know and love. He said that we stop listening to new music when we are 33 years old because he like what we like. And often what we like is based on what we see regularly. The more often we see it, the more we like it. People want surprising yet familiar. This is why anything too novel is rejected.

    Industry Changes:

    Expect a significant increase in mergers and acquisitions across the industry. Expect outside businesses to enter through acquisitions. Expect the brokerage model to shift and to see an increase in splits. Gross broker revenue has declined from 22% to 11% today.

    Final Thoughts:

    The real estate industry is fiercely competitive and the best of the best shared their “secrets.” There were power buyers, iBuyers, and investors. There were also attorneys and venture capitalists. There were machines that “hand-write” notes. There were CRM and lead generation companies. Photography. Virtual assistants and high-end print marketing. There were mortgage and title companies and a lot of top-producing Realtors. It was an exciting and exhausting 3 days. I am thrilled I got to go.

    A special Thank You to Dane Briggs and Clear Title for sending me to represent the company.

  • National Housing Update 7/20/2022

    Sellers have less power than they did only 6 weeks ago. The market is very different than it was recently. It is not catastrophically bad, but it is far trickier than it was.

    National Real Estate:

    • Available single family inventory increased to 491,000 or by 3.25% two weeks ago, a 31% year over year increase and 60% up from the bottom in early March. Based on the steepness of the increases, there are no signs of slowing.
    • There was an increase in new listings during the week of the 4th of July, a first in over seven years.
    • 31.5% of active listings in the largest metros reduced their price in June. Boise had the highest rate of reductions at 62%. For the city specific price reductions, click here.
    • About 60,000 purchase contracts were canceled in June, or about 14.9% of all homes that went under contract during the month.
    • More than 50% of builders also saw an increase in contract cancellations in June.
    • Purchase loan rate locks (a way to measure demand) were down 10.8% from May to June and down 22.7% in Q2 2022.

    Fannie Mae’s June monthly National Housing Survey:

    • 81% said the economy is on the wrong track, an all-time high.
    • 20% said it was a good time to buy, an increase from May’s all-time low of 17%.
    • 26% said it was a bad time to sell, an increase from May’s 19%.
    • 27% expect prices to decline in the next 12 months, an increase from May’s 24%.

    Real Estate News:

    • One of the previously thrown out commission lawsuits against NAR and others, which seeks class action status, has been amended and is back in court. The suit alleges price fixing on commissions damages buyers.
    • Proptech investment is starting to decline. Despite the $13B invested in real estate start ups in the first half of the year, investor interest in the sector has declined by 23% since April.
    • Due to the 9.1% inflation rate (12.3% in Phoenix) the Fed could raise rates by up to one full percentage point.

    Final Thoughts:

    In Tom Ruff’s June STAT report, he wrote about a recent article that accurately describes our current situation. He wrote:

    “As “affordability issues take their toll”, it has become much more difficult for traditional buyers, particularly first-time buyers, to purchase a home. In the link just provided, a report done by First American Financial Corporation lists Phoenix as the fifth city in the country where affordability has declined the most year-over-year at 56.1%. Charlotte, North Carolina, led the nation at 62.5%. In the report, Mark Fleming, Chief Economist at First American, reiterates what we already discussed, ‘The pandemic-driven supply and demand imbalance that fueled historically strong house price appreciation is coming to an end as the housing market rebalances to a new normal.’”

    Copyright 2022 Sarah Perkins

  • Greater Phoenix Housing Update 6/22/2022

    It happened. The residential real estate market was going so fast that the only way to slow it down was to pull the emergency brake. And boy, was that emergency brake pulled. It threw the market into chaos but this chaos won’t last long. It may feel as though we are spinning out of control. It is all in an effort to find normal.

    Normal is not exciting. It is rather boring. And change is scary. But normal isn’t exhausting. Normal is healthy and sustainable. But we aren’t there yet.

    We are in the chaos. Inventory is up, price reductions are up, and consumer sentiment is down.

    National Real Estate:

    • Supply of unsold single family homes in the US increased by 5.6% last week, up to 396,000. We probably have 12 more weeks of climbing inventory before we see a peak. Inventory is up 16% year over year and is up 22.3% in the past four weeks.
    • Price reductions continue to increase. Two weeks ago, we saw the largest weekly increase in price reductions and last week’s increase was even bigger. Now 25.5% of homes on the market are taking price cuts. That is a 1.4% increase, week over week, which is significant. We will probably be at a normal level of price reductions (30%) in July. Based on this trajectory, we could see above normal price reductions by the fall.
    • At 23%, immediate sales continue to decline, despite falling more slowly than expected. Expect this to keep dropping and to see more inventory, longer market time, and fewer bidding wars as we go deeper into the year.
    • Fannie Mae’s June forecast now predicts a 13.5% decline in total sales this year due to increased mortgage interest rates and another decline of 11.2% next year due to the Fed’s rate hikes which Fannie Mae believes will push us into a recession in 2023.
    • According to Redfin, luxury home (top 5% priciest homes in a market) sales declined by 18% year over year through the end of April. Non-luxury home sales declined by 5.4% over the same timeframe.

    Consumer Sentiment:

    The latest news of unexpected higher inflation which caused Wall Street to freak out and fall into a bear market and drove the Fed to increase rates by 0.75% instead of the expected 0.50% scared a lot of people. All of that happened in 4 days. And add that to the uncertainty with the war in Ukraine, gas prices, and still rising mortgage rates; people are nervous. This is why consumer sentiment is so important. If enough people freak out, it can stop the market, even when things aren’t as bad as they believe.

    The most important thing right now is to not overprice listings. The perception with all of these price reductions is that prices are going down. That isn’t the case at all. The current year over year appreciation rates are about 15% nationally and 20% locally. As you know, sellers want the moon right now and many still believe they can have it. But as more and more listings drop their prices, buyers will pull back more waiting to see how much lower they will go which will further soften the market.

    June’s preliminary Consumer Sentiment level dropped 14% from May to 50.2 reaching its lowest recorded value. Increased gas prices are the biggest cause. Gas prices are up 65 cents nationally since May. All consumers are feeling pitched. Fluctuations in interest rates impacts that housing sector more than any other sector.

    Rates, Inflation, and the Fed:

    Housing makes up about 40% of costs in the CPI so the huge appreciation rates of the past 2 years is considered the primary cause of inflation. When inflation increased in May, the Federal Reserve increased rates by 0.75 of a point, the largest increase since 1994. More rate hikes are likely ahead, as the Fed tries to cool off the U.S. economy without causing a recession.

    Dr. Lawrence Yun, NAR’s Chief Economist, said, “The Federal Reserve set a big increase in interest rates and means several more rounds of rate hikes are on the way in upcoming months. So far, the short-term fed funds rate that the Fed directly controls has risen by 175 basis points. But the 30-year fixed rate mortgage has risen even more, by nearly 300 basis points. On the same $300,000 mortgage, the monthly payment has risen from $1265 in December to $1800 today. That’s painful and, consequently, will shrink the buyer pool.”

    The AZ Market:

    While the Greater Phoenix housing market follows the same trends of the national housing market, it does so first (currently running 4-6 weeks ahead versus the usual 6-9 months ahead). The cooling trend emerged 10-12 weeks ago locally, while nationally the trend became more apparent in April. Not only does the Greater Phoenix market run ahead of the national market, it has bigger swings. Our highs are higher and lows are lower. For example, over the past three months, the national single family inventory has increased by 64% and during the same time period, Greater Phoenix’s single family inventory increased by 148%.

    • Total active listing inventory is up 47% in the past month.
    • The median number of days prior to contract is now 11, up 4 days from last month.
    • Price reductions are up 471% since the beginning of the year.
    • The current median sales price is $475,000.
    • Sales prices are likely peaking now and pending sales prices peaked the second week of May. This means monthly price appreciation will likely go flat in the coming weeks (if not days).

    Join us for our next Cromford Market Update with Tina Tamboer on July 13. For details and registration, click here.

    Real Estate News:

    • Homeowners gained 32.2% in equity over the past year giving them an average of $207,000 in available equity.
    • Short term rental bookings increased by 2.6% year over year and yet occupancy rates declined by 8.6% in May. This is due to a 24.7% (57,000 properties) increase in Airbnb and VRBO listings.

    Final Thoughts:

    The imbalance in the market was caused by very low supply, not unusually high demand. This is the fundamental difference between the 2005 market and the 2021 market. In a market with already falling demand, drastically rising mortgage interest rates has pushed our current demand off a cliff.

    The data line to watch is active inventory. If inventory continues to climb at its current rate, we will be in a buyer’s market soon. However, at roughly 13,000 active listings, if inventory slows or flattens we will stay in a weak seller’s market.

    We are once again, in uncharted territory. Hopefully, the chaos clears soon.

    Copyright 2022 Sarah Perkins

  • National Real Estate Market Update 6/14/2022

    In rapidly changing markets the best thing to do is focus on the most current data. Ignore clickbait headlines and any forecast that goes out further than three months.

    It is very early in the housing market shift and no one knows what will happen. It is not market changes themselves but the speed of change that is causing the feelings of chaos. Right now, after a long run up in home prices we are going through a market disruption, where the markets behave erratically. Once the disruption settles down, we will likely enter a correction (not necessarily in all markets) as the housing market attempts to normalize. The markets of the past two years are unsustainable. Remember, a correction is not a crash.

    Consumer sentiment is among the most powerful market drivers in any economic sector. When consumers are nervous, they pull back. Fear-mongering headlines do not help empower consumer sentiment. For example, Inman recently ran a headline that said, “Zombie foreclosures post 1st increase since moratorium’s end” The article mentions the 7,500 properties going through the foreclosure process in Q2. During normal times there are around 200,000 properties in pre-foreclosure, so 7,500 foreclosures is not a number to cause panic.

    There are a lot of forecasts from different publications, analysts, and economists. It seems as though the analysts and economists who are not in real estate tend to predict that home prices will decline. Many of the housing analysts and housing economists say that appreciation will go flat but unlikely go negative by much if at all. I am not sure if the housing analysts either know more than the others or they do not want to give bad news to the real estate industry. I’d like to believe that it is because they know more but at this point, anything could happen.

    National Real Estate:

    • Available single family home inventory is still rising but at a slower rate. Inventory increased 3% last week to 375,000, slower than the 5.7% week over week increase two weeks ago, or the 8% week over week increase three weeks ago. We now have more homes on the market today than we did at this time last year. Inventory is up nearly 56% from the bottom on March 7 (241,000)

    Demand:

    • Price Reductions increased by one full percentage point week over week last week, up to 24.1%. That is the highest level of the year. Normally about 30% of homes take a price reduction before selling so last week’s rate is still below normal, but the rate of increase was steep. Price reductions typically peak in the fall before resetting around the holidays. Based on our current trajectory, we may hit 30% reductions by next month, which is back to the normal rate.
    • We had the fewest immediate sales this week since last winter, likely because of the holiday weekend. It is normal to have fewer new listings hit the market over Memorial Day weekend. Despite having a smaller number of immediate sales, last week’s percentage increased from two weeks ago. Before last week’s increase, we had 6 weeks of declines in immediate sales. Take it with a grain of salt, it isn’t a real increase in new listings. Expect this decline to continue next week. Last week was an anomaly. Immediate sales has been a defining aspect of this current market.
    • Fannie Mae predicts that new home sales will decline by 1% in 2022 and by 13% in 2023. Because the new home market is so much smaller than the resale market, it moves faster and can give us a forecast of what is to come for the resale market.
    • Home buyer sentiment declined for the third consecutive month. Only 17% of Americans surveyed in May said it was a good time to buy a home, breaking previous record lows of 19% seen in April and 24% in March.
    Source: Fannie Mae National Housing Survey, May 2022.
    • Purchase mortgage applications are down 21% year over year and down 7% week over week.
    • Due to the decline in demand, builders are feeling pressure to drop prices and increase buyer incentives.
    • In April existing home sales declined for the third month in a row, down 5.9% from a year ago.

    Inflation:

    As announced on Friday, inflation reached a new 40 year high as CPI climbs to 8.6% in May, up from 8.3% in April. Experts had predicted that we peaked in March after April saw a slight decline. Gas, shelter, and food (all basic human necessities) are what drove the increase.

    Real Estate News:

    • NAR’s appeal challenging the class certification in the Sitzer/Burnett commission lawsuit was rejected. The trial is set to being in February 2023.
    • Half of the people who bought a home over the past 2 years say the process made them cry.
    • A lawsuit against Realogy over cold calls from Coldwell Banker agents is heading to trial as a class action now that an appeals court has rejected a request for review from the brokerage giant.

    Final Thoughts:

    A lot is happening in housing and there is no reason to panic. The market of the past two years is unsustainable. In order to get to the calm of a more balanced market, we have to go through the chaos of change.

    Copyright 2022 Sarah Perkins

  • 5/27/22 National Real Estate Update: Velocity

    The US housing market is shifting and it is shifting quickly. The speed in which the changes are happening is making both real estate consumers and practitioners uncomfortable. The velocity of rate increases, the velocity of inflation (despite the very recent modest decline), the velocity of price appreciation, and now the simultaneous velocity of growing inventory and declining buyer demand. Using facts and not emotion is the best way to address the discomfort.

    *Market softening does NOT mean the market is crashing nor does it mean prices are declining. Prices are still increasing, just at a slower rate. In this case, market softening means that buyer demand is declining.

    Negative year over year reports illustrate what we know: 2021 was a record-breaking year for (re)sales units and volume. 2021’s records happened because of a perfect storm of both 2020’s pent-up demand and the nation’s current generational demographic of about 33 million Americans aged 27-34, the perfect home buying age.*

    The AZ Market:

    Greater Phoenix available inventory increased by 50% during the past 30 days and is up 79% since the end of February.

    Greater Phoenix remains in the top spot for the country’s inflation rate, as of April, we made it up to an 11% year over year increase. It is mostly due to housing costs. According to Redfin; “Homes are becoming less affordable more quickly in Sun Belt metros than in coastal areas. Homebuyers in Phoenix, for instance, need to earn 46% more than they did a year ago to afford the area’s typical monthly mortgage payment, compared with 26% more in San Francisco.”

    For a detailed local market update, check out my post from last week here.

    National Real Estate:

    NAR’s chief economist, Dr. Lawrence Yun, has been quoted as saying, “The market is quite unusual as sales are coming down, but listed homes are still selling swiftly, and home prices are much higher than a year ago.”

    Dr. Lawrence Yun expects sales to continue to slow and we will go back to pre-pandemic sales activity. In 2021 there were 6.1M existing home sales, the second most sales behind 2006. A 10% decline in sales would put us at about 5.5 million sales which pre-pandemic was considered a healthy market.

    National Supply:

    • Last week was this year’s biggest listing week with nearly 111,000 new listings.
    • Total available single family homes increased by 8.2% to 344,000 homes last week. That’s an increase of 26,000 more homes than last week, and 6% more than this time last year.
    • This is the first we have had year over year inventory gains since 2019. Available purchase inventory has been falling each year for a decade. During that time, Americans have turned about 8 million homes into rentals, capitalizing on the low mortgage rates.

    National Demand:

    • NAR’s pending home index declined by 3.9% month over month in April to the slowest pace in 10 years. It was the sixth consecutive monthly decline.
    • This week nearly 27,000 went under contract immediately. But so many new listings hit the market, the immediate sales percentage declined down to 24%. Last week it was 25%. A year ago it was 26%.
    • Price reductions continue to increase. 21.7% of listings are reducing their price before selling. That is up from last year’s 15.8%.
    • Purchase mortgage applications are down 16% year over year.

    National Existing Home Sales:

    • Fannie Mae expects total number of home sales to decline by 11% this year from last, a 3.7% decline from Fannie’s April forecast.
    • The median price of a resale home sold in April was $391,200, the highest on record and an increase of 14.8% from a year ago. Remember, sales prices tell us what the market was doing 30-60 days ago, not today.
    • Existing-home sales declined for the third month in a row. In April sales decreased by 2.4% from March and 5.9% year over year as declining affordability continues to challenge today’s buyers.
      • Midwest increased by 3.1% (month over month)
      • Northeast increased by 1.5% (month over month)
      • The South declined by 4.6% (month over month)
      • The West declined by 5.8% (month over month)

    New Home Sales:

    • Leading indicator because this market shifts faster than the resale market.
    • Builder confidence declined by 8 points in May to 69, dropping to its lowest levels since June 2020.
    • April new home sales dropped for the fourth month in a row by 7% month over month and 27% year over year, matching the lowest level of sales since April 2020, at the very onset of the pandemic.
    • Available new home inventory has skyrocketed from 4.7 months in April 2021 to 9.0 months in April 2022! Economist Logan Mohtashami with Housingwire uses this rule of thumb for anticipating builder behavior basing it on the three-month average of supply. He writes:
      • “When supply is 4.3 months and below, this is an excellent market for the builders. They will happily build.
      • When supply is 4.4 to 6.4 months, this is just an OK market for the builders. They will build as long as new home sales are growing.
      • When supply is 6.5 months and above, the builders will pull back on construction.
      • The monthly supply has spiked, the 3-month average is at 7.4 months, and the headline number is at 9.0 months!”

    Real Estate News:

    • Realtor.com is the first to add wildfire risk data to properties listed on the portal.
    • Opendoor is expanding in AZ and just committed to over 100,000 square feet in Tempe. The location will employ 500 people and will be Opendoor’s largest office.
    • Microsoft created a real estate venture called Bing Rentals and is currently creating a team of engineers to build it, very little is known about this venture.
    • Google Trends saw a huge increase in searches for the term ‘housing bubble’ in March, and it hasn’t fully returned to normal levels. Clearly this remains a concern for many. This is not good for consumer sentiment.

    Final Thoughts:

    The negative year over year reports can easily cause fear when it shouldn’t. Consumer sentiment can have a greater impact on a market than actual data. Zillow Economist, Jeff Tucker, recently raised concern that talk of a bubble could create fear which could actually negatively impact the market.

    Copyright 2022 Sarah Perkins