the AZ market

Tag: #arizonarealestate

  • Phoenix Area Real Estate Update 8/7/2020

    Disneyland announced its closure due to COVID-19 on March 12. Despite being the usual 31 days, March lasted longer than any other month in history. People all over the world were glued to the news; trying to make sense of what was happening. April 19 was the turning point for Arizona real estate. In May the end was in sight. And then it wasn’t. Now it is August, a time when we used to buy school supplies and take the first day of school photos we are, instead, buying laptops for Kindergarteners begging them to hold still for one more minute.

    The intense political climate has brought more confusion than answers. Today it was announced that 50% of Americans do not trust the media. I was surprised that the number was not higher. We know a lot more now than we did five months ago but a great deal remains to be seen.

    Let’s start with what we do know. Real estate is saving our economy.

    What we know:

    Demand for real estate is intense all over the country and it is reflected in the 11% year over year sales price increase for the last week of July. The national median sales price is up to $315,000. (Redfin)

    TheAZMarket:

    Cromford Market Index (CMI): Is the best leading indicator available (balance is 100, above 100 is a seller’s market, below 100 is a buyer’s market, prices rise at 110, and drop at 90). Yesterday it was 324, the pre-COVID peak was 241 and bottomed out on May 15 at 145.2. This week we blew past the previous record set in 2005 at 312.9.

    Supply: The available inventory continues to stabilize; it just happens to be at an extremely low level. As of yesterday, our inventory is 63.3% below normal. Active listings excluding under contract accepting backups (UCB) are down over 42% year over year and nearly 11% month over month.

    Demand: Pending sales are down 2.5% since last month but up 16% year over year, which is significant given how much lower our inventory is today. Our demand is nearly 19% above normal and increased by 2.6% in the past seven days.

    Sales & Prices: Phoenix metro area closed sales are up nearly 15% month over month and up 16% year over year. The median sales price is $315,000, up 2.5% month over month and nearly 11% year over year. Healthy appreciation is 3% annually.

    Southeast Valley New Listings, Pendings, and Closings:  This week over week comparison for Tempe, Mesa, Chandler, Gilbert, Apache Junction, and Queen Creek since March 15 shows the recent supply stabilization, demand continues to outpace supply, and sales are increasing. Closings always spike at the end of the month.

    What else do we know?

    • Today’s fast-paced, ultra-competitive real estate market is not only due to pent up demand, the historic low-interest rates and dropping inventory are fueling the fire. Realogy CEO Ryan Schneider said, “Today we are seeing inventory down 15 percent or more in every price band compared to a year ago when inventory was already at historic lows.” (Realogy earnings call)
    • NAR has added a new partnership to the Realtor Benefits Program, ReferralExchange, a concierge, lead vetting company. (NAR)
    • Nationally, new unemployment claims last week was 1.2M. 250,000 fewer than the week prior. We are now at 11% unemployment, down from 11.6% the previous week. (US Department of Labor)
    • New Arizona unemployment claims last week declined by 14% from the previous week. (US Department of Labor)
    • Mortgages in forbearance declined for the seventh week in a row, down to 7.67% of all mortgages or roughly 3.8 million loans. (MBA)
    • Delinquencies for commercial mortgage-backed securities hit 9.6% in July, up from 2.62% last year. (Bisnow)
    • Since the beginning of March 72,842 businesses on Yelp permanently closed. (Elliott Pollack)
    • Judge overturns Governor Ducey’s gym closure, stating they must be allowed to prove they can safely operate during the pandemic. (Phoenix New Times)
    • COVID changed homebuyers timelines, and not in the way expected. More are moving up their purchase timelines. (Redfin)

    “Somewhat counterintuitively, the coronavirus-driven recession is propping up the housing market. Homebuyer demand is surging despite GDP taking a historic nosedive in the second quarter, largely because Americans value the home more than ever and are willing to prioritize housing even as they cut back on other expenses. Additionally, the Fed is using low-interest rates to stimulate the economy, which is giving buyers more purchasing power and boosting home sales. But even with low rates, widespread unemployment and financial uncertainty mean not everyone who wants to buy a home is able to.”

    Redfin Chief Economist Daryl Fairweather

    According to a recent report by Point2, using data from Redfin, homebuyer profiles have also changed since the beginning of COVID. Full report: https://www.point2homes.com/news/us-real-estate-news/the-2020-us-homebuyer-profile.html

    What do we think we know?

    • McMansions are making a comeback. Maybe not 5,000 square foot houses, but definitely 3,000 square feet. (Inman)
    • Schools may reopen for in-person learning on 8/17 unless Governor Ducey extends the required delay in tonight’s press conference. In Chandler, where my kids go to school, the first quarter is now completely virtual with the possibility of in-person learning resuming mid-October.
      • Schools are a big part of location, location, location. If they are closed does the demand for a top-notch school district go down?
      • With kids at home, parents cannot go back to work or look for a new job; which will keep the unemployment numbers high.
      • Parents that are working from home are now also simultaneously teaching from home.
    • Both residential and commercial investors are backing away from new purchases. (Bisnow)
    • Economist Elliot Eisenberg said, “In yet another indication of a stalling national economy, after rising by ten percentage points a month in April, May and June, credit card purchases were flat in July and are now ten percent below their pre-Covid-19 level. This flatlining is probably due to rising coronavirus cases and subsequent behavioral changes in addition to state-imposed restrictions. The lack of continued improvement has primarily hurt restaurants/bars, gas stations, lodging, and airlines.”
    • Since February, rent growth is slowing at a greater rate in urban areas than it is in suburban areas. Reaffirming suburban migration trends. (Zillow)
    • Despite dropping to their lowest levels the “Investor Confidence Index” and “Startup Confidence Index,” investors in this sector are optimistic due to warp speed change, innovation, and increased adoption of new technologies within real estate. (MetaProp)

    What we do not know:

    • Typically, the second half of the year sells less than the first half. Starting in July we tend to see an increase in available listings and that increase remains through November. It is too early to tell if 2020 will fit the pattern.
    • 85% of college students want to return to campus. Colleges and universities want to reopen but how? Some economists question whether major universities will be able to weather this storm. What would Tempe look like without ASU? (Chronicles of Higher Education)
    • StreetEasy, a Zillow owned, NYC listing portal is implementing a 24-hour rule similar to the Clear Cooperation Policy. Non-compliance could lead to loss of the system’s tools and advertising. Will other advertising platforms follow suit? (Zillow)
    • eXp, coming off its most profitable quarter ever, purchased Showcase IDX with plans to create a consumer-facing search portal to compete with Zillow, Realtor.com, and Redfin. Is it possible to compete with portals of this size? (Inman)
    • In an effort to bring commercial tenants back into offices, landlords are now offering healthcare benefits through virtual health startup, Eden Health. Will it work? (Bisnow)
    • What is the future of commercial office space? Projections continue to indicate more trouble for the sector due to more permanent work from home options. (Bisnow)
    • The FED is playing a large role in bolstering the economy. The outcomes of the recent expiration of the expanded unemployment benefits created by the CAREs Act remains to be seen.
    • 1031 Exchanges may be on the chopping block again. Getting rid of the nearly 100-year-old tax program to fund Joe Biden’s childcare and elder-care proposal. What does that mean for real estate? (Inman)

    Too cool not to share:

    Loftus Hall, a 900 year old residential property in Ireland hit the market for $2.9M. In AZ an old house was built in 1980! Check it out here. https://www.irishcentral.com/dream-homes/irelands-haunted-house-sale

    Final Thoughts:

    There is a lot of information coming at us all of the time. After being the cause of a major economic downturn 12 years ago, the real estate industry is taking its role as the solution very seriously. We continue to overcome hurdle after hurdle. I am optimistic that we will continue to do so as we prepare for even more hurdles in the coming months.

    Copyright 2020 by Sarah Perkins

  • Afternoon Bite 8/3/2020 (Video)

    Every Monday afternoon Amber Kovarik and I talk about what happened this week in our local and national real estate market in 15 minutes or less.

    Today’s Takeaways:

    Communication with your clients is key. Be sure to share what is going on in real estate. The real estate industry is the driving force in our economic recovery. Things are happening quickly, demand is high, inventory is low, prices are increasing. This is a great time to be a seller and get top dollar. It is also a great time to buy with mortgage interest rates at historic lows.

    Lending:

    • Usually, there are about $2.5 trillion in loans being pushed through the pipeline, today it is $10 trillion. Four times more volume than usual!
    • Mortgages in forbearance declined again for the sixth week in a row. 7.74% of mortgages are in forbearance which is roughly 3.9 million loans. (MBA)
    • About 1.8 million loans in forbearance are seriously delinquent on their mortgage payments. (KCM)
    • 77% of the past due owners have at least 20% equity and 90% have at least 10% equity. (KCM)

    The AZ Market:

    • Cromford Market Index (CMI): The CMI is the best leading indicator available (balance is 100, above 100 is a seller’s market, below 100 is a buyer’s market, prices rise at 110, and drop at 90). Yesterday it was 312.9 (matching the CMI’s record high from the spring of 2005), higher than the pre-COVID peak of 241, and more than double bottom we hit on May 15 of 145.2. Despite the over 15 point increase in the past week, the increase is slowing, slightly, which is good.
    • Supply: The available inventory continues to stabilize; it just happens to be at an extremely low level. As of yesterday, our inventory is 62.5% below normal. Active listings excluding under contract accepting backups (UCB) are down 42% year over year and 11% month over month.
    • Typically, the second half of the year sells less than the first half. Starting in July we tend to see an increase in available listings and that increase remains through November. It is too early to tell if 2020 will fit the pattern.
    • Demand: Pending sales are up 17% year over year, which is significant given how much lower our inventory is today. Our demand is 17.2% above normal and continues to increase.
  • Real Estate Market Update

    Real Estate Market Update

    Tina Tamboer, with the Cromford Report, recently presented on the residential real estate market in the Phoenix metro area.
    To subscribe to the Cromford Report, click here: http://cromfordreport.com/join-armls.html. The complete presentation is available to subscribers.
    Here are my notes:
    Forget everything that Tina said at the beginning of 2019, even forget what she said last quarter. Everything is different. Again.
    Cromford Market Index (CMI):

    • 100 is balanced, above 100 is a seller’s market, under 100 is a buyer’s market
    • Cromford Market Index 184.2 (strong seller’s market)
    • Supply 57.2 and dropping
    • Demand index 105.3
    • Every week the CMI has increased significantly
    • we are higher than we were last year
    • CMI hasn’t been this high since 2004
    • Currently tracking 2004 demand

    From February through June of 2019, we went from the weakest seller’s market in 5 years to the strongest seller’s market in 14 years! This happened in a span of 5 months (long term chart)!!
    2005 PTSD?

    • Despite the numbers tracking close to 2005, our market today is very different than in 2005
    • We have real demand today
    • 2005 was false demand
    • we have today something we didn’t have in 2005, skepticism. We are not there now
    • We are not in bubble range but are watching it closely

    Supply & Demand

    • When supply and demand move together, everything is great
    • When they move together above CMI of 100, there are lots of listings, lots of sales
    • When supply and demand move apart, things go crazy, everything becomes unstable
    • February 2019 supply and demand broke up, despite expectations of a flat, calm, easy market
    • 2004 saw higher transaction volume than today due to our low inventory
    • Prices will continue to rise as long as supply and demand move apart
    • Prices are expected to continue to rise through 2019 and into 2020

    Appreciation

    • We are not in a bubble but we are a bit high for regular appreciation
    • We moved above the regular appreciation level at the beginning of 2019
    • Properties asking $150-225K have the highest appreciation rate
    • Properties asking over $500K, 1-3% appreciation rate (balanced market, equals rate of inflation)
    • Properties asking $225-500K, 3-5% appreciation rate (above rate of inflation, seller’s market but not huge gains)
    • Properties asking $150-225K, 6-10% appreciation rate (lots of fix and flip investors, area with the most appreciation)
    • Properties asking under $150K, 2-5% appreciation rate
    • first half of 2019 was tracking behind 2018 for amount in escrow
    • turned in February, we are now tracking above 2018
    • tracking volume of 2017 but with higher price points
    • seasonally between May and December, we have a 30% drop of quantity of properties in escrow
    • best time to buy is the 2nd half of the year, the very best is the 4th quarter, buyers do not give up on the market, this is true for all price points

    What Effects demand?

    • interest rates
    • 2011-2014, 45% of purchases were for cash
    • mortgage rates have dropped, again
    • when rates went up slightly in March, buyers got off the fence. People thought rates hit the bottom.
    • appreciation/depreciation (affordability)
    • affordability index tracks affordability with the changes in wages
    • recent wage increases have put Phoenix back to being affordable
    • 2004 we were affordable, 2005 with a 45% increase we were no longer affordable
    • relocation (inbound)
    • employment/income
    • 2.2M people employed, largest it has ever been
    • Phoenix job growth is outpacing the rest of the country, by increasing 2-3%, nationally it is around 1%
    • 3 continuous months of wage increases (April, May, June)
    • click here for the interactive job-center map on the Maricopa County Association of Governments website: https://geo.azmag.gov/maps/azemployment/
    • loose/tight lending practices
    • population growth
    • tons of inbound relocation
    • Largest group is from southern California
    • #1 source of incoming people LA county
    • #2 San Diego county
    • #3 Chicago
    • Here is the map of to see where people are coming from: https://flowsmapper.geo.census.gov/map.html
    • cost to rent vs buy
    • people will rent when it makes more financial sense to do so
    • 2018 prices are up 8.1%, so far in 2019 prices are up 6.5%
    • people are thinking it is easier for them to rent
    • cost of sfr rent has increased 7.1%/ patio homes rent increased 7.8%
    • median rental $1700 monthly for 1802 square feet
    • Tina used the Zillow calculations to estimate equity over 5 years (60 months)
    • Using the median sales price of $288,000 for a 1805 square foot single family residence, here is the calculator: https://www.zillow.com/mortgage-calculator/ (schedule from Zillow, click full report, go to month 60)
    • If purchased for $246,452; after 5 years with no appreciation owners now have $41,500 in equity
    • Based on the current rate of inflation, with 5 years of payments adds $71,500 in equity
    • 2005 purchase prices increased, rent prices did not, sign of false demand
    • Today rents and purchase prices are rising, sign of true demand
    • consumer sentiment (how you feel about the market, which could trump everything else)
    • we are at historically low rates and everyone is getting raises
    • consumer sentiment is going up when people get raises
    • now people have moreconfidence and feel better about buying

    Fix & Flips

    • Biggest gains ($60,000 or 60% margins) in areas with cheap houses with up and coming employment centers
    • See https://geo.azmag.gov/maps/azemployment/
    • Luxury flippers are making up to 60% in Scottsdale on houses over $500,000
    • Headlines define flips as: a property purchased and sold within 2 years
    • 2013 was the biggest year for flippers
    • Flippers love sellers markets and retreat in balanced or buyers markets
    • iBuyers are doing most of their business between $200K-$250K
    • iBuyer purchases are considered a FSBO, which is $127 per square foot for $200K-$250K
    • iBuyer sells, on average, 7% more than the contract price. average on mls sales 9% increase between $200K-$250K

    What Effects Supply?

    • new home construction
    • appreciation/depreciation (equity)
    • foreclosures
    • relocation (outbound)
    • divorce/illness/death/job losses/tragedy
    • cost to renovate vs move up
    • consumer sentiment (feeling)

    Supply

    • 2019 brand new listings June-July 10.7% lower than in 2018. This is the first time this has happened since 2001
    • we had roughly half the number of employed people and half the number of houses in 2001
    • people don’t want to move
    • when we have sellers turning and buying again, then it is a wash on supply
    • 2010 lots of outbound relocation, loss of employment
    • 2014 was the year for Canadian buyers due to beneficial exchange rates
    • supply is plummeting, we are down 10.9% in supply, southeast valley 9.7% down inventory
    • new home construction eases up options but not a lot
    • properties over $2M inventory is up over 13%

    Prices

    • SE valley average sold price is between $100-400K
    • South Tempe is the only place in the SE Valley with an average over $500K
    • seller asking price is up 6.8% from year over year
    • Pendings are up 12% through July year over year
    • SE valley pendings are up 16% year over year
    • decline in offering closing costs
    • Q3 2015 27.9% of closings included seller concessions
    • today it is way lower
    • 30-40% of sales $150-250K have some sort of closing costs
    • 24-28% of those houses are selling over asking (making up the concessions paid)
    • outskirts of town sellers can negotiate more
    • Tina suggests checking out renovation loans
    • 19% sold over list price July 2019
    • correlates with June 2004
    • in May 2005 it was 38%

    Short Term Rentals

    • Are today’s false demand
    • AZ recently adjusted the regulation to not regulate. now you get a tax id.
    • PV & Sedona started the regulation movement
    • #1 risk of airbnb: everything is wonderful all the time
    • #2. we don’t know if this is the beginning of regulation. will taxes go up?

    Final Thoughts

    • interest rates dropped and everyone got a raise
    • Our market is still considered affordable
    • there is no end in sight for this seller’s market
    • prices have not come down and they are not projected to come down anytime soon. definitely not this year.
    • Next predicted recession is in 2020, will it effect real estate?
    • first thing to drop is tourism during a recession, will make an impact on Airbnb
    • 10% drop is the new definition of a crash. Always ask how a “market crash” is defined when people talk about a crash. Many of us think of the 50-60% days.