the AZ market

Tag: #greaterphoenixhousing

  • Greater Phoenix Real Estate Update 2/26/2021

    While real estate remains local; the big business behind it is anything but. 2021 has seen many mergers and acquisitions and we expect to see many, many more this year. The journey towards the undefined end-to-end platform continues on, gaining speed in the form of millions and billions of dollars.

    What is end to end? Is it buying a house with a click of a button? Is it bundling real estate, title, and mortgage services from one company? Is it the Zestimate value as the offer amount? Real estate isn’t a grassroots industry anymore.

    The New Zestimate:

    Zillow’s Zestimate is 15 years old and provides a valuation for about 100 million properties nationwide. In recent years Zillow has put a lot of effort into increasing the accuracy of the Zestimate. It uses tax records, machine learning, and artificial intelligence that pulls data from photos. Despite all of that Realtors could easily explain the Zestimate inaccuracy. That was until January 1, 2021. That was when Zillow Homes, the brokerage joined NAR and the local MLS’s. Now armed with an IDX feed, the accuracy improved overnight.

    Yesterday Zillow announced the follow up from a recent promise; the Zillow Zestimate (in 20 markets and on homes that quality) is now a live offer from Zillow Homes; the iBuyer. The company claims only a 1.9% error rate.

    Jeremy Wacksman, Zillow’s Chief Operations Officer said, “There’s a set of houses where we’re getting really confident because there’s a lot of houses like it, or we have a lot of data about your house. Ultimately the offer that Zillow Offers makes is intended to be the actual, precise market value of your house once you tell us more about and we come to see it.”

    The Zestimate live offer is available for qualifying homes that fall within Zillow’s “buy box” which is basically, an average-sized home, around the median price, that only needs light renovations.

    Despite the specific buy box, this impacts how all homeowners will now view the Zestimate. It now seems like an initial offer and not an opinion. For example, a CMA can say a house is worth $350,000 but Zillow just said they’d write a check for $340,000. This is all about perception; not the reality that a property has to qualify. Because now, seller’s see a clear bottom price. Why would they ever accept an offer less than the Zestimate? Yes, in today’s market, getting above the Zestimate, even above the appraised value, is not difficult. However, this too shall pass; nothing lasts forever, especially not in real estate.

    If you do not already, I highly encourage you to check out the Zestimate before going on another listing appointment. Sellers do their homework and they know that number when you arrive, so you should too.

    This impacts FSBOs. They will no longer need help pricing the property. This impacts flippers and do-it-yourself iBuyers, who often purchase for less than the major iBuyers. This impacts the major iBuyers. Redfin has a valuation option already. Opendoor will build one. Could it impact how you build a CMA or how an appraiser appraises? Likely.

    The Zestimate live offer feature is available to qualifying homes in Phoenix and Tucson, AZ; Charlotte and Raleigh, NC; Miami, Jacksonville, Orlando and Tampa, FL; Portland, OR; Denver, Colorado Springs and Fort Collins, CO; Nashville, TN; San Diego, Los Angeles, Riverside and Sacramento, CA; Dallas, Houston and San Antonio, TX; Las Vegas, NV; Atlanta, GA; and Minneapolis, MN.

    Real Estate News:

    • Notarize is offering free notarizations to update old documents, like CC&Rs, to remove racist language in an effort to fight systemic racism in real estate. Learn more here and here.
    • Redfin is getting into the rental market through its $608 million acquisition of RentPath, owner of Rent.com and ApartementGuide.com. The FTC recently rejected CoStar’s attempt to acquire RentPath.
    • On Monday, Josh Team, President of Keller Williams announced he is leaving the company. Hours later, Marc King, a 20 year KW veteran, was announced as Team’s successor.
    • From February 8 – February 14, Manhattan luxury real estate had its best week in 5 years with 38 sales over $4 million for a total volume of $351.6 million.
    • First time home buyers made up 33% of home sales in January, up from 31% in December.

    New Construction:

    • 2020 new construction sales outpaced 2019 by 18.7%.
    • January sales increased 4.3% month over month and 19.3% year over year.

    “New home sales activity started 2021 at a strong pace, with purchase mortgage applications for newly constructed homes jumping nearly 19 percent compared to last January. These results are consistent with the still-increasing pace of single-family housing starts and permitting activity reported over the last several months. The low supply of existing homes on the market, and changing household preferences toward newer, larger homes, continue to spur buyer demand.”  

    Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting

    The AZ Market:

    Housing Policy:

    There are two major features of the latest proposed stimulus bill that impact housing. The $15,000 first time home buyer tax credit, while a definite benefit for buyers, will move demand higher eroding some of that benefit. Logan Mohtashami said, “The best economic sector in the world with rates this low doesn’t need government assistance.”

    The second, likely to have a greater impact, is the repeal of 1031 exchanges for investors making over $400,000 a year. This 100 year old tax law allows investors to exchange property and defer capital gains taxes. Surveys from NAR and Ernst & Young reveal a potential economic slowing, GDP reduction, damages small businesses, and 96% of Realtors surveyed said it would decrease both sales quantity and value.

    National Real Estate:

    “Sales easily could have been even 20% higher if there had been more inventory and more choices. Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market.”

    -Dr. Lawrence Yun, Chief Economist for NAR

    • Although we cannot see it or feel it; on a national level, weekly new listings are increasing. They are still being absorbed as quickly as they are listed, leaving us with a total of 336,924 active single-family listings nationwide.
    • Another way to look at the market is the rate of price increases on flipped properties. In some markets, it is upwards of 20%. Nationwide the average is 7.4%, double the average.

    Final Thoughts:

    Housing is 17% of the GDP; a massive number. The industry is changing. Yesterday, Rob Hahn wrote, “The big picture remains the same: certainty, speed, convenience. Consumers want them. We as an industry have to provide them to the best of our abilities. They want to be able to count on us like one, two, three. Provide that, and we should be able to count on them like four, three, two. Zillow has taken a step; now we see how everyone else reacts.” And it isn’t just about Zillow. This applies to everything.

    Please share this with your colleagues and clients.

    Copyright 2021 by Sarah Perkins

  • Greater Phoenix Real Estate Update 2/12/2021

    I was recently interviewed for an Inman article that came out earlier this week. I was one of 5 contributors discussing the challenges of differentiation for traditional brokerages. Click here for the article.

    Real estate is dominating many headlines; from the low-interest rates, low inventory, high demand, big news at Zillow, another commission lawsuit, national policy changes, to CFPB leadership changes there is a lot going on!

    National Real Estate:

    “Pending home sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale. There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings.”

    Dr. Lawrence Yun, Chief Economist for NAR
    • According to Ivy Zelman of Zelman and Associates the size of the market will depend on the number of listings coming to market, not the size of the inventory. The job is to bring more listings to market, not to focus on the size of the inventory, which is tough to do.
    • Inventory is in crisis, there are only 354,900 active single-family residences on the market nationwide. 50,000 new listings went straight under contract, only listed as active for hours, and therefore never make it into active inventory counts. We have less than half of the inventory we had a year ago and it was crazy low then. No real end in sight right now. Prices continue moving up again this week.

    The AZ Market:

    Elliott Pollack’s Monday Morning Quarterback covered our market in great detail, this is what he wrote:

    “Locally, all eyes are on the housing market. Month after month, numbers being reported in the resale market are reminiscent of the housing bubble in 2005. There is a record low number of listings. According to The Cromford Report, as of February 1st, only 5,180 homes were for sale, a 56.7% decline from last February and a 14.5% decline from just last month. This equates to a 15-day supply of homes. In a normal market, you would expect about a two-and-a-half-month supply. The squeeze becomes much worse when you remove the luxury segment of the market. There is only a 10.4-day supply for homes under $500,000 and only an 8.5-day supply for homes under $350,000. 

    This means that it is very difficult to find a home to buy and that prices are increasing rapidly. Indeed, the median resale home price at the end of January was 20% higher than just one year ago ($342,000 vs. $285,000). And rapid price appreciation will continue in 2021 until more supply is made available. 

    This should all bode well for the new home market, which has seen a much more sustainable rate of price appreciation. According to Information Market, over the last 12 months, median new home prices have increased 4.5%. This has caused the gap in pricing between new homes and resale homes to shrink dramatically and will help the sales volume increase among new home subdivisions. In January 2020, there was a 22% premium comparing new home prices to resale home prices. Now, there is only an 11% premium. 

    As a result of both lack of supply and the rapid price appreciation of existing homes, people have been drawn to the new home market. And homebuilders have been responding. According to RL Brown, new home permits increased over 21% in 2020 to nearly 29,000 permits. We expect permits to surpass the 30,000-permit mark this year, which will break a 13-year streak of less than 30,000 permits.

    And that has been the difference between what is happening now and what occurred between 2005 and 2007. We are severely undersupplied in both existing homes and new homes. We are not building excess inventory and we have completely absorbed all of the excess that was previously built. This is not a bubble that will come crashing down. But, though we are currently still one of the most affordable major markets out there, a rapid decline in affordability could cause its own issues. Overall, however, the new home market should continue to do extraordinarily well for the foreseeable future.”

    Zillow:

    Headlines can be very misleading, like “Zillow Homes makes $27 million in profit in Q4 2020 and making an average of nearly $23,000 per home the iBuyer sold.” That is only true when they do not include all of the costs of running a business, paying employees, marketing, technology, and even paying interest on loans. When all costs are considered, both Zillow Homes and Opendoor lost $300 million in 2020. Zillow’s actual return on it’s iBuyer properties is negative $72,000 PER HOUSE. Opendoor’s figures show an $11,000 per home gain in 2020. The $105 million paid in interest was omitted when running those numbers.

    Despite the claims of transparency, many numbers are hidden and the whole story is not provided. Unfortunately for the rest of us in the industry, these companies manage to lose money each year yet keep their investors/shareholders happy. Wall Street plays by different rules. Mike DelPrete explains further here.

    There is one headline that is getting a lot of attention right now. “Zillow buys ShowingTime for $500 million.” Brad Inman wrote an article about why we shouldn’t worry about Zillow trying to take all of ShowingTime’s data. He is right, Zillow has more than enough data with 2.2 billion visitors to the site in Q4 2020 alone. While ShowingTime provides market stats for nearly 1 million Realtors, Zillow provided data for 9.6 billion users in 2020.

    Based on history though, Zillow may have other plans for ShowingTime.

    Nearly three years ago Mike DelPrete wrote about Zillow’s move as an advertising company, far from the real estate transaction, towards the transaction and encompassing more of the transaction.

    Source: Zillow’s Strategic Shift

    While Errol Samuelson, chief industry development officer for Zillow noted that “ShowingTime will remain an open platform available to all industry participants.” He also said Zillow is not in the leads business but in the “transaction generation” business. That was what the acquisition of ShowingTime is all about.

    Given Zillow’s huge push with Zillow Homes, its agent-employee brokerage which went active on January 1, does he mean iBuyer transaction generation? Further statements also mention increasing transactions for Premier Agents and also generating more transactions in general.

    I am less concerned about data, Zillow has plenty, but this does give Zillow even more control. Six years ago Zillow said it would not open a brokerage; it may indeed keep ShowingTime available for everyone, for now. Rich Barton is smart and Zillow knows how to make money; they are willing to take risks. I expect to see more acquisitions in the near future.

    IDX and Zillow:

    • Zillow is now an MLS and NAR member, therefore, has an IDX feed to all listings. This increases the accuracy of Zillow’s Zestimate and listing information. You can no longer write off Zillow info as bad data, it isn’t anymore.
    • Since it is using an IDX feed there is no way to opt not to syndicate your listings to Zillow. If you do not want your listings on Zillow, you must opt-out of IDX as a whole so the listings will not appear on personal websites or any other listing platform.

    Commission Lawsuit #4:

    • A fourth class-action lawsuit claiming that the MLS commission sharing practices violate antitrust laws was filed at the end of January, although this one claims that the price-fixing burdens the buyer who comes in with the funds versus the seller who pays out of the proceeds.
    • The bottom line is that the plaintiffs in all four suits want to have homebuyers pay their Realtor directly, rather than have listing agents share the commissions with the buyer agents.
    • Many people fear that this would completely upend the real estate industry. But think about companies like Rex Homes that are already doing this; Rex charges a 2% commission total: 1% goes to Rex and 1% to the listing agent and they are not members of NAR or the MLS. We have closed transactions with them; the buyer’s agent has a buyer broker agreement and the buyer has paid their agent’s commission.

    Lending:

    Final Thoughts:

    These past few years, especially 2020, taught us that real estate can pivot much more quickly than we ever had to in the past. We are up for the challenges of the changing times.

    Please share this with your colleagues and clients.

    Copyright 2021 by Sarah Perkins

  • This Week in Phoenix Real Estate (video) 12/28/2020

    In this 8 minute video, I cover 4 topics impacting greater Phoenix real estate this week.

    One – the Market:

    Be mindful of the headlines. Demand remains way above normal but it has fallen slightly below its peak in November. This is causing all kinds of headlines claiming the sky is falling. While our demand is the highest it has been in 9 years, inventory is at the lowest, maybe ever, at least in the past 20 years. Inventory is down 20% just since last month and 51% from a year ago. There are about 6300 available listings. That is it. We could literally use 20,000 more listings in our market, like tomorrow. Nationwide there are fewer than 450,000 single-family residences available.

    Also, remember, the market is cyclical, it is normal for activity to slow at the holidays. The best kind of housing market is a stable housing market. For us to move towards more cyclical norms is a good thing.

    Existing home sales have declined slightly from November. However, there are still about 25% more pending sales than there were at this time last year.

    For new homes, over the past 10 years the average decrease in activity from mid-November to mid-December is 25% and for the same time period, new home sales are up 20% year over year.

    The strength of the market is driven by low inventory, high buyer demand, and super-low mortgage rates. This strength is expected to continue into 2021 with, hopefully, an increase in listings.

    Two – Population/Migration:

    The biggest challenge, that we know of today, is the quickly rising prices, we are up 17% year over year. Increasing supply will slow the price appreciation which will help keep today’s buyers engaged. Over the past 10 years, nationwide, builders have underbuilt for the demand, and it is coming to a head now.

    Combine the low inventory with population growth and supply diminishes even faster. The full census numbers come out in March but the preliminary numbers for 2020 are in and Arizona’s population growth is just over 105,000. 2020 actually had slightly fewer people move here than in 2018 and 2019. Over the past 10 years, about 890,000 people moved to Arizona, of which about 80% or 712,000 moved to greater Phoenix.

    Further data shows that the mass exodus from big cities has not been what was initially expected. Fewer than 1% of the population left the biggest cities in the country. If you take the homeowners that moved this year in the 50 biggest cities in the country, about 84% stayed in the same city.

    Three – Stimulus Bill:

    Yesterday, the president signed the $900 billion relief bill into law. There will be a stimulus check, expanded unemployment programs extended through 4/19/2021, additional $300 in weekly benefits extended through 3/14/2021, additional funding for PPP, and an extension to the eviction moratorium through 1/31/2021.

    The biggest news for our industry is the $25 billion in rental assistance which allows landlords to apply for funds to cover rents in arrears, utilities, and other housing costs. This is great for landlords as the majority of landlords are mom & pop investors.

    Forbearance timelines are not addressed in this stimulus bill. Although last week, FHA announced a 2-month extension on both the foreclosure moratorium and forbearance initiation. This means struggling borrowers who have FHA loans can get started on their initial forbearance plan through 2/28/2021.

    Only FHA has extended these, any other struggling borrower who needs to get started on a forbearance plan must call their servicer by the end of the day Thursday.

    Four – News:

    1. Last week, another commission based class action lawsuit was filed. This one did not name NAR but did name the local MLS and industry giants like Realogy, Keller Williams, and RE/MAX.
    2. Luxury builder, Camelot Homes will now allow you to take a house for a test drive so to speak, they just announced their “Stay and Play” experience for a new community in Desert Mountain in north Scottsdale.
    3. 2021 is expected to be another big year for mergers and acquisitions also, we should expect more IPOs and SPACs for businesses going public.

    Happy New Year!!!