the AZ market

Tag: #lawyerstitle

  • Greater Phoenix Real Estate Update 9/3/2021

    Inventory levels are up but not enough. Home price appreciation is starting to slow but not by very much. Mortgage rates remain low, but did everyone refinance last year? Conditions are improving but the market isn’t healthy, yet, but it is on its way. Remember when 8% appreciation was a lot? 2018 and 2019 each had 8% appreciation. That feels like a lifetime ago.

    Slow and steady wins the race. Gradual shifts are manageable, they sometimes even go unnoticed. Slow and steady does not create a bubble. Slow and steady does not lead to a crash. Slow and steady is boring and sometimes boring is good.

    National Real Estate:

    For the second month in a row, NAR’s Pending Home Sales Report declined. In July it dropped 1.8% from June and is down 8.5% year over year. The west was the only region to see a month over month increase but remained 5.7% below July 2020. Expect all year over year data to be negative through the end of the year as our market normalizes, 2020 was an anomaly.

    The median single family home sales price declined slightly since July when it reached $399,900, the year over year appreciation rate is declining. At $389,000; single family homes are up 10% year over year.

    The Case-Shiller National Home Price Index was released this week stating that home prices are up 18.6% year over year; that is true but the report is looking at June’s sales, not last week’s. Case-Shiller is used by Wall Street analysts and the federal government. It is very accurate and useful for industries and businesses that do not need to focus on the most timely data. For the 25th month in a row, Phoenix took the top spot for year over year appreciation at 29.3%. I expect that in the coming months this figure will decline some but will remain ahead of the rest of the country.

    “While the housing market feels like it has legs that never get tired, inventory and affordability constraints are still expected to put a damper on price growth. Some early data suggests that the buyer frenzy experienced this spring is tapering, though many buyers still remain in the market. Nevertheless, less competition and more for-sale homes suggest we may be seeing the peak of home price acceleration. Going forward, home price growth may ease off but stay in the double digits through year-end.”

    -Selma Hepp, CoreLogic Deputy Chief Economist.

    The FHFA also released its report showing that in Q2 2021 home sales prices increased 17.4% year over year. Q2 ended in June and today’s market is healthier than the June market.

    The top 10 markets for investors in 2020 (not in order) were Corpus Christi TX, Boise ID, Kansas City MO, Atlanta GA, Memphis TN, Salt Lake City UT, Wichita KS, Provo UT, Phoenix AZ, Springfield MO.

    For every accepted offer in July, there were 3.5 more offers written. In March it was not usual for sellers to receive 40, 50, 60+ offers on one listing.

    29% of new home inventory has yet to break ground.

    Last week was the first week in 16 weeks that single family inventory did not increase. It remained flat week over week at about 431,000 which is a 40% increase from the bottom we hit on April 30 at 307,000. Despite the significant increase, inventory remains tight. Experts are not sure if this is a blip or if inventory is leveling out far lower than expected. This is also the case for Greater Phoenix, since April 30 our inventory is up 52%, and in the past three weeks our inventory if up by just over 2%.

    The AZ Market:

    Despite all of the new apartment buildings coming, experts say that we are not at risk of overbuilding. Vacancy rates are down to 4.1%, a year ago they were at 5.7%. Lack of supply has driven apartment prices up 18% year over year. Between the completed projects and forecasted ones, it is expected that Greater Phoenix will have an apartment increase of 17,563 units in 2021. That is more than the annual amount each of the past three years.

    New home sales are down 31% from May and 37% year over year. They are also down 15% from August 2019 to August 2021. Low inventory, high prices due to labor and material shortages are to blame. The median new home sales price is up 29% year over year in August to $440,000.

    The Federal Reserve:

    While the Fed has stated that it will likely begin tapering its bond and mortgage backed security purchases as early as this year, a few things have to happen first. 1.) inflation stabilization and decline 2.) low unemployment 3.) declining COVID rates. Once those happen and the Fed will announce the start of the tapering, expect rates to jump as much as half to one percent. Rates are being artificially held down by the MBS purchases.

    Prior to 2008, the Fed’s balance sheet was less than $1 trillion. With the quantitative easing during the Great Recession, the balance sheet jumped to $4.5 trillion. Now, after 18 months of bond and MBS purchasing the balance sheet is around $8.3 trillion.

    Real Estate News:

    • The Biden Administration plans to help non-profits and owner-occupied buyers purchase GSE backed foreclosures before corporate investors have the opportunity to come in and purchase the properties.
    • Opendoor is now offering a self-guided, virtual home inspection for sellers. Owners who sell to Opendoor will have the option to do a 30 minute virtual walk through with an Opendoor representative or have the more formal two to four hour home inspection. Opendoor will still do an in-person exterior inspection.
    • In 2019, 53% of Americans wanted a bigger home, today that number has risen to 60%. This is true regardless of age, race, and education.
    • According to a report Zillow released on Wednesday, the average 2021 homebuyer is 45 years old, has a significant other, graduated from college, and will likely purchase a home in the south. Some other fun facts from the report:
      • The biggest group of buyers at 26% are aged 30-39.
      • 40% of buyers have kids under 18 living with them.
      • 44% bought in the suburbs, 38% in cities, and 19% in rural areas.
      • 50% have at least one dog and 39% have at least one cat.
      • 37% were first time home buyers, down from 43% in 2020.

    Final Thoughts:

    There was not a lot of exciting news this week and that is ok. Slow and steady wins the race.

    Copyright 2021 Sarah Perkins

  • Greater Phoenix Real Estate Update 8/27/2021

    Residential real estate pulled our economy out of the shortest recession in history. As last year’s market frenzy cools, the severe imbalance of supply and demand lessens and prices continue to increase, just at a slower rate. According to the 2020 US Census, housing units increased by 6.7% while population grew by 7.4%; both were declines from previous decades, but it doesn’t change the fact that demand (population) outpaced supply (housing units). Over the past 10 years, Maricopa County’s population increased by 15.8% and housing units increased by 8.3%.

    Demand outpacing supply combined with 10 million job openings and only 5.7 million jobs left to recover; residential real estate has garnered significant attention from investors. When an asset class or sector underperforms, investments are redirected into performing asset classes/sectors. Investors do their homework and invest where money will likely grow the most. Year over year rental rates are up along with property appreciation. John Burns of John Burns Real Estate Consulting said, “Investors won’t be slowing down at all. They’re only accelerating.”

    And don’t worry about the coming year over year negative reports. 2020 was an anomaly and is not a good comparison for a normalizing market.

    Rentals & the Eviction Ban:

    Yesterday the Supreme Court lifted the CDC’s eviction ban, stating that the CDC did not have the authority to create the ban in the first place, ending it six weeks earlier than the planned October 3 end date. In June, the Supreme Court ruled that the only way to further extend the eviction ban was through an act of Congress, which did not happen. Through the end of July, only $5.1 billion of the $46.5 billion in rental relief funds had been distributed.

    According to a new report from Zillow, nationwide rent prices were up 9% in July, year over year. Greater Phoenix saw the largest year over year rent increase, at 23%.

    In 33 of the 50 largest American cities, the typical rent is higher than the typical monthly mortgage payment. This is true in Greater Phoenix.

    National Real Estate:

    On Monday, NAR released its existing home sales report for July. Some interesting data points:

    • Total inventory is up 7.3% from June to 2.6 months of supply but down 12% from July 2020 when it was 3.1 months.
    • Nearly 90% of total sales in July were listed for less than a month.
    • 23% of sales were all cash, up from 16% in July 2020.
    • 30% of July sales went to first time homebuyers, down from 31% in June and from 34% in July 2020.

    “We see inventory beginning to tick up, which will lessen the intensity of multiple offers. Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren’t seeing as much growth because there are still too few starter homes available.”

    – Dr. Lawrence Yun, NAR’s chief economist

    Total inventory (including both new and existing) peaked in 2008 then started declining. The declines have been consistent since 2014. While inventory has been rising since February and the market started showing signs of seasonality, which is good, we do not want to see inventory drop again, as it usually does in the fourth quarter. If demand remains the same and inventory declines then we see a faster rate of appreciation, which at its current levels, is unsustainable and has only just started to slow.

    Available Inventory

    The AZ Market:

    In January the Greater Phoenix median sales price was $340,000; now it is $405,000. That is over a 19% appreciation rate in this year alone. Most of those gains took place at the beginning of the year with 15.5% of the gain occurring from January to May. The median sales prices from May to August increased by 3.15% and from June to August the increase was 1.25%. The appreciation rate is slowing, and this is good for the overall health of the market.

    There are 62% more active listings with an asking price over $400,000 than under.

    In July, iBuyers accounted for 8.1% of all home sales in Maricopa County.

    In Q2 2021, 17 houses sold for at least $1,000,000 over the initial list price, up from 8 in Q1 2021. Fifty houses sold for at least $500,000 over the initial list price in Q2 2021, up from 15 in Q1 2021.

    85224 in Chandler is the only Arizona zip code to make it in the top 50 in Realtor.com’s 2021 Hottest Zip Codes in America list.

    Greater Phoenix, through July, has recovered 99% of jobs lost due to the pandemic and only needs 2,500 more jobs to match February 2020’s employment rate. Arizona has recovered 93.7% of jobs lost.

    According to the 2020 Census, at an 11.2% increase, Phoenix grew faster than any other major city over the past 10 years and passed Philadelphia as the nation’s fifth largest city. Buckeye took the top spot for fastest growing city in the country, among cities with at least 50,000. It grew by 80%!

    For more on the Greater Phoenix market, click here for my update from last week which is exclusively about our local market.

    New Construction:

    Lumber prices are down from the peak in May at $1,515 per 1,000 board feet to $472 per 1,000 board feet in early August. Due to the backlogs, it is unlikely that new home buyers will feel the pricing relief anytime soon.

    Month over month builder confidence declined by 5 points in August to 75, the lowest reading in 13 months. The decline is attributed to high material costs and labor shortages. Any reading over 50 is considered a good market. In April 2020 the index dropped to 30.

    “There are now almost 690,000 single-family homes under construction – the largest number since 2007. This is clearly a positive sign given the remarkably low levels of inventory on the market.”

    – Mike Fratantoni, the MBA’s chief economist

    After three months of declines, new home sales in July increased by 1% from June, beating expectations. June’s sales numbers were revised up. New home inventory is up 5.5% to a three-month average of 5.9 months. Builders tend to pull back once they hit 6.5 months.

    Commercial Real Estate:

    Much of commercial real estate has recovered from the pandemic and is now beating out February 2020 prices. The Green Street Commercial Property Price Index, which is based on REIT net asset values, beat February 2020’s ranking by 1.3%. In July, prices were up 14% year over year and up 2.4% from June.

    With prices growing over 20%; mobile home parks, self-storage, and industrial grew the fastest. In Greater Phoenix, the industrial vacancy rate is down to 4.7%. However, some asset classes are still down. The year over year prices for retail and lodging are down 7%, office is down 8%, and mall values are down by 18%. In Greater Phoenix, the office vacancy rate has increased for five consecutive months and the vacancy rate is up to 19.7%.

    Real Estate News:

    • Offerpad is the first iBuyer to turn a profit. In Q2 2021 they brought in $9.2M in profit. Based on the overly inflated offers from Opendoor and Zillow, it is likely the only iBuyer that will be profitable for some time.

    Final Thoughts:

    Danielle Hale the chief economist for Realtor.com summed it up well when she said, “Continued economic recovery is key to maintaining (real estate) sales momentum, and anything that disrupts progress, such as rising COVID cases, could knock home sales off course. We’ve already seen a pullback in builder confidence and mixed construction data as builders balance buyer interest with supply challenges, rising costs, and concerns about the future of the economy and housing affordability. Still, with listing price growth beginning to recalibrate in response to shifting supply and demand dynamics, we should see a steady pace of home sales over the next few months, especially if mortgage rates remain low.”

    Copyright 2021 Sarah Perkins

  • AZ Forbearance Update 8/25/2021

    In this 13 minute video, Lydia Wietsma and I discuss the latest in forbearance, delinquencies, jobs, BPOs, and inspections. We have had a lot of positive news lately which helps both homeowners and buyers.

    Employment:

    In Greater Phoenix, through July, has recovered 99% of jobs lost due to the pandemic and only needs 2,500 more jobs to match February 2020’s employment rate. Arizona has recovered 93.7% of the jobs lost.

    Housing:

    Housing inventory is slowly increasing, giving more options to our exhausted buyers. With the inventory gains, appreciation has started to slow which is also good for the overall health of the market.

    Delinquencies:

    Delinquency rates continue to decline as more and more renters and borrowers are getting caught back up on their payments. The 30-day delinquency rate and 60-day delinquency rates are at the lowest levels in the history of the Mortgage Bankers Survey. The 90+ day delinquency rate remains elevated above pre-pandemic levels.

    Deadlines:

    Forbearance: If your loan is backed by HUD/FHA, USDA, or VA, the deadline for requesting an initial forbearance is September 30th, 2021.

    If your loan is backed by Fannie Mae or Freddie Mac, there is not currently a deadline for requesting an initial forbearance.

    Click here to find your servicer or to see who backs your loan.

    Foreclosures: The foreclosure ban has been lifted. The CFPB has specific criteria that a lender or servicer must abide by when going through the foreclosure process. This will delay many, but not all foreclosure proceedings until the end of the year. For more information click here.

    Evictions: The CDC extended the eviction ban which covers about 90% of renters through October 3. This is hotly debated with strong opinions on both sides. Despite calls that the ban is unconstitutional experts recommend against moving forward with any evictions until the ban is lifted. The FHFA has banned evictions on all of its foreclosed properties with renters living in them.

    Click here and here for renter advocacy information.

    Forbearance Numbers:

    Since our last video, the number of borrowers in forbearance declined by 100,000. We are now down to 3.26% of borrowers or 1.6 million borrowers are in a forbearance plan. Despite the low number in a plan, this was the slowest decline in over a year.

    Forbearance by Stage:

    • 10% of total loans in forbearance are in the initial stage.
    • 82.3% are on extension.
    • 7.7% are re-entries.

    Forbearance Exits from June 1, 2020 through August 15, 2021:

    42.7% of borrowers continued making their payments (22.6%), got caught up upon exiting (13.1%), or paid off the loan with a refinance or sale (7.4%).

    The percentage of exits for the group to be most concerned about, borrowers who exited their forbearance plan still behind and without a loss mitigation plan in place increased to 16.1% from 15.7% two weeks ago.

    Inspections & BPOs:

    Requests have slowed down and scaled back to normal levels. The tax lien notices have declined significantly.

    Most of her BPOs lately have been for fourplexes. They seem to all be investors who are needing to sell. We are seeing elevated investor transactions both for corporate buy and hold or iBuyers.

    Copyright 2021 Sarah Perkins

  • Greater Phoenix Real Estate Update 8/13/2021

    It’s earnings season so the headlines are dominated by big business quarterly revenue numbers. Wall Street and residential real estate have a bumpy history.

    In late 2008 when the Greater Phoenix real estate market’s heart stopped beating and everything went eerily quiet, I didn’t understand what happened. Like many, I wondered, how could everything stop seemingly overnight? I asked, “where did all of the money go?” And I was told, “it never existed in the first place.” I learned that money did not just evaporate on Wall Street and that housing could take down Wall Street, or was it the other way around?

    In 2011 the market bottomed with a median sales price of $107,000 in greater Phoenix. Since 2014 we have been in a seller’s market and the recovery was slow. For a time, real estate felt local again. But was it?

    Venture Capital Funding:

    In 2015, young company, Opendoor, entered its first market, Phoenix. The company pioneered the iBuying concept and was backed by Softbank’s Vision Fund, one of the biggest funds in the world, allowing Opendoor to remain after continued losses. Seven years later the company still has not turned a profit but has billions more to keep trying, especially since going public last year. Big venture capital money continues its quest to disrupt real estate. Opendoor’s situation is not unique, the industry is ripe with unprofitable giants backed by big money. The chart below illustrates the magnitude of venture capital money in real estate, not limited to Opendoor.

    Credit: Mike DelPrete’s 2021 Emerging Models Report

    Valuations:

    Establishing valuations is complicated and the businesses with the highest valuation does not mean that they are the most profitable. Click here for more info on establishing valuations. Earnings alone only tell most of the story. As accurate pricing is established by both supply and demand, profitability is established by dollars brought in and dollars spent. The only way to be profitable is for a company to spend less than it makes.

    For example, eXp’s year over year Q2 2021 $1 billion in revenue led to an earnings increase of a whopping 183%. That combined with an 87% increase in agent count illustrates future growth potential and explains why eXp’s valuation has skyrocketed. eXp’s profit was $37 million or 3.7%.

    Meanwhile, RE/MAX’s revenue grew by 48%, bringing in $76.05 million for a profit of $5.2 million or 6.8%. RE/MAX has consistently been profitable for years, yet its valuation has remained stable.

    Credit: Mike DelPrete’s The Impact of Compass’ Declining Stock Price on Agents

    Earnings:

    Q2 2021 year over year earnings look extremely impressive given that the post lockdown real estate recovery started in May 2020.

    The AZ Market:

    Join us next Thursday 8/19 as Tina Tamboer with the Cromford Report does a 1 hour deep dive into the greater Phoenix housing market. For details and registration click here.

    Q2 2021 was one of the biggest multifamily construction quarters on record, there were 623,500 units under construction in the 150 largest apartment markets nationwide. In greater Phoenix there were 28,600 multifamily units under construction, increasing our multifamily base by 7.6%.

    These numbers are high but warranted. Nationwide apartment rents are up 8.3% year over year and occupancy is at a record high at 96.9%. Greater Phoenix continues to top the charts in year over year rents growth at 21.6%.

    Policy:

    The CDC extended the eviction ban through October 3 with slightly different criteria, covering about 90% of renters. In May, the Supreme Court ruled that the only way to extend eviction protections is with Congress’ approval. President Biden officially made that request to Congress while it is in recess, the only way for it pass is through a unanimous call-in vote. Furthermore, when the Supreme Court made its ruling it stated that it agreed with the plaintiffs in that the Supreme Court did not believe that the CDC had the authority to extend the ban in the first place. Of the $46 billion allocated for emergency rental relief, only $3 billion has been disbursed.

    On July 31, the foreclosure moratorium expired. The CFPB implemented specific rules in which lenders must abide by when foreclosing which will further delay most foreclosures. Abandoned properties will be foreclosed on first. There will be some foreclosures but not a flood. For greater detail on this and forbearance, please check out my AZ Forbearance Update from Wednesday, here. One major factor at play is the historic levels of equity most homeowners have.

    New iBuyer:

    Rocket Homes, a subsidiary of Rocket Companies which owns Rocket Mortgage, the country’s largest lender, is hiring employee real estate agents and is planning a “soon to be released iBuyer program” that will be managed through a third-party partner company.

    Rocket Homes, a licensed brokerage, which is already licensed in all 50 states (has been licensed in AZ since 2018) said that beginning in the fourth quarter of 2021, employee agents working from downtown Detroit will provide services to sellers at a discounted commission rate of 1.5% (the co-broke offered is unclear). The remote employee agents will advise on listing price, handle photos, enter listings in the local MLS, negotiate offers, and handle paperwork. Sellers who would prefer to work with an agent in their market will be referred to the Rocket Homes Verified Partner Agent Network. Sellers who don’t want to work with an agent at all can use Rocket’s ForSaleByOwner.com platform for free.

    Real Estate News:

    • A new Connecticut law is now regulating what Realtor teams may call themselves. They can use “team” but not “group” or “LLC” and also requires a $565 initial registration with an annual fee of $375. This is an awfully complicated way to increase state revenue. Will it catch on?
    • Citigroup, JP Morgan Chase, and other banks are offering a new high risk, high reward bond product and investors want in. While they are a very small part of the market, banks are selling riskier products that packages mortgages, car loans, and corporate debt. Investors are responsible for the losses when borrowers default on the loans packaged in the bonds.

    Final Thoughts:

    Long before residential real estate pulled us out of the shortest recession in history, Wall Street and Silicon Valley were plotting ways to infiltrate housing. While big money and new technology provide powerful incentives, it is very difficult to replace a well-informed, well-connected, local real estate professional.

    Copyright 2021 Sarah Perkins

  • AZ Forbearance Update 8/11/2021

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

    Policy:

    There is a lot of confusion with all of the info coming out of Washington DC. There are proposals, bills, executive orders, extensions, approvals, and appointments announced every day. The Biden administration is proposing a lot of bills that impact housing.

    Here is a brief update on several of the policies coming out of DC:

    • The $1 trillion proposed infrastructure bill passed the Senate and is now in the House for negotiations.
    • A new $3.5 trillion social infrastructure bill has been proposed in the Senate which includes down payment assistance options along with other housing aid.
    • Eviction ban was extended through 10/3. This extension has created quite a buzz among the real estate industry. I expect many more lawsuits in the coming weeks.

    Lifted Foreclosure Ban:

    This did not create a foreclosure frenzy as the CFPB implemented a strict foreclosure process for lenders and servicers. It is likely that we will not see many foreclosures until later in the year after borrowers have exhausted their loss mitigation options.

    Keep in mind that in any year there are foreclosures. The ban that lasted nearly 18 months created a backlog that will have to be worked through. From 2017-2019 there was an average of just over 290,000 foreclosures nationwide which gives us a shortage of about 432,000 foreclosures.

    Given that nationally homes have appreciated about 17% year over year and here locally about 27% year over year, most borrowers in foreclosure will be able to do a normal sale rather than having to go through foreclosure.

    Nationwide, it is estimated that about 4% of borrowers are upside down on their homes by 25% or more. This number has decreased from 6% last year.

    The report went on to say, “Equity gains in Arizona were particularly extreme. In the first quarter of the year, 16 percent of mortgaged homes in this state were considered equity-rich by Attom’s definition. In the second quarter of 2021, that number rose to nearly 40 percent.”

    Forbearance Numbers:

    The total number of loans in forbearance continues to decline. We are down to 3.4% of loans which is about 1.7 million borrowers.

    Forbearance by Stage:

    • 9.7% of total loans in forbearance are in the initial forbearance plan stage.
    • 82.9% are in a forbearance plan extension.
    • 7.4% are forbearance re-entries.

    Forbearance Exits from June 1, 2020 through August 1, 2021

    43.7% of borrowers continued making their payments (22.9%), got caught up upon exiting (13.3%), or paid off the loan with a refinance or sale (7.5%).

    The percentage of exits for the group to be most concerned about, borrowers who exited their forbearance plan still behind and without a loss mitigation plan in place remained flat at 15.7%.

    Future Forbearance Exits:

    According to Black Knight data services, next month is anticipated to have the largest number of forbearance plan exits this year.

    Missed Payments:

    While mortgage delinquencies are easier to track, missed rental payments are not. Based on my research, I think the MBA’s recent update stating that Q2 2021 saw a big improvement in missed housing payments and the total number for both borrowers and renters is below 5 million nationwide is fairly accurate. The data shows that there are about 2.86 million rental households behind on their payments and 2.19 million borrowers behind on their mortgage payments.

    Servicers & Inspections:

    Inspections are way up. Many more for corporate buyers, not just iBuyers but also buy and rent companies also. The servicers have gone quiet on the future of foreclosures but continue to prepare for the coming months of uncertainty.

    Be mindful of the information out there. Be sure that it is current and from a reputable source. And remind borrowers and renters there are still options available. Discuss exit strategies.

    Options:

    Forbearance and foreclosure assistance: https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/help-for-homeowners/avoid-foreclosure/

    AZ Eviction Help: https://azevictionhelp.org/

  • Greater Phoenix Real Estate Update 7/30/2021

    In the past, the Phoenix housing market tended to run about 8-12 months ahead of the rest of the country. Over the past 18 months, our market has pretty much been on pace with the rest of the country until very recently. I would say that our market is running about a month ahead of the rest of the country so be mindful of national headlines, it is old news in Phoenix.

    Economy:

    The economy is in growth mode and many economists expect huge employment growth in September when the additional $300 a week in pandemic unemployment benefits expire. There are two scenarios in which economists forecast a growth reversal and push us into recession. The first is if the increased COVID cases shuts down the economy again. The second is the Federal Reserve tapering its $120 billion in monthly bond and mortgage-backed security purchases too quickly because if they do, interest rates will spike. The Fed met this week and are keeping rates as is. They are also not planning on beginning to taper their purchases until late in 2022. Given that the Federal government is the nation’s largest borrower, the Fed is not in any hurry to raise rates.

    Hopefully, the consumer inflation truly is transitory and settles down by the end of the year. It is the asset inflation that is impacting the economy. We have seen exponential asset inflation over the past 10 years. Economists, Wall Street, and Washington DC call it inflation. We call it appreciation. Houses in Greater Phoenix have appreciated 274% since 2011 when our median sales price bottomed out at $107,000. Today the median sales price is $400,000 which gives us a year-over-year appreciation rate of 27%.

    The AZ Market:

    On Wednesday I pulled the top 5 zip codes for year over year appreciation and was surprised that despite our nearly non-existent sub $300,000 inventory, it was not the lower-priced zip codes with the greatest appreciation rates. Only one zip code has a median sales price even close to the overall median. Luxury took the top spot.

    The top 5 zip codes for year over year appreciation:

    1.) 85253 at 49.8% with a median sales price of $2,397,500 (Paradise Valley)

    2.) 85260 at 43.8% with a median sales price of $575,000 (Scottsdale)

    3.) 85297 at 41.9% with a median sales price of $518,750 (Gilbert)

    4.) 85022 at 41% with a median sales price of $375,000 (Phoenix)

    5.) 85262 at 40.3% with a median sales price of $1,175,000 (Scottsdale)

    This huge appreciation is not like the 2005 bubble. Today’s appreciation is based on low levels of supply. In 2005 it was the high levels of demand, and of course a bunch of other stuff. We did have pent up demand due to the lockdowns in Q2 2020 which caused the frenzied purchasing in Q3 and Q4 2020. Demand peaked in late November 2020 at 35.4% above balance and declined continuously until July 20 when it bottomed at 5.1% above balance. Demand today is 5.9% above balance. That is an 22% decline in demand since November. But it didn’t feel that way because inventory has been so extremely low. The market intensity peaked in March and inventory is up 42% since then.

    “What a frantically interesting and engaging industry.”

    Mike DelPrete, Real Estate Tech Strategist

    Monthly sales have decreased by about 12% in the past two months. This is seasonally normal and also to be expected due to the increased supply and decreased demand. The slowing intensity feels weird, but our market is actually moving in a healthier direction. If you have clients expecting a market crash or price decline, they will be disappointed. This moderation will only slow the appreciation.

    An easy way to show anyone expecting a crash why we won’t see one is by using the Cromford Market Index, which is an awesome leading indicator. The index is available to anyone, without a subscription, at www.CromfordReport.com. Anything over 100 is a seller’s market. More importantly, the demand index would have to move below the supply index.

    http://cromfordreport.com

    Today’s buyers are better educated than ever before and they are doing their homework and are not writing such high offers. From the low point in mid-February to now weekly price reductions are up 182%. The majority of the reductions are in the $400K to $800K price range as this is the range with the highest increase in new inventory.

    In Q2 2021, investor purchases were up 15% from Q1 2021, Phoenix topped the charts with an increase of 25% in Q2 2021 from Q1 2021. Phoenix was also the most popular destination for Redfin users when looking outside of their own city.

    National Real Estate:

    • Purchase mortgage applications declined by 2% last week and that was after a 6% decline the week before. Purchase mortgage applications have declined, on an annual basis, for the past three months, reaching their lowest level since May 2020. High prices and continued competition are blamed for the declines.
    • On Saturday the foreclosure moratorium will expire. The CFPB implemented specific rules in which lenders must abide by when foreclosing which will further delay most foreclosures. Abandoned properties will be foreclosed on first. There will be some foreclosures but not a flood. Experts predict maybe 300,000 foreclosures which would be about 6,000 per state if divided up evenly. For details on the CFPB’s foreclosure rules, forbearance, and delinquencies, check out my update from Wednesday, here.

    “Pending sales have seesawed since January, indicating a turning point for the market. Buyers are still interested and want to own a home, but record-high home prices are causing some to retreat. The moderate slowdown in sales is largely due to the huge spike in home prices.”

    Dr. Lawrence Yun, NAR Chief Economist

    iBuyers:

    In order to compete in this fast-paced market, during the first half of 2021, the country’s biggest iBuyers (Opendoor, Offerpad, Redfin, Zillow) expanded their buy box by upwards of 40% and increased their offers to an average of 104.1% of market value. In 2020 the same iBuyers offered an average of 97.6% of market value.

    Simultaneously, iBuyers also dropped their fees to an average of 5.1% at the end of Q2 2021 from an average of 7.2% in 2020. Between the increase in offers and decrease in fees, consumer’s costs are down by 35% this year.

    And iBuyer purchase activity is way up. In the past three months, Opendoor has acquired more properties than it did in all of 2020.

    Final Thoughts:

    Throughout the rest of the year, expect a further weakening of the seller’s market. The declining affordability and buyer fatigue combined with increased inventory are leading us towards a more normal, balanced market. When housing is more balanced, it is not quite as exciting, but it is much healthier and allows for long-term growth. We finally are getting to the calm after the housing storm.

    Copyright 2021 Sarah Perkins

  • AZ Forbearance Update 6/30/2021

    In this 19 minute video, Lydia Wietsma and I discuss the latest in forbearance, extensions, and tax liens. We share this information to help provide guidance for real estate professionals and struggling borrowers.

    Deadline & Extensions:

    There is a lot of news around forbearance right now. Today is the final day to get started on a forbearance plan. At the end of the day, no new forbearance plans will be created.

    Do not confuse the end of forbearance with the other moratoriums that were extended last week. Both the eviction and foreclosure moratoriums were extended for one more final month. Those moratoriums will expire at the end of July.

    Forbearance Numbers:

    The forbearance numbers continue to decline. About 3.93% of mortgages or roughly 2 million borrowers remain in a plan after 17 weeks of declines.

    Forbearance by Stage:

    • 10.7% of borrowers are in the initial stage. Initial requests this week dropped to their lowest rate since forbearance plans started 15 months ago. According to Mike Fratantoni, MBA’s senior vice president and chief economist, the pace of new forbearance requests remained at an acutely low level of 4 basis points or 0.04% of borrowers.
    • 83.1% of borrowers are on extension, down from recent weeks.
    • 6.2% of borrowers are re-entries, up from recent weeks also.

    Forbearance Exits from June 1, 2020 through June 20, 2021

    45.2% of borrowers continued making their payments, got caught up upon exit, or paid off the loan with a refinance or sale upon exit. This number continues to decline slightly each week.

    15.2% of borrowers exited their forbearance plan still behind on their payments and without a loss mitigation plan in place.

    Even with the end of forbearance, borrowers still have options. Black Knight estimated that of the loans in forbearance, 96% have at least 10% equity in their homes – typically enough to sell through traditional real estate channels to avoid a default or short sale.

    CFBP:

    On Tuesday, the Consumer Financial Protection Bureau (CFPB) extensive mortgage servicing regulations it hopes will prevent “unwelcome surprises” for borrowers exiting forbearance.

    The CFPB outlined the rules for mortgage servicers to follow in the coming months and them, “Unprepared is unacceptable.”

    Servicers may initiate foreclosure proceedings only after the borrower has submitted a loss mitigation application, and either isn’t eligible for, breaks or rejects the loss mitigation plan. If the borrower was already six months past due by March 2020 or if the property is abandoned, the loan servicer is exempt from those requirements.

    The CFPB rule also outlines escrow shortages which can be included in the loss mitigation option. There are limits on how much servicers require borrowers to deposit in an escrow account over the next year.

    Lenders and servicers may offer streamlined loan modifications, as long as the modification does not increase the monthly payments, or increase the mortgage term beyond 40 years. Servicers may not charge extra fees for the loan modification, and if a borrower accepts a loan modification, the servicer must waive any late fees.

    The CFPB wants servicers to be proactive about communicating with borrowers about their options, especially if they are not in a forbearance plan.

    If borrowers are still delinquent, servicers must contact them ahead of the end of their forbearance period to give them the option to complete a loss mitigation plan.

    Finally, the rule adds clarity to the definition of financial hardship to mean any hardship that the pandemic brought on, either indirectly or directly, from March 2020 to February 2021.

    The rule will take effect at the end of August.

    To learn more about the CFPB, submit a complaint, or better understand borrower protections visit https://www.consumerfinance.gov/

    Servicers, BPOs, and Tax Liens:

    BPO requests are up. 15 new ones last week and 16 so far this week. Lydia is not only giving a statement of value but is also checking the exterior condition and whether or not the property is vacant.

    In addition to the regular BPO visits, she is also being asked to deliver tax lien letters to homeowners that do not have a mortgage but are behind on their property tax payments. Tax lien foreclosures have also been suspended and will resume when the moratorium is lifted.

    Buyers and sellers need to let their Realtor know if they have done a forbearance on any property in the country. It is not something that can be just swept under the rug and it is not something to be ashamed of. As inventory grows strategies change. Forbearance was created to keep people in their homes and has been successful at doing so.

  • Greater Phoenix Real Estate Update 6/18/2021

    The real estate market continues to shift and change, slowly moving towards normalization. Prices continue to increase, demand is slightly subsiding, and inventory is growing (and has a LONG way to go). The intensity is cooling (from 500 degrees to 350 – its still HOT), and fatigued buyers are writing fewer offers before one is accepted. The headlines attempting to explain the still very hot, yet cooling market seem to be causing more confusion than clarification.

    National Real Estate:

    A recent report from CoreLogic states that homeowners gained $1.9 trillion in equity in Q1 2021, which is a year over year increase of 19.6%. Going deeper that breaks down to an increase of $33,400 in equity per homeowner and is the highest gain in over 10 years. Arizona’s year over year average equity increase is $51,000!

    Demand is slowing and the market is cooling. Pending sales are down (4.4% in April from March). Mortgage applications are down 7% from the average levels from January and February 2020. Redfin’s demand index is down 12% from the peak in late March. These shifts are not a bubble bursting but gradual changes towards a more normal market. Given the extreme imbalance during the winter and spring, it will take well over a year before we have a balanced market.

    Active single family inventory climbed another 3.8% this week to 342,000. That’s now up 11% from the bottom on April 30, but still 51% lower than this time last year when inventory started falling 1-2% a week.

    The Altos market action index is another tool to gauge demand. Any reading above 30 is a seller’s market. The notable change is that the weekly reading (dotted line) dipped below the 90-day rolling average for the first time all year. This shows that the market is not getting hotter from here but is still very hot.

    The AZ Market:

    -For a deep dive into the Greater Phoenix market, join us on June 22 for a Cromford Market Update with Tina Tamboer. For details and registration, click here.

    -Greater Phoenix’s median monthly appreciation rate has declined by maybe 1%, down to 31% year over year. (yes, you read that correctly) Healthy appreciation is 3-6%. Today’s huge appreciation rates are due to low inventory levels and not super high demand. Demand remains solid but is only about 7% above normal.

    -Inventory levels in Greater Phoenix have increased by 10% since the end of May, matching listings counts from the end of January.

    -Habitat for Humanity is building its first 3D printed house in Tempe. The goal is to expedite the building process while reducing labor and construction costs. About 70% of the building will be printed and the remaining 30% will be built through traditional construction. The selected family will move into the 1,600 square foot, 3 bedroom, 2 bathroom home this fall.

    -In Q1 2021 the Maricopa County Assessor’s Office received twice as many construction permit requests as in 2019 and 2020. A total of 19,232 residential and commercial permits were requested. This increase was expected.

    “[We’ve] been seeing this trend now for a number of years, so I think we’re all scaling toward that. It wasn’t like one day the door got opened and a flood of water just rushed in, this has been just kind of a growing trend that we’ve been monitoring over the last several years.”

    – Eddie Cook, Maricopa County Assessor

    -NAR has identified both Phoenix and Tucson as top 10 commercial real estate markets in 2021.

    –Phoenix took the top spot in Origin Investments’ machine learning database that identifies cities with “promising fundamentals for success.”

    New Construction:

    Lumber prices have declined by 40% since early May. Timberland industry executives, from several different companies, have been selling off company stock at unusually high rates indicating that Wall Street expects lumber prices to continue to decline.

    “This level of selling is simply unusual and to have this type of alignment among peers like this is unusual. It shows a consensus within the group about how they are thinking about their stock prices.”

    -Ben Silverman, director of research at stocks analytics firm InsiderScore

    The speedy price appreciation of not only lumber but appliances and other materials needed for new construction slightly reduced June’s builder confidence rating to 81 in June, from 83 in May, the lowest level since August 2020. Ratings over 50 reflect strong market conditions.

    Nationwide, single family housing starts increased by 4.2% from April to May while completions were down by 2.6% and permits declined over the same time period.

    Housing Shortage:

    According to a recent NAR report, construction declines over the past 30 years has created a 5.5 million unit housing shortage nationwide. NAR is calling for a “major national commitment” for more building of all housing types, especially for more affordable housing units. To close the gap, builders will have to build 2 million homes a year for the next 10 years. When you combine the underbuilding count with housing demolition (intentional or disaster) the shortfall grows to 6.8 million units.

    NAR is asking the government for help. It will take federal policy to increase the rate of construction to the levels needed. Builders build homes to make money and after the 2008 crash, builders are even more careful with the bottom line. When interest rates rise, new construction takes a bigger hit than resale. In 2018 when mortgage rates moved up to 5%, new construction inventory grew to 6.5 months and builders stopped building. When rates declined in early 2019 inventory declined and builders started building again. When rates increase or demand declines, what will keep the builders building?

    “Unless the government steps in to build when new home sales demand gets soft, we will not add homes to the builders’ demand algorithm. Builders have learned to tightly control inventory by retreating from construction when demand becomes slack. Building more homes is bad business during weaker times.”

    -Logan Mohtashami, HousingWire’s Lead Economist

    Rentals:

    The average size of apartment units under construction is 50 square feet larger than the average apartment unit built over the past five years. The new units allow space for a home office.

    In May, the median rent for multifamily properties increased by 2.5% year over year, matching the growth rate of March 2020. At 9.6%, Phoenix had the second-highest multifamily rent growth behind the Inland Empire, CA. San Jose, San Francisco, and NYC still have negative growth but are improving.

    In April, single-family rents grew by 5.3% nationwide, more than double the April 2020 growth (2.4%). Phoenix’s growth led the country, again, at 12.2% year over year. Chicago and Boston both saw negative growth.

    Remember when rental prices increase as quickly as sales prices the market is operating on healthy fundamentals. When rents decrease while sales prices increase it is a bubble market. Prices decline due to vacancies, which neither the purchase nor rental market have much of.

    Real Estate News:

    Final Thoughts:

    Remember real estate changes slowly. Yes, it has never moved so quickly but it doesn’t change overnight, despite what it seems. By understanding the implications of the slight shifts, we can all better council our clients. And while Sean Black, CEO of Knock, believes that within 5 – 10 years buying a house will be like booking a short term rental on Airbnb, a lot has to happen first.

    Copyright 2021 Sarah Perkins

  • Greater Phoenix Real Estate Update 6/11/2021

    At Weight Watchers, the first five pounds lost is celebrated, regardless of the end goal. The celebration is to acknowledge the initial progress towards a healthy lifestyle. While today’s residential real estate market remains unhealthy (remember when 10% appreciation was a lot?), initial progress has been made. Prices are leveling off, supply is increasing, and immediate sales are declining. This is good for buyers, especially first-time homebuyers, who are the key to the real estate market. Without them, the machine stops.

    National Real Estate:

    Pending Sales:

    Pending home sales declined by 4.4% in April from March but were up 51.7% year over year (keep in mind April of 2020 was not a big month for contract signings). Low supply and fast-rising prices are blamed for the decline.

    “Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes. The upper-end market is still moving sharply as inventory is more plentiful there.”

    -Dr. Lawrence Yun, NAR’s chief economist

    Another potential correlation is the decline in personal savings rates, which dropped from 27.7% in March to 14.9% in April. People are spending more on services and entertainment as the economy reopens. Last year’s closures allowed people to accrue a down payment much more quickly than in the past.

    While pending sales do not tell the whole story, they are a leading indicator and help us gauge where the market is going.

    Pricing:

    51% of homes sold above asking price in May. Last May it was only 26%. As more inventory comes on the market, these numbers will fall and appreciation will slow, which is good for the overall health of the market.

    In a balanced market, about 30% of listings take a price cut before they sell. In hot markets, it is about 25%. Today, we are at 17.1%. This number is ticking up each week from a low of about 8%. The insanity of the pandemic market is calming down and starting to normalize showing we are not in a bubble market.

    According to a recent report from Black Knight, the annual rate of home price growth hit 14.8%. The top five markets with the biggest growth are (1) Austin at 24.9%, (2) Phoenix at 24.4%, (3) Riverside at 22.3%, (4) Seattle at 20.8%, and (5) Sacramento at 20.8%. These levels of appreciation are not sustainable and are nearing the tipping point where affordability issues will slow the appreciation.

    Inventory:

    Active single-family listings increased again by about 2,500 to nearly 330,000. Inventory is up 7% from the April 30 bottom but remains 53% lower than this time last year. There still are more buyers than sellers.

    Three weeks ago, just over 29,500 listings sold in less than 24 hours. This week it was just over 23,000. Homes are staying active slightly longer than before.

    The AZ Market:

    For a deep dive into the Greater Phoenix market, join us on June 22 for a Cromford Market Update with Tina Tamboer. For details and registration, click here.

    58% of homes sold above asking price in May in Greater Phoenix, so far in June that number is 62%. In the past 30 days pending sales have declined by 5%, inventory is up 6%, and price reductions are up 23%. On Monday, Elliott Pollack & Company wrote a great explanation about what this means.

    He wrote: “For about 22 consecutive months, Maricopa County has led the nation in housing price appreciation. In the last year, prices are up somewhere around 20% according to several sources. The Information Market suggests that prices for May 2021 are up 43% since May 2019. And in May of this year, the median sale price of a resale home surpassed the median price of a new home, something that is rarely seen. Prices are rising due to (1) limited for-sale inventory and (2) demand as Greater Phoenix continues to see in-migration.

    So are we in a bubble? A bubble is typically driven by a surge in asset prices that is fueled by irrational behavior and disconnected from fundamentals. By that measure, what is happening in housing today is the opposite of a bubble and should help drive the economy. While the impact of the Great Recession and the collapse of the housing market is still a fresh memory, the damage to the economy was from the subprime mortgage fiasco. There is little evidence today that lending standards are anywhere near those of 2004 through 2007.  

    Some observers believe that it will be quite a while before supply overwhelms demand. The demographics of the population provide a huge tailwind for housing. The key is Millennials and those behind them. They make up the bulk of first-time homebuyers and their numbers will keep growing over the next decade.  

    The hot housing market will eventually cool as supply catches up to demand. But in no way does this runup in the market suggest that a bubble has formed similar to what we saw 15 years ago. The age of high-risk derivatives is gone as financial regulations have prevented a repeat performance. Rather this market is built on a solid foundation of a homeowner’s ability to pay a mortgage. We just need more housing.”

    Inflation:

    According to economist, Elliot Eisenberg there are two types of inflation currently impacting the US economy. Base-effect inflation measures declining prices which we had a year ago so the year-over-year numbers are large. This inflation should settle down by the end of 2021. Bottleneck inflation is based on current shortages both in supply chain and labor and shows up as month-over-month inflation. This is the inflation to watch today.

    Employment:

    After two months of missing the expected job numbers, the data suggests that the supercharged economic recovery may be a little bumpier than initially anticipated.

    “This is also a great time to remember that it is much easier to shut down an economy than it is to open one back up and we are still experiencing the pain and effects from government actions over a year ago.”

    -Elliott Pollack

    Only 559,000 jobs were added in May, 671,000 were expected, bringing the unemployment rate down to 5.8%, a year ago it was 14.8%. There are currently 8 million job openings and 9.3 million people unemployed in all categories.

    The lackluster job reports reduce pressure on the Federal Reserve to taper its $40 billion monthly mortgage-backed securities buying program. When to begin the tapering will likely be discussed at the upcoming Federal Open Market Committee meeting on June 15-16. Experts believe it will be late this year or early next year and when the tapering begins mortgage interest rates will rise.

    “The decrease in initial claims for unemployment insurance in recent weeks, the continued robust demand for workers as shown by the high level of job openings, and other data showing increasing economic activity, point to more hiring over the summer. MBA is sticking with our forecast of a 4.5% unemployment rate by the end of the year.”

    – Mike Fratantoni, senior vice president and chief economist for the MBA

    Real Estate News:

    • Offerpad may be the first major iBuyer to become profitable. In Q1 2021 Opendoor’s net loss was $270 million or nearly $13,000 per home, Zillow Offers’ net loss was $58 million or about $30,000 per home, while Offerpad’s net loss was only $233,000 or $229 per home.
    • Earlier this week the DOJ announced that it had tracked down 63.7 of the 75 Bitcoins Colonial Pipeline paid ransomware hackers, illustrating that cryptocurrency is trackable. Could this lead to an increase in legitimate, large-scale transactions – like buying real estate – using cryptocurrency? Potentially.

    Final Thoughts:

    Sam Khater, Freddie Mac’s chief economist said, “The economy is recovering remarkably fast and as pandemic restrictions continue to lift, economic growth will remain strong over the coming months. Despite the stronger economy, the housing market is experiencing a slowdown in purchase application activity due to modestly higher mortgage rates. However, it has yet to translate into a weaker home price trajectory because the shortage of inventory continues to cause pricing to remain elevated.”

    Copywrite 2021 Sarah Perkins

  • Greater Phoenix Real Estate Update 4/23/2021

    The pandemic created involuntary savings. People simply couldn’t spend the way they had in the past, and all of a sudden they had money for a down payment. Along with historic low mortgage rates and the ability to work remotely; the extra savings enabled super strong demand. As the economy opens up and people are able to spend their money on more services like concerts, eating out, and traveling the buyer demand is likely to subside modestly. Today’s ideal demographics (see last week’s post for details) will keep replacement buyers steady through 2024. As the demand fades to slightly elevated from crazy hot, the market will return to normal sales cycles.

    Despite movement towards normal, sales prices continue to grow. While yes, inventory has increased, locally it remains over 77% below normal and demand has decreased, it is still over 8% above normal. This supply/demand imbalance is so severe, it will take years to correct, and is why sales prices continue increasing at an appreciation rate of nearly 22%, year over year.

    Bull versus Bubble:

    There is a difference between a bull market and a bubble market. Real estate experts agree, we are currently in a bull market. Here are some basic indicators to illustrate the differences:

    • Is it true or false demand? Are the properties occupied by either renters or owners? True demand is when people are living in the property. False demand is when investors park money in the asset with no plans of using the property. Today homes are lived in.
    • Are rents increasing with sales prices? Rents, like sales prices, increase with greater demand and less supply and decrease with less demand and increased supply. Rental rates decreased during 2004-2006 and today they are increasing faster than sales prices in greater Phoenix. There are some markets, like San Francisco, where rents are falling while sales prices are increasing indicating the market is overvalued.
    • Huge increases of speculative buying on credit (bubble) versus cash buyers and down-payment buyers (bull).
    • What are the fraud levels? The higher the fraud levels, the higher the likelihood of a bubble market. If you were in the business during 2004-2006, chances are good you know someone in prison. Today, there are exhausted buyers and sellers who are unsure where they will go; the price appreciation is based on supply and demand, not collusion.

    National Real Estate:

    Existing homes sales declined by 3.7% from February to March, a smaller decline than the 6.6% decline from January to February. Both declines are attributed to the low inventory levels.

    “Consumers are facing much higher home prices, rising mortgage rates, and falling affordability, however, buyers are still actively in the market. The sales for March would have been measurably higher, had there been more inventory. Days-on-market are swift, multiple offers are prevalent, and buyer confidence is rising.”

    -Dr. Lawrence Yun, NAR’s Chief Economist

    It happened – for the first time in 52 weeks – not only did inventory not drop last week, it increased by 5,000 listings so now we are up to 312,000 available single family listings nationwide, which is an increase of 1.6%.

    Demand remains high; immediate sales also increased, up 3,000 from last week to 26,000 new single-family listings hit the market and went under contract in less than 24 hours.

    The high demand delayed the normal season cycle by about a month, normally by mid-March inventory starts climbing for peak buying season, which is normally March – June. In housing, normal is ideal.

    In addition to buyers having more options, an increase in available listings allows more time for appraisals.  So appraisers can get caught up and increases the likelihood of homes coming in at value.

    This week, the national median sales price increased by $5,000 week over week to $380,000 and the median asking price of new listings increased by $10,000 week over week to $360,000. Sales prices will keep climbing until about June 30th. Then they start to slow because cheaper homes tend to sell more in the 2nd half of the year.

    Homeownership Rates:

    In 2020, homeownership grew by 2.6% or by 3.9M new homeowners to 67.4% and the majority of that gain took place during Q2 2020 and Q3 2020.

    From 3Q 2019 to Q3 2020, Arizona’s homeownership rate increased by 4.1%, up to 71%. Arkansas had the biggest gain at a 7.1% increase, while New Jersey’s homeownership rate declined by 4.4%. West Virginia has the highest homeownership rate at 78.6%.

    The AZ Market:

    According to Redfin, nationwide luxury home sales increased by 41.6% in Q1 2021, year over year. In greater Phoenix, luxury home sales prices are up 25% in Q1 2021, year over year.

    New Construction:

    Nationwide, single-family permits increased from February to March by 4.6%. Single-family completions increased from February to March by 5.3%.

    Housing starts, considered an economic leading indicator, increased by 37% in March, year over year, and increased by 19.4% from February to March, though February’s level was lower than expected due to the winter storms.

    “In nearly every market, 20% more inventory means 20% more home sales. Today’s news on the new home construction surge is, therefore, highly welcomed, especially in light of major challenges on material costs and soaring lumber prices.”

    -Dr. Lawrence Yun, NAR’s Chief Economist

    According to Freddie Mac, builders need to build 3.8 million single-family homes just to meet current demand levels. The lag of new construction over the past decade has contributed to today’s low inventory.

    In 2020 builders built about 65,000 entry-level homes while 2.38 million renters became first-time homeowners.

    “As we navigate our way through the year and get beyond the pandemic, we expect the housing supply shortage to continue to be one of the largest obstacles to inclusive economic growth in the U.S. Simply put, we must build more single-family entry-level housing to address this shortage, which has strong implications for the wealth, health and stability of American communities.”

    -Sam Khater, Freddie Mac’s Chief Economist

    Commercial Real Estate:

    • The local office market has suffered four straight months of increased vacancies putting the vacancy rate at the end of Q1 2021 at 19.1%!

    “A year-plus of forced acceptance of remote services in every sector has carved permanent change into our behavior. And, few sectors have seen a more radical transformation than office work.”

    -Scott Galloway, Author & NYU Business Professor
    • Many major companies are making plans to reduce their commercial real estate footprint. JP Morgan Chase is planning to significantly reduce its commercial space as 10% of its employees will work from home permanently. CEO Jamie Dimon said, “Remote work will change how we manage our real estate.”
    • Office rents are expected to decline by 15% nationwide.
    https://www.profgalloway.com/we-might-work/#comments

    Lending:

    • Purchase mortgage applications increased by 7% last week from the previous week and are up 57% year over year. We still have a few more weeks of year over year data comparing last year’s lockdown market to this year’s high demand/low inventory market.
    • Despite expectations of interest rates reaching 3.7% this year, the Mortgage Bankers Association is forecasting a 16.4% year over year increase in purchase mortgage volume which would set a new record at $1.67 trillion.

    “The housing market is incredibly strong this year, with robust housing demand in nearly every part of the country, driven by the improving economy, households seeking more indoor and outdoor space, millennials reaching their prime homebuying years, and still low mortgage rates. A lack of supply is the biggest hurdle to an even larger increase in home sales. The widening imbalance of supply and demand is driving up home-price growth and eroding affordability – especially for entry-level buyers.”  

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

    Real Estate News:

    • According to a recent Harvard report, due to last year’s lockdowns about 76% of homeowners completed at least one home remodeling project. The complexity and scope of the projects are increasing as homeowners are willing to spend more as home values rise. It is expected that in 2022 homeowners will spend $370 billion on home improvements.
    • iBuyer acquisitions are nearing their Q1 2020 numbers. While Phoenix remains the national leader in iBuyer activity, the margin of that lead is shrinking and Atlanta is catching up. Meanwhile, the two cities have significant leads ahead of the four remaining largest iBuyer markets in the country: Dallas, Charlotte, Las Vegas, and Raleigh.

    Final Thoughts:

    As one of my favorite housing economists, Logan Mohtashami with HousingWire recently wrote, “The nature of yellow journalism in our society is that fear and loathing sell. Impending doom is somehow sexy and gets many eyeballs and clicks, whereas the standard economic truth does not. People like myself who spend their time yammering on about demographics, prime-age employment to population levels, and how much shelter inflation can move Core CPI, are pleasant to listen to when the double martini doesn’t do the job of putting you to sleep. I get it. Stick to the facts, don’t get sidelined by the sideshow, and we will all be better off.”

    Copyright 2021 Sarah Perkins