the AZ market

Tag: #theazmarket

  • Greater Phoenix Real Estate Update 12/4/2020

    Economists, government officials, and health professionals are preparing for a rough winter and then a very promising spring/summer. What does that mean for real estate? Not all experts agree.

    Let’s talk about 2021 projections.

    National Real Estate.

    At 6.85 million, 2020 is expected to have 3% more existing home sales than in 2019. (would you have believed that in May?!?) Dr. Lawrence Yun, Chief Economist for NAR expects a 9% increase in resale homes sales in 2021 over 2020. New builds increased 20% year over year in 2020 and Dr. Yun is predicting a 23% increase in new builds in 2021, year over year.

    “My economic forecast is that in 2020, it is a recession, but in 2021 with the vaccine discovery and availability, it will be positive. The interest rate environment will continue to be low, inflation not really a problem. Mortgage rates should remain stable near 3 percent all the way through 2021.”

    Dr. Lawrence Yun

    In the US there are about 140 million housing units. Of those, about 84 million are single family homes. (Greater Phoenix has about 2 million housing units and just over 1.4 million single family homes) Last week, for the first time in history, the number of single family homes for sale nationwide dropped to just below 500,000. There were only 55,000 new listings to come on the market, fewer than the amount that came off the market. Past trends show that available listings typically drop 1-2% a week from Thanksgiving through the second week of January. It is likely we will end the year with 450,000 single family homes available. Once we hit that, 0.5% of single family homes will be listed for sale. With these inventory levels, home prices will continue to increase. (Altos Research)

    With ever-decreasing inventory, transaction volumes could drop. Given the strong buyer demand, any drops would likely small. In October, on average, there were nearly 3.5 offers written for each property that went into escrow. (Matthew Gardner)

    Economy.

    GDP growth in Q4 2020 and Q1 2021 will likely be down. By Q2 2021 and certainly by Q3 2021 we will be back solidly moving in a positive direction with economic growth (barring any unforeseen circumstances).

    Economist Elliott Pollack said, “Prior to COVID-19, the economy was in the longest expansion in U.S. history. Until COVID-19, there was no end in sight. And now, thanks to the effects of COVID-19 on the economy, the spread between potential GDP and actual GDP is huge. It will take at least three years to get back to where the economy should be. Look for a quick burst but then continued above-normal growth for that entire period.”

    The chief economists from Redfin, Realtor.com, and KCM all stated that once the population is vaccinated and people are out spending money on services again, the increased economic strength could drive interest rates up, thus hurting affordability and ultimately decreasing buyer demand.

    Provided there is not another national lockdown, growth is expected throughout 2021. Dr. Yun said of consumer decisions, “Are the mortgage rates low, are the prices right, is the inventory available? It’s all about the economic factors [and] housing conditions.”

    Lending.

    “Assuming an effective vaccine”, Mike Fratantoni with the MBA says, “Our expectation is that 2021 will most likely be a year of a continued, but slow economic recovery, with a modest rise in mortgage rates, and the stubborn, ongoing housing market conundrum of inadequate supply in relation to demand.”

    “Rising yields on government bonds reflect new optimism about the U.S. economy. But the trend could bring unwelcome news for mortgage borrowers: Higher rates on 10-year Treasury notes generally mean rising rates for 30-year mortgages.” said Jeff Ostrowski, Bankrate Senior Mortgage Reporter

    David Childers of Keeping Current Matters believes that these interest rate projections may be revised upwards in the coming months.

    Jobs.

    Greater Phoenix remains the best performing major employment market in the country and has regained two thirds of all the jobs lost during the shutdown. Nationwide about 55% of jobs have recovered. (Elliott Pollack)

    Forbearance:

    To benefit from the CARES Act forbearance plans, borrowers must be enrolled by 12/31/2020.

    After 25 weeks without having an increase in loans in forbearance, last week was the second week in row with increases. We went from 5.48% to 5.54% of loans are in forbearance which is around 2.8 million loans. The biggest reason for the increase is that fewer borrowers are leaving their forbearance programs than in the previous weeks. Other reasons are that re-entries increased slightly and loans in extension increased slightly. Initial entries remained about the same.

    Borrowers in forbearance are protected against penalties and foreclosure even when late on their payments, however they are still counted in the delinquency numbers.

    With 3.4 million mortgage delinquencies, the rate declined to 6.44%, the lowest level since March. (FHFA)

    The AZ Market.

    ASU forecasts that Arizona will be back to economic normalcy by the end of 2021.

    Greater Phoenix has about 4 buyers for every available listing. In order for the Phoenix market to be balanced we would need 25,000-35,000 active listings, we have 7,300. Aside from New York and San Francisco all other major metros are in similar situations. There are some areas in the country that have sufficient inventory for the demand giving us a national average of about 3 buyers for every listing nationwide.

    In November, builder DR Horton purchased 2,783.13 acres of state land just south of Apache Junction. Bidding started at $68 million and the land sold for $245.5 million. (Daily Independent)

    Real Estate News.

    • For the fourth time, FHFA extended the foreclosure and eviction moratoriums to January 31, 2021. (HousingWire)
    • Offerpad partners with New Home Star, the country’s largest seller of private homes. The partnership is effective immediately in Florida; Phoenix and San Antonio are the next two markets to launch. (Inman)
    • Airbnb files with the SEC to go public via IPO with a valuation of $35 billion. (Inman)
    • Rumors are flying that real estate brokerage Compass has begun prepping for its own IPO. (Bloomberg)

    Real Estate Trends.

    • Mortgage interest rates have hit all-time lows 14 times this year. (MBA)
    • In greater Phoenix single family new homes sales were up 19% in October, year over year. (Jim Belfiore)
    • 19% of buyers paid cash in 2019 and 2020. (HousingWire)
    • Demand for primary homes is up 50% and for second homes is up 100%, year over year (Redfin)
    • Nationwide, condo sales in October were up nearly 23% after a 50% decrease in March-May. (Redfin)

    Final Thoughts.

    Continue to be mindful of the headlines. Misleading messages harm consumers and consumer sentiment matters. The low inventory may lead to a drop in sales, but that is not due to lack of interest, it is due to lack of supply. In 1710, writer Jonathan Swift wrote, “Falsehood flies, and the Truth comes limping after it.” Today, 310 years later, this statement remains valid.

    Please share this with your colleagues and clients.

    Copyright 2020 by Sarah Perkins

  • AZ Forbearance Update (Video)

    In this 11 minute video, Lydia Wietsma and I discuss the four things you need to know about mortgage forbearance. The bottom line is that borrowers have options but they have to take action NOW as the COVID forbearance options are expiring in 21 business days. Watch the full video for details.

    We do these updates to help real estate professionals and consumers understand forbearance, to let struggling borrowers know that although experts are forecasting a tough winter, there are options.


    One.

    Time is of the essence. There are 21 business days left this year to get into a forbearance plan. The CARES Act programs expire on 12/31/2020.

    *Please note that FHFA extended their foreclosure and eviction moratorium to 1/31/2021 after this video was recorded.*

    Two.

    After 25 weeks without having an increase in loans in forbearance last week was the second week in row with increases. We went from 5.48% to 5.54% of loans are in forbearance which is around 2.8 million borrowers. The biggest reason for the increase is that fewer borrowers are leaving their forbearance programs than in the previous weeks. Other reasons are that re-entries increased slightly and loans in extension increased slightly. Initial entries remained about the same.

    Three.

    Don’t panic sell. Call someone to guide you through the process that is best for you and your current situation.

    Four.

    Foreclosures are coming. Not a wave but there will be some. Foreclosures have specific timelines before the property goes to auction and struggling borrowers have options.

  • This Week in Phoenix Real Estate (video)

    In this 4 minute video, I talk about the 4 things that happened this week in real estate that you need to know about.

    ONE.

    Supply. In past years, October usually sees a slight increase in new listings and then a decline in November and December. In October we had a 5% increase in new listings which basically kept up with the elevated levels of demand. In November we have had a decline in new listings, although not as large of as decline in past years. Despite that, demand continues to increase and the new listings are once again no longer keeping up with the demand and inventory is dropping. Demand is over 35% above normal and supply is 64% below normal. As of yesterday we only had about 7700 active listings available, excluding UCB. Low supply with high demand pushes prices higher, which is why we are looking at a potential appreciation of 20% this year. Normal is 3%!

    TWO.

    The build to rent phenomenon continues to gain traction. Greater Phoenix is will soon be home to the largest build to rent community in the country. This year Christopher Todd Communities purchased and is developing 5 separate build to rent neighborhoods, totaling 943 homes.

    THREE.

    Last week, CoStar, the nation’s largest commercial real estate data provider, agreed to purchase Homesnap for $250 million. This is part of an effort to enter the residential real estate space. It already owns apartments.com and purchased the company behind auctions.com earlier this year. CoStar is also a possible contender for the purchase of CoreLogic, the nation’s largest MLS data provider. CoStar founder and CEO, Andy Florance has his sights set on disrupting Zillow’s position as top residential real estate portal.

    FOUR.

    This year we have hit all-time lows for mortgage interest rates on a 30 year fixed mortgage 13 times!

    2020 30-Year Fixed Mortgage Interest Rates

    2020 30-Year Fixed Mortgage Interest Rates

  • AZ Forbearance Update (Video) 11/25/2020

    In this 11 minute video, Lydia Wietsma and I discuss the latest news in forbearance and emerging trends. The bottom line is that borrowers have options but they have to take action NOW as the COVID forbearance options are expiring in 5 weeks. Watch the full video for details.

    We do these updates to help real estate professionals and consumers understand forbearance, to let struggling borrowers know they have options, and to reassure everyone that today’s market is not like the 2005 bubble/2008 crash.

    Today’s Takeaways:

    We are in the busiest 3rd quarter real estate has seen. The crazy low inventory has pushed house prices up around 20% this year. The news of the highly effective vaccines pushed the stock market even higher as the bull market continues.

    With all of the good news, there is some less good news. Unemployment increased slightly. The number of loans in forbearance increased, very slightly last week from the previous week. It went up from 5.47% to 5.48% of loans are in forbearance, or roughly 2.7 million loans.

    The increase comes from a reduced number of borrowers leaving their forbearance plans. The past few weeks we have seen a large number of forbearance plans exits. This past week saw a reduction in exists. The new entries remained about 21% of all loans in forbearance and just under 77% are in an extension plan. Re-entries remain at just under 2%.

    “Incoming housing market data remain quite strong, with existing-home sales in October reaching their fastest pace since 2005, and the inventory of homes on the market hitting a record low. However, renewed weakness in the latest job market data indicates that many homeowners are continuing to experience severe hardships due to the pandemic and still need the support that forbearance provides.”


    Mike Fratantoni, Chief Economist for MBA

    Affordability is taking a main stage with economists and housing experts. According to the Home Opportunity Index, the Phoenix area saw a nearly 3% decrease in affordability from Q2 to Q3 while wages remained the same. The inequities in the balance is putting pressure on our market which will only increase.

    Enrollment into the current COVID-19 forbearance protections created in the CARES Act are expiring on 12/31/2020. Struggling borrowers need to contact their mortgage servicer for options before the end of the year. The time is now to get started.

    The servicer Lydia works with is changing their tune slightly. The questions are changing as they are asking about the state of the owner, for example, they are asking: Are the owners living in the property? Is it abandoned? Etc.

  • This Week in (Greater Phoenix) Real Estate 11/23/2020

    In this 10 minute video I talk about the 3 things that happened this week in real estate that you need to know about.

    One.

    Thursday the Department of Justice (DOJ) simultaneously filed an anti-trust lawsuit against NAR and a proposed settlement. The two organizations had confidentially reached an agreement that makes changes to NAR’s code of ethics and MLS policies regarding providing information on commissions and MLS participation. Click here for details from the DOJ. Click here for details from NAR.

    Two.

    Last week NAR’s board of directors approved changes to its Code of Ethics and Standards of Practice. According to Andrea Brambila of Inman, the changes apply “to all of a Realtor’s activities, not just those related to real estate; prohibit hate and harassing speech against protected classes; prohibit all discrimination, not just willful discrimination, against protected classes; and recommend that ethics violations be considered under membership qualification criteria.”

    Three.

    Affordable housing is quickly becoming a big focus both locally and nationwide. Prices are rising very quickly, at unsustainable levels. That does not mean that prices will drop, it means that they will eventually rise more slowly. This will happen either when supply increases or demand decreases. Prices only decrease in buyer’s markets, not in balanced markets.

    The Home Opportunity Index measures affordability, the normal range is 60-75, meaning that Americans earning the current median income, can afford 60-75% of the homes on the market. The higher the number the more affordable the city.

    Affordability dropped from Q2 2020 to Q3 2020. Nationally, it decreased from 59.6 to 58.3. Greater Phoenix remains more affordable than the national average but our quarter to quarter decrease was much more significant. We dropped from 64.8 in Q2 2020 to 61.9 in Q3 2020, which means Arizona households earning the median income of $72,300 can afford 61.9% of what is on the market. The median income did not change from Q2 to Q3. (NAHB/Wells Fargo)

  • Greater Phoenix Real Estate Update 11/20/2020

    To say that these are times are weird would be an understatement we have confusing elections, a worldwide pandemic, high unemployment, and the residential real estate sector is supporting the US economy.

    “Pending contracts are up strongly, implying that this winter may be one of the best winters for home sales activity. I mean, it’s not going to be spring or summer, so one has to compare this winter with other past winters. And by winter to winter comparison, this year could be one of the best based on the breakout of the pending contracts at a much higher level.”

    Dr. Lawrence Yun, Chief economist for NAR

    The chaos brings many questions. Are we in a housing bubble? No. Is this sustainable? No. Does that mean we are due for a crash? No.

    The AZ Market.

    Housing & Population Growth:

    The worst thing for a housing market is vacant homes.

    • 2001-2006:
      • Maricopa County’s population grew by 16%.
      • Single family inventory grew 23%.
      • Oversupply of housing.
      • Mortgages were easy to get, crazy appreciation, houses were purchased with no intention of being lived in, lots of vacant homes.
    • 2006-2019:
      • Maricopa County’s population grew up by 26%.
      • Single family inventory grew only 17%.
      • Undersupply of housing.
      • Not at risk for lots of vacancies, there is not enough housing for the population.
    • 2020:
      • Extreme undersupply of housing.
      • Inventory has been dropping for the past 6 years.
      • Very few vacant homes.

    Supply:

    In 2014 our inventory levels were normal at about 25,000 active listings. Inventory has been decreasing over the 6 years since then; we now have around 8,000 available listings, which is 63% below normal. In recent weeks, supply has stabilized for the most part and actually started to increase. The 13% increase of new listings in Q3 2020 – 5% increase in October alone – went unnoticed as they were absorbed as quickly as they came on the market. To put this into context, to have a crash, we would need supply levels like we had in 2007 (around 57,000 active listings) more than 7x the inventory today.

    Demand:

    While supply has stabilized, demand continues to rise. We are adding enough listings to maintain our listing position, even as demand increases. Demand is currently over 35% above normal. This time of year we normally see about 9,500 listings in escrow and this year we have over 13,000 in escrow. In normal cycles, November and December have decreased buyer demand, not this year!

    Sales & Appreciation:

    Sales volume is extraordinary for this time of year. In October 35.4% of sales closed over asking, the average is about $5,400. Sales were up 22% year over year in October.

    October 2020 had a year over year appreciation rate of 19.7%. Tina Tamboer with the Cromford Report expects this number to continue to increase through the end of the year. In January 2020 when Tina mentioned a 10% appreciation for 2020 it was shocking, this is, well, twice as shocking!

    Affordability:

    Affordable housing is quickly becoming a big focus both locally and nationwide. Prices are rising very quickly, at unsustainable levels. That does not mean that prices will drop, it means that they will eventually rise more slowly. This will happen either when supply increases or demand decreases. Prices only decrease in buyer’s markets, not in balanced markets.

    The Home Opportunity Index measures affordability, the normal range is 60-75, meaning that Americans earning the current median income, can afford 60-75% of the homes on the market. The higher the number the more affordable the city.

    Affordability dropped from Q2 2020 to Q3 2020. Nationally, it decreased from 59.6 to 58.3. Greater Phoenix remains more affordable than the national average but our quarter to quarter decrease was much more significant. We dropped from 64.8 in Q2 2020 to 61.9 in Q3 2020, which means Arizona households earning the median income of $72,300 can afford 61.9% of what is on the market. The median income did not change from Q2 to Q3. (NAHB/Wells Fargo)

    “Favorable mortgage rates will continue to bring fresh buyers to the market. However, the affordability situation will not improve even with low-interest rates because housing prices are increasing much too fast.”

    Dr. Lawrence Yun

    New Homes:

    • In October, greater Phoenix saw a 58% year over year increase in new construction sales. (Jim Belfiore)
    • In October, new homes made up 22% of all residential sales in greater Phoenix. (Jim Belfiore)
    • In addition to low supply driving prices up, lumber costs, due to shortages, have increased the cost of a new home by about $16,000. (Bureau of Labor Stats)

    Rentals:

    • Rents have increased by 17% since April. Increasing rents is a sign of true demand. Vacant properties cause declining prices. Vacancies are incredibly low.
    • Monthly mortgage payments are lower, for the median house, than are rents. Rents are increasing faster than purchase prices.
    • Median monthly lease for a single family 1,500-2,000 square foot rental increased by $255 year over year to $1,850.
    • According to Corelogic, in September, Phoenix rents saw a 6.9% year over year increase, the largest in the country. Phoenix has topped the chart every month of 2020.

    Real Estate News:

    • Yesterday the Department of Justice (DOJ) simultaneously filed an anti-trust lawsuit against NAR and a proposed settlement. The two organizations had confidentially reached an agreement that makes changes to NAR’s code of ethics and MLS policies regarding providing information on commissions and MLS participation. Click here for details from the DOJ. Click here for details from NAR.
    • Last week NAR’s board of directors approved changes to its Code of Ethics and Standards of Practice. According to Andrea Brambila of Inman, the changes apply “to all of a Realtor’s activities, not just those related to real estate; prohibit hate and harassing speech against protected classes; prohibit all discrimination, not just willful discrimination, against protected classes; and recommend that ethics violations be considered under membership qualification criteria.”
    • Similar to Picasa, Gold Gate, a new commercial real estate firm, is offering fractional ownership for luxury real estate worldwide. Owners can buy “shares” or months in different luxury properties all over the world.
    • A $15,000 first time homebuyer credit is part of the housing proposal created by President-elect Joe Biden. Dr. Lawrence Yun stated that it is helpful for first-time buyers entering the market but it is only a part of the solution. He went on to say, “But that’s not the full story, the full story is that stimulating the demand just by itself I think is insufficient. Right now the housing market is facing a significant housing shortage. So if we add further stimulus to the demand without addressing the supply… it will simply bump up the prices even higher.”

    Real Estate Trends:

    • In 2020 first time home buyers made up 31% of purchases, down from 33% in 2019 and the lowest level since 1987. (NAR) Increasing affordability challenges are the likely culprit.
    • October new home construction starts increased 14.2% year over year and hit the highest level since 2007. (US Census Bureau)
    • Year over year, iBuyer market share is expected to drop by 50% nationwide by the end of 2020. (Mike DelPrete)

    Lending & Forbearance:

    • Phoenix is the #2 city for VA loan origination during the fiscal year 2020, Phoenix saw a 115% increase year over year, behind Washington DC. (Phoenix Business Journal)
    • The MBA revised its 2020 end of the year projections:
      • An estimated $3.9 trillion in total mortgage originations for 2020, the highest since 2003 and 50% up from 2019.
      • At $1.97 trillion, 2020 will have a 91.5% year over year increase in refinance originations, again highest since 2003.
      • At $1.42 trillion, 2020 will have a 16% year over year increase in purchase originations, the highest since 2005.
    • Last week total mortgages in forbearance dropped to roughly 2.7 million or 5.47%, down from 5.67% the week before.
    • Over 76% of loans in forbearance are on extension, meaning they have been in forbearance for more than 6 months. Just under 21% of loans in forbearance are in the initial stages. (MBA)

    Final Thoughts:

    Jobs continue to recover (we have made up over 50% of the jobs lost), albeit at a slower rate than we saw over the summer. Economists continue to be cautiously optimistic and expect improvement and growth in all sectors. The good news of highly effective vaccines drove Wall Street confidence up. The FED is carefully watching and will adjust its treasury holdings and mortgage backed security purchases to keep things as stable as possible. A busy winter season will likely lead into even busier spring and summer seasons. There is a light at the end of this tunnel and it is getting closer.

    Please share this with your colleagues and clients.

    Copyright 2020 by Sarah Perkins

  • This Week in (Greater Phoenix) Real Estate 11/16/2020

    In this 8 minute video, Amber Kovarik and I discuss the 5 things you need to know about that happened this week in real estate.

    One.

    Last week NAR’s board of directors approved changes to its Code of Ethics and Standards of Practice. According to Andrea Brambila of Iman, the changes apply “to all of a Realtor’s activities, not just those related to real estate; prohibit hate and harassing speech against protected classes; prohibit all discrimination, not just willful discrimination, against protected classes; and recommend that ethics violations be considered under membership qualification criteria.”

    Two.

    Supply & Demand. Single family rentals are appreciating faster than single family sales. Today a renter will pay more for the median single family home than would a buyer for the same property. Rents have increased 12% since May. Listings have increased but have been absorbed almost immediately so the inventory increase is not apparent. New listings increased 13% in Q3 2020. New listings in October increased by 5%. For the last month or so we have been hanging out at roughly 8400 active listings excluding UCB. We would like to see that number closer to 25,000.

    Three.

    A $15,000 first time homebuyer credit is part of the housing proposal created by President-elect Joe Biden. Dr. Lawrence Yun, Chief Economist for NAR stated that it is helpful for first time buyers entering the market but it is only a part of the solution. He went on to say, “But that’s not the full story, the full story is that stimulating the demand just by itself I think is insufficient. Right now the housing market is facing a significant housing shortage. So if we add further stimulus to the demand without addressing the supply… it will simply bump up the prices even higher.”

    Four.

    Fannie Mae and Freddie Mac have changed their guidance and will now categorize a sale as being caught up on a mortgage that had been in forbearance. There are two ways to be eligible for a new loan after being in forbearance. The borrower can get caught up, either through a sale or the forborne amount was paid in pull or 3 months of consecutive payments through the forbearance plan/loan modification.

    Five.

    Rate Update. Expecting low rates for the foreseeable future. Stocks are doing well due to the vaccine announcements. FED stated it will continue buying mortgage backed securities to maintain stability and will even increase purchasing if need be.

  • Greater Phoenix Real Estate Update 11/6/2020

    The way we look at information matters. The big picture or 35,000-foot view is very different from the more focused picture or 15,000-foot view which is very different from the detailed picture or 1,000-foot view. Each view is important and together they illustrate a complete story. For example, in 2008, when the subprime mortgage-backed securities failed, it took down the stock market, which then caused your neighbor to ask you whether they should do a short sale or let the bank foreclose on their property. Real estate is national and hyper-local at the same time. National influences what happens locally.

    The 35,000 Foot View: Earnings Reports, GDP, Wall Street, and the Economy.

    As real estate and Wall Street become more intertwined and brand awareness increases, quarterly earnings are becoming more important to real estate companies and consumers.

    Third Quarter 2020 Earnings Reports:

    • Zillow: year over year revenue increased by 24%.
      • Cash and investments reached a record high of $3.8 billion.
      • New record high of 236 million monthly unique visitors, a 21% year over year increase.
      • Zillow Homes segment continues to lose money.
    • eXp World Holdings: nearly doubled year over year transaction volumes.
      • Transaction sides were up 95% year over year.
      • Agent head count was up 56% year over year.
    • Realogy (parent company of Coldwell Banker, Century 21, Better Homes and Garden, Corcoran, Sotheby’s, ERA): year over year revenue is up by 20%.
      • Transaction volumes increased 28%.
      • At $1.9 billion, this is the highest revenue Q3 in the company’s history.
    • Redfin: year over year revenue declined by 1%.
      • Gross profit was up 74% year over year.
      • Nationwide market share of resale homes increased to 1.04%, up 0.08%, year over year.
    • Keller Williams: closed transactions increased year over year by 16% with a 25.4% sales volume increase, year over year, a Q3 record high.
    • RE/MAX Holdings Inc.: year over year revenue decreased by 0.7%.
    • NewsCorp, Realtor.com’s parent company: year over year revenue decline of 8%.
    • Apple, Alphabet (parent company of Google), and Facebook all exceeded analysts’ projections.
    • Amazon’s shares are up 74% year over year.

    *Real estate transaction volumes are up 23% year over year. (NAR)

    Gross Domestic Product (GDP):

    GDP dropped by 31.4% (annualized rate) in Q2 2020. In Q3 2020 GPD increased by a whopping 33.1% (annualized rate). The economy is about 4% smaller than it was mid-March. (Elliot Eisenberg)

    “Expressed as an annual rate, consumer spending on durable goods was up more than 80 percent, business spending on equipment increased more than 70 percent, residential investment increased almost 60 percent, and both exports and imports of goods were up over 100 percent.”

    Mike Fratantoni, Mortgage Bankers Association SVP and Chief Economist

    Real GDP: Percent Change From Previous Quarter

    Seaonsally adjusted at annual rates.

    Economists expect a drop in GPD in Q4 2020 due to increased COVID cases and a lingering possibility of another shutdown. (Moody’s)

    Wall Street:

    More and more real estate companies are going public sometimes via initial public offering (IPO) but more often via special purpose acquisition company (SPAC). Spencer Rascoff, former CEO of Zillow, recently created a SPAC and is looking for a real estate company to take public. As this continues, investors expect revenue growth which can come from cutting costs. Costs like buyer agent commissions. In greater Phoenix, Zillow and Opendoor offer 2.25% when the MLS average is 2.8%. Between increases in technology efficiency and Wall Street demands, expect continued commission compression. (Mike DelPrete)

    In Mike DelPrete’s recent article, The Economics of iBuying, he wrote, “The overall economics are improving; between 2019 and the first half of 2020, each iBuyer lost less money on each home. But the totals are still negative, and when buying thousands of homes, total losses add up quickly: in the first half of 2020, Opendoor lost over $118 million and Zillow over $178 million.

    The iBuyers are playing by a different set of rules where profitability doesn’t apply. It doesn’t matter that iBuyers are unprofitable; to-date, shareholders don’t mind, and are happy to subsidize massive losses. Disruption in real estate is being led by companies — and shareholders — willing to bet and lose billions of dollars.”

    Commercial real estate data company, CoStar is in talks to acquire CoreLogic, a residential real estate data company. With a market cap of $32 billion and CoreLogic’s market cap of $6 billion, together they have a combined market cap nearly double that of Zillow’s, which is $20 billion. In the past CoStar had shown interest in acquiring Zillow, before Zillow’s market cap tripled in a year. (Inman)

    Economy:

    On Monday, Elliott Pollack wrote, “The GDP report shows just how strong the underlying economy really is. It indicates that this is not a typical economic cycle. It is an aberration in history caused by the pandemic and has nothing to do with a traditional weakness in the economy. In fact, the spread between potential GDP and actual GDP is extremely large. This suggests that the recovery will be a long one. It will also likely be erratic. This is because the real issue isn’t the economy. It’s COVID-19.”

    • In September personal income was up 6.2% year over year and up 0.9% month over month.
    • Disposable personal income was up 6.9% year over year and up 0.9% month over month.
    • Personal spending was up 1.4% month over month but down 0.6% down year over year.

    15,000 Foot View: National Real Estate.

    Residential Real Estate:

    • According to a recent report from Zillow, 34% of would-be sellers are waiting due to uncertainty caused by the pandemic.
    • Homes sold faster in October, normally a quiet month for home purchasing, than in September for the first time in 8 years. (Realtor.com)
    • Fannie Mae and Freddie Mac are one step closer to their goals of exiting conservatorship after boasting huge Q3 gains.  
      • Fannie Mae: net income of $4.2 billion, up from $2.5 billion in Q2 2020.
      • Freddie Mac: net income of $2.5 billion, up from $1.5 billion in Q2 2020.
    • A recent survey by Upwork shows that 14-23 million people may move to cheaper areas now that they can work remotely.

    Commercial Real Estate:

    • A recent survey by the Urban Land Institute found that 53% of real estate companies expect their company’s office space needs will decrease in the coming months.
    • Publicly traded companies are seeing a cost savings in having reduced office space. When Microsoft and Facebook allowed their employees to work from home permanently they were outliers. Now companies like Boeing, engineering firm Tetra Tech, defense contractor Raytheon, and others plan on reducing their office space by at least 20% in the coming years. (Bisnow)
    • Commercial and multi-family delinquencies declined again in October to 5.4% from 5.7% in September. (MBA)

    Forbearance:

    Equity positions continue to improve the situation of borrower’s in forbearance giving them more options. For more information on forbearance, click here to check out my AZ Forbearance Update video and post.

    1,000 Foot View: the AZ market.

    In WalletHub’s recent survey, Arizona has 4 of the cities that bounced back the fastest. Gilbert at 11th place, Peoria 18th, Scottsdale 19th and Chandler in 20th!

    Cromford Market Index (CMI): Is the best leading indicator available (balance is 100, prices rise at 110, and drop at 90). Yesterday it was 357.4. The pre-COVID peak was 241 on March 20 then dropped to 145.2 May 15 and has been rising since.

    Supply: Inventory is 63% below normal. Active listings excluding UCB crept up slightly to about 8,400 but is still down 43% year over year.

    Demand: Pending sales are up 24% year over year, incredible considering the low inventory. Our demand continues to rise and is 34% above normal.

    Southeast Valley New Listings: This a bi-weekly comparison of new listings in 2019 and 2020 for Tempe, Mesa, Chandler, Gilbert, Apache Junction, and Queen Creek. 2019 followed the typical annual cycle showing more activity in the first half of the year. 2020 is not following any typical patterns. Which makes it impossible to know what the orange line will do next.

    Final Thoughts:

    In times of uncertainty we have to create certainty. Do this by providing more data and information. Show strength, knowledge, and expertise. “Truth is attainable by laying fact upon fact.” Peter Kann, former publisher of the Wall Street Journal.

    Please share this with your colleagues and clients.

    Copyright 2020 by Sarah Perkins

  • This Week in (Greater Phoenix) Real Estate 11/2/2020

    In this 8 minute video, Amber Kovarik and I discuss the latest in real estate and lending. 2020 is outselling the past few years with far less inventory! The numbers are incredible! And as always, be wary of misleading headlines!

  • Greater Phoenix Real Estate Update 10/30/2020

    Disclaimer: This update discusses the history of politics and housing based entirely on data and facts. At no point are personal political opinions inserted.

    Over 68 million Americans have already voted and we will see that number significantly increase in the next few days as we approach what seems to be the most contentious election yet. I researched how Republican and Democratic administrations impact housing and the economy and was somewhat surprised by my findings; the president’s political party influences housing and the economy even less than I initially thought. And real estate’s relationship with the president and Congress is based almost entirely on policy created by both sides of the aisle.

    Housing, the economy, and political leanings.

    Wall Street:

    Both housing and the stock market are influenced, not exclusively by the president but mostly by policy. The stock market does not like uncertainty. On average, it performs better in election years when the incumbent party wins, regardless of party. Since 1950, Wall Street investors have benefitted the most from a split Congress. This is because a split means less major policy change and Wall Street responds negatively to change.

    On average, since 1950 Wall Street has had the greatest returns with a Democratic president and a Republican Congress at 18.3% per year, while a Republican president and Democratic Congress has been the weakest at 8.7% per year. (LPL Research, Bloomberg)

    Ten of the past 11 recessions began with a Republican president, the one exception being President Carter in 1980.

    In 20 of the last 23 elections, the incumbent party has been re-elected when the S&P 500 was positive in the three months before the election. On August 3, the S&P 500 closed at 3,295. Yesterday, it closed at 3,310. An almost unnoticeable 15 point difference.

    The luxury and second home markets are impacted by the stock market more so than lower priced, occupied properties.

    Example of Policy Impact on Wall Street – Maximum Corporate Tax Rates:

    • In 1986 Republican President Reagan dropped corporate tax rates from 46% to 28%.
    • In 1993 Democratic President Clinton increased corporate tax rates from 28% to 35%.
    • In 2018 Republican President Trump decreased corporate tax rates from 35% to 21%.
    • In 2020 Democratic Vice President Biden proposed a corporate tax rate increase to 28%.

    US Corporate Tax Rates 1970-2020

    US Corporate Tax Rates
    US Corporate Tax Rates 1970-2020

    Housing Policy:

    In the 1990’s Democratic President Clinton started a big push to increase homeownership rates by instituting looser lending guidelines. Republican President Bush continued President Clinton’s strategy and homeownership rates peaked in 2005 at 69.1%. Homeownership rates then dropped to a bottom of 63% in 2016, the lowest rate since 1965; erasing all progress made by Presidents Clinton and Bush.

    In 2009 the government sponsored a first-time home buyer’s credit which, briefly, pushed the market back into a seller’s market before dropping back down into an epic decline and buyer’s market.

    In 2010 the Dodd Frank Act passed, despite being created for consumer spending protection this act has impacted how we close transactions.

    Vice President Biden has proposed a new first time home buyer’s credit. This would increase buyer demand across the country like it did in 2009. Based on our current inventory levels this would push prices even higher and faster; increased demand on already low inventory drives prices up.

    NAR’s Pending Home Sales Index:

    Since 2001 the pending home sales index has followed along with the overall economy, regardless of who is in the White House. Not only that, in September, pending sales were up 20.5% year over year. (NAR)

    “The demand for home buying remains super strong, even with a slight monthly pullback in September, and we’re still likely to end the year with more homes sold overall in 2020 than in 2019. With persistent low mortgage rates and some degree of a continuing jobs recovery, more contract signings are expected in the near future.”

    Dr. Lawrence Yun, Chief Economist for NAR

    According to a recent Redfin study, 16% of Americans said they would consider moving out of the country if their presidential candidate of choice is not elected, up from 9% during the 2016 election. That would help with our inventory struggles!

    Mortgage Interest Rates:

    Interest rates have been dropping consistently since the peak of 19% in 1981. Throughout the years there hasn’t been much more than a 2% increase before leveling out.

    The Federal Reserve is the largest purchaser of mortgage-backed securities (MBS) in the world. The current rate at which the FED is buying the MBS is keeping rates at these historic lows. At some point, the FED will slow its purchases of MBS which will drive rates up. (MBA, Urban Institute)

    Real Estate Campaign Donations:

    Presidential campaign donations from the real estate industry favored Republican candidates in the 2004, 2008, and 2012 elections and favored Democratic candidates in the 2016 and 2020 elections.  (Center for Responsive Politics):

    2020 Election (through 10/23)

    Biden Campaign (D)            $34,059,973

    Trump Campaign (R)           $22,710,600

    2016 Election:

    Clinton Campaign (D)         $15,552,405

    Trump Campaign (R)           $11,162,279          

    2012 Election:

    Obama Campaign (D)         $5,781,496

    Romney Campaign (R)       $15,470,102

    2008 Election:

    Obama Campaign (D)         $11,571,746

    McCain Campaign (R)         $9,570,576

    2004 Election:

    Kerry Campaign (D)        Did not make the top 5 and was less than $5.1M

    Bush Campaign (R)          $11,329,316

    Rentals:

    According to the Mortgage Bankers Association in September 8.5% or 2.82 million renters missed their payment. Many landlords that own single-family houses, duplexes, and/or triplexes will have equity and will be able to sell and make money on their investment, keeping them from defaulting on their commitments.

    In Greater Phoenix, single-family rentals are now renting at higher rates than a mortgage payment for the same house, including taxes and insurance. (Tina Tamboer)

    The apartment complexes will have more trouble. If there is a CARES Act 2 that provides assistance for landlords we may be ok but if not, there will be some fallout. The distress levels really depend on location, this will be a regional problem more than a national problem. San Francisco and New York City are already struggling with vacancies. Here in Greater Phoenix, places are full and a high percentage of renters are paying rent. My crystal ball is still blurry on what will happen next. Provided we do not shut down again or have mass hospitalizations everywhere in the country I would expect more of the same. If we have more of the same, delinquencies will continue to decrease and our economy will continue to recover.

    Final Thoughts:

    Regardless of who is sitting in the White House in January, residential real estate will, likely, continue to thrive and grow. Experts forecast 2021 to be another solid year with high demand. Real estate professionals should not be distracted by headlines or sensationalized news. Be part of the solution. If you haven’t already voted, VOTE! Early voting is still available, for more information and locations visit https://recorder.maricopa.gov/pollingplace/

    Please share this with your colleagues and clients.

    Copyright 2020 by Sarah Perkins