the AZ market

Tag: #weeklymarketupdate

  • Greater Phoenix Real Estate Update 9/24/2021

    At some point, nearly everyone who was in the real estate business in 2008 says, “I wish I bought one/some/many houses when they went on sale from 2009-2011.” Then they go on and say, “Next time, I will be ready.” This sentiment is why prices won’t crash.

    1. We will buy the houses (demand for the supply).
    2. We can buy the houses (today’s market is very liquid, wages are up, savings are up, people have more money).
    3. There is someone to live in the houses (population growth is greater than the housing stock growth).

    Forbearance, Delinquencies, and Foreclosures:

    In order to recognize why we will not see a market crash; we need to understand the extent of the distressed situation. Lydia Wietsma and I regularly discuss forbearance, delinquencies, foreclosures, equity, and loan servicing. Check out our 30-minute conversation and/or see my notes below for the content.

    Forbearance Numbers:

    Since 8/23/21, the number of borrowers in forbearance declined by 8.3% which means that about 100,000 borrowers exited their plan. Now about 3% of loans are in forbearance which translates to roughly 1.5 million borrowers.

    “The share of loans in forbearance decreased by 8 basis points last week, as forbearance exits remained elevated, and new forbearance requests and re-entries were unchanged. 20% of loans in forbearance are either new forbearance requests or re-entries. At this point, borrowers in forbearance extensions are exiting at a faster rate as they near – or reach – the expiration of their maximum forbearance term.”  

    -MIKE FRATANTONI, MBA’S SENIOR VICE PRESIDENT AND CHIEF ECONOMIST

    Forbearance by Stage:

    • 11.3% of total loans in forbearance are in the initial stage, which is a 13% increase over the past month.
    • 80.2% are on extension, a 2.6% decrease in a month.
    • 8.5% are re-entries, an increase of just over 10% since August 23.

    Forbearance Exits from June 1, 2020 through September 12, 2021:

    42% of borrowers continued making their payments (21.9%), got caught up upon exiting (12.7%), or paid off the loan with a refinance or sale (7.4%).

    The segment to be most concerned for is the one that exited their forbearance plan, still behind on their payments, and without a loss mitigation plan in place. This group increased to 16.4% up nearly 2% from last month.

    If forbearance ended today and 16.4% of the 1.5 million borrowers exited their plan at the same time, we are looking at 246,000 borrowers nationwide. Divide that up evenly across all 50 states and we are looking at 4,920 per state. If we had 4,920 new listings hit the market tomorrow, they would all be absorbed quickly.

    Equity:

    In Greater Phoenix, home values have appreciated by 35% since March 2020. This appreciation rate gives many options to struggling borrowers. The vast majority of borrowers have at least 10% equity in their home, enough to sell through a normal sale.

    “In just the last year, increasing home prices have translated into a substantial wealth gain of $45,000 for a typical homeowner. These gains are expected to moderate to around $10,000 to $20,000 over the next year.”

    -DR. LAWRENCE YUN, NAR’S CHIEF ECONOMIST

    Depending on the extent of the deferment, equity levels may decrease. Borrowers may include escrow shortages in their loss mitigation plans.

    Seven percent of 1.5M is 105,000 total borrowers that may not have 10% equity. That breaks down to 2,100 per state.

    Delinquencies:

    The national delinquency rate declined to 4% in August. This is the lowest it has been since the onset of the pandemic.

    Serious delinquencies, those 90 days or more behind, dropped by 108,000 from July to August and is over 1 million fewer than a year ago. There are still about 930,000 more seriously delinquent borrowers than there were in February 2020.

    Foreclosures:

    Be very mindful of scary foreclosure headlines. I just saw one that stated, “Foreclosures are Up 49%” While that is the truth, it is only because there have been so few. With the expiration of the foreclosure moratorium at the end of July, August brought about 7,100 foreclosure starts. The majority of these foreclosure starts were on properties that had started the foreclosure process right before the moratorium was put in place. It is also 80% below August 2019 foreclosure starts.

    For context, from 2017 to 2019, there was an average of about 24,200 foreclosures a month, nationwide.

    Jobs:

    Greater Phoenix has recovered all of the jobs lost due to the pandemic and now has an unemployment rate of 4.8%. The entire state of Arizona has only 9,600 jobs to make up to reach February 2020 employment numbers. There are 10.9 million job openings nationwide.

    Additional Items Discussed:

    • Servicing, everyone is asking about when the fire-sale of homes is coming. Drive by inspections for iBuyers have dropped off a cliff. Drive by BPOs are way up.
    • iBuyer purchases and slowing appreciation rate. Prices are not declining, they are not appreciating as quickly as they were.
    • iBuyer service fees are increasing.
    • Corporate buyers purchasing homes to rent. Removing the property from regular inventory. Rental rate increases.
    • Stock market shifts based on the news, fears of potential Evergrande, a giant Chinese real estate developer, defaults moved the markets earlier this week.

    Final Thoughts:

    While we do not know what the future may bring and there are many moving parts that impact housing, it is unlikely that we will have any form of a market crash. We will see prices continue to moderate and the 2022 appreciation rates will look nothing like 2021’s, and that is a good thing.

    Copyright 2021 Sarah Perkins

  • Greater Phoenix Real Estate Update 9/17/2021

    Looking at housing, things look good and the market is attempting to normalize, but we do not see the whole picture. Wall Street, federal policy, a worldwide pandemic, labor and supply chain shortages also impact housing. But there is still more to consider: the intense and seemingly ever-increasing battle between the Department of Justice (DOJ) and the National Association of Realtors (NAR).

    NAR & DOJ:

    On Monday, NAR submitted a petition to prevent the DOJ from pulling out of their agreed upon settlement. Despite the lack of precedence and ongoing efforts, on July 1 the DOJ announced that it was pulling out of the November 2020 settlement. The DOJ stated that the settlement was not sufficient and that the DOJ wanted the freedom to investigate and pursue NAR further than the five items covered in the settlement, which include publicly sharing buyer agent commission, no longer calling a buyer agent’s services free, and lockbox access. Five days after pulling out the DOJ requested more data from NAR specifically regarding pocket listings and buyer agent commissions.

    The Clear Cooperation Policy, also known as the pocket listing ban, requires all listings to be entered into the MLS within one business day of public listing marketing. And is one of the items that the DOJ plans to further research. A number of opinion pieces promote the removal of the “Coming Soon” status as it is inconsistent and unfair to smaller companies. Real estate analysts are not able to use Coming Soon status data which ultimately skews the numbers as listings often go from Coming Soon to Pending, skipping Active status completely, thus confusing true inventory counts. The DOJ is researching the size and scope of the policy as it is very far reaching with few exceptions. TAN and PLS sued NAR for implementing this policy. Both cases are ongoing.

    The DOJ is also researching NAR’s rule that requires MLS and non-MLS listings to be displayed separately, steering based on commission offered, buyer/seller rebates, and the several class action, antitrust commission lawsuits. Given the size and scope of the requests, experts wonder if the DOJ has a game plan for execution.

    Andrea Brambila of Inman News wrote an extensive article outlining the four years of on-going strife between NAR and the DOJ which can be found here.

    National Real Estate:

    Last week single family inventory declined by 1.4% to 431,000 from the previous week’s 437,000. Declines are typical over holiday weekends. With nearly 400,000 forbearance exits expected this month, inventory is expected to increase slightly, not decrease. The majority of forbearance exits either restructured their loan or continued paying throughout the forbearance period.

    Home sales dropped by 1.4% from July to August and are down 6% year over year. Year over year comparisons are not useful because the pent up demand drove an end of the year purchasing frenzy that is unlike anything real estate has ever seen before.

    Builder costs declined by 1% in August. Lumber and other costs have been slowly declining in recent months and last month was the first time that builders saw any benefit to the declines in prices. It is unlikely that consumers will feel any savings for some time.

    The AZ Market:

    As previously mentioned, we do everything faster and bigger here, at least in regards to real estate. The shifts hit us first and usually with a greater magnitude. From 2008-2011 homes lost roughly 45% of their value while the country as a whole lost about 25%. While the rest of the country started seeing inventory levels flattening and even declining by 0.2% from July to August, our inventory has started to grow again after a few weeks or staying flat.

    July and August had a median sales price of $405,000. Since demand has increased, unseasonably, lately, September’s projected median sales price is $410,000.

    Absorption rate is a great way to monitor supply and demand. It is very seasonal and from the chart below you can see the four-year trend and see that August 2021 is an outlier. Absorption rate actually increased from July to August versus decrease.

    Tom Ruff of the Information Market wrote, “In August of 2020 nearly 91% of all homes purchased were by traditional buyers, for this analysis, we define a traditional buyer as individuals or married couples. In 2021 this number fell to 75%. We saw a significant increase in the number of properties purchased by iBuyers, large institutional investors as well as small investors.”

    Despite our recent affordability decline, for details see my update from 8/20 here, Greater Phoenix remains among the most affordable big cities in the country. According to a recent report by Roofstock, the cost of living in Greater Phoenix is 1.3% below the national average. About 56% of households can afford the median priced home which is lower than the ideal 60-75% range but is significantly better than California, Washington state, and New York who range from 13% to 41%.

    Nearly 300 companies are considering expanding or relocating to Greater Phoenix which means a potential of 16,000 new jobs and over $50 billion in capital investments.

    “On the business-attraction front, there really never has been more interest than greater Phoenix is seeing right now from firms across the globe looking to make investments and expanding and relocating to the region.” – Josh Reed with the Greater Phoenix Economic Council

    According to Realtor.com’s Best Time to Buy Report, nationally the best time to buy is from September 12 to October 17. In Greater Phoenix it is from January 10 to January 16. Buyers have, on average 31% more listings to choose from and sales prices are about $10,000 below seasonal highs.

    These are the first 10 markets in chronological order of the Best Time to Buy weeks.

    Lending:

    The Treasury and FHFA announced on Tuesday that they are suspending the 7% rule which limited Fannie Mae and Freddie Mac’s loan portfolio to allowing only 7% of their total loans to be secured by investment properties and second homes. This is good news!

    Next week the FOMC meets and many expect Fed Chairman Powell to announce bond and MBS tapering starting in Q4 2021. The tapering will increase mortgage interest rates anywhere from a quarter of a percent to a full percentage point. 54% of mortgage holders have an interest rate of 3.75% or less. If rates go above this amount, affordability will be pushed further. Remember in Q2 2021 housing affordability decreased below the healthy affordability range. Further pressure on affordability will push more buyers out of the purchase market. And this is challenging given that rents are up over 20% year over year. The pressure is not only on perspective buyers, but higher interest rates also prevent potential sellers from selling.

    Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting said, “Purchase applications – after adjusting for the impact of Labor Day – increased over 7 percent last week to their highest level since April 2021. Compared to the same week last September, which was right in the middle of a significant upswing in home purchases, applications were down 11 percent – the smallest year-over-year decline in 14 weeks.” The long term growth is consistent and doesn’t look like the bubble of 2005.

    Real Estate News:

    • High profile sellers are being exposed by high resolution images, tours, and video used to market listings. Identifying home décor, awards, plaques, etc. are readable. Several celebrities with listed homes have been identified through marketing.
    • HUD does not have to disclose flood risk on properties. HUD REO homes that sold from 2017-2020 were 75 times more likely to be in a flood zone than other homes sold during the same timeframe.

    Final Thoughts:

    This business is anything but boring (no matter what my brother says)!

    Copyright 2021 Sarah Perkins

  • Greater Phoenix Real Estate Update 9/10/2021

    A rising tide lifts all boats.

    Real estate creates wealth. It has created long-lasting, multi-generational wealth, and it has done the opposite. Why? Appreciation. Home price appreciation, overtime, benefits everyone.

    There is a lot of talk about softening, normalization, moderating, weakening, etc. They all mean the same thing; the real estate market is calming down. But before you exhale a sigh of relief, the market remains very, very hot.

    “We are seeing some signs of softening in the housing market, but context is important here… We’re still very much in a sellers’ market, but we are seeing some early signs of softening.”

    -ODETA KUSHI, DEPUTY CHIEF ECONOMIST, FIRST AMERICAN

    National Real Estate:

    The average American tenure in a home has increased substantially over the past 30 years and is now up to 10 years. A recent report stated that by 2037 we will be up to 15 years. At the rate we are going, we will reach that long before 2037. Less turn over = less available inventory = greater rate of appreciation (provided demand remains consistent).

    According to Fannie Mae’s August survey of homebuyer sentiment, consumers think it is a good time to sell a home but a bad time to buy a home due to high prices and low supply. Without the buyers, who do the sellers sell to?

    “The housing market has clearly become slightly more favorable to buyers. Homes are taking longer to sell, which gives buyers more time to make thoughtful decisions about whether to make offers. Home prices have plateaued, so buyers shouldn’t feel rushed to buy before prices rise further. And the fact that more sellers are dropping their list price is a sign that sellers have to be realistic about their price expectations.”

    -DARYL FAIRWEATHER, REDFIN’S CHIEF ECONOMIST

    While the market is normalizing, it is doing so from a very high level, so despite the recent declines in pending listings, we are still significantly above historic norms.

    Commercial real estate is also benefitting from the demand for real estate. In July, commercial property sales prices were up 1.2% month over month and 11.8% year over year. Unsurprisingly, multifamily has seen the highest rate of appreciation at 1.6% month over month and 13.5% year over year, the highest annual appreciation rate in 15 years.

    Prior to the pandemic, 60-75% of Zillow searches were for suburban homes, today it is 90%. At the same time, the number of suburban listings has declined 72% more than the urban listings.

    The AZ Market:

    Context truly is key. When the temperature cools from 514 degrees in March to yesterday’s 347, it is still super-duper hot (Cromford Market Index reference). The CMI measures the relationship between supply and demand and is the best leading indicator available. Anything over 100 is a seller’s market and prices rise at 110. Prices drop at 90. In order for prices to drop demand needs to be below supply. Demand is nearly 13% above balance while supply is 67% below balance.

    Despite the normalizing of the market, it is not normal. Demand has actually increased recently which is unusual because this is the time of year demand typically declines. After a 44% inventory increase over the past three months, inventory seems to be leveling out again and the increases have flattened. Leveling out at 7,400 listings is less than ideal. The size of the Greater Phoenix market calls for 25,000 listings and we haven’t seen 20,000 active listings since 2016.

    Jim Belfiore of Zonda is predicting that 35,000 new houses will be built in 2021, the most since 2007. There are 32,700 apartments in process but only 11,000 are expected to be completed this year. Apartment vacancy rates are close to 3% which is the lowest rate since the 1970s.

    iBuyers & Appreciation:

    In Q2 2021 iBuyers had a premium of 9.6% on their sales. Much of that gain was due to home price appreciation. This appreciation rate gave Opendoor and Zillow the confidence to move forward with extremely high offers, often significantly above market value. Acquisitions boomed and in July, iBuyers accounted for 8.1% of all home purchases in Maricopa County. This led to many flashy headlines about an upcoming giant Q3.

    The iBuyers must have missed my market update a couple of weeks ago when I wrote about the declining rate of appreciation. I wrote, “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.” You can find the full update here.

    On Wednesday, Mike DelPrete (with a little help from me) detailed how the changing home price appreciation rates are impacting iBuyer premiums in a big way. He wrote, “Home price appreciation rates are beginning to cool in major markets across the U.S., including Phoenix, where the median iBuyer home price appreciation has fallen 50 percent since May. Opendoor’s median home price appreciation for homes sold in August is just 2.7 percent, down a massive 75 percent from 10.7 percent in May.” Click here for his article and supporting graphs.

    Lending:

    The average mortgage borrower has $173,000 in equity which means that Americans as a whole have $9.1 TRILLION in equity, a record high. Cash-out refinances are increasing, interest rates are low and it makes a great headline. Keep in mind, while the refis are up, they are not near record highs and borrowers today have nearly double the amount of equity they had in 2005.

    Real Estate News:

    • Offerpad went public last week via merger with former Zillow CEO Spencer Rascoff’s SPAC. It launched with a $2.7 billion valuation and in recent days increased by 27% to its goal of $10 per share.
    • A Federal Judge denied NAR and Zillow’s motion to dismiss discount brokerage REX’s lawsuit stating that NAR’s “no-commingling rule” violates antitrust laws. NAR’s current rule states that MLS listed properties and non-MLS listed properties may not be “co-mingled” in the same section on a listing platform, like Zillow.
    • Opendoor recently acquired two home renovation companies, Skylight and Pro.com.
    • California Regional MLS, the nation’s largest MLS, is updating its requirements for the listing agent disclosure on online listing pages. Now, on all online CMLS listings the listing agent, contact info, and brokerage are required. Will this spread across the country?

    Final Thoughts:

    Today’s low levels of inventory created huge leaps in appreciation. As that calms, skittish buyers will return to the market and more sellers will list their homes. It will be a long time before we see 25,000 listings, but maybe we could get up to 10,000 in Q1 2022, and what a market that will be!

    Copyright 2021 Sarah Perkins

  • 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

  • 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

  • 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

  • Greater Phoenix Real Estate Update 7/23/2021

    Real estate continues to normalize and shift from an extreme seller’s market to a less extreme seller’s market. Both the leading and lagging real estate indicators illustrate a slowly moderating housing market. The numbers show that things are changing, nothing is happening too quickly, so the movement is relatively healthy and going in the right direction. Buyers have more options and sellers are making some concessions.

    Yet we face a lot of unknowns. Is this inflation truly transitory? Will the mid-September expiration of the expanded unemployment benefits drive employment growth? How many houses will actually be foreclosed on once the foreclosure moratorium is lifted on 7/31? And how long will that process take? How many renters will be evicted once the eviction ban is lifted on 7/31? What will the proposed infrastructure bill actually look like and how much will go to housing? When will the Fed taper its MBS purchasing? What about the rising COVID numbers?

    Economy:

    In a recent podcast, economist Dr. Peter Linneman discussed real estate and the economy with Willy Walker with Walker & Dunlop, a large commercial lender. These are some of his main points:

    • Consumer inflation is transitory because inflation was negative last year. However, asset inflation has been significant for nearly a decade. (Greater Phoenix housing bottomed out in August of 2011 and homes have been appreciating since September of 2011.)
    • Expect huge employment growth in September, and not before then, because the additional $300 a week in COVID unemployment benefits expires on 9/6/21.
    • In 2020, about 300,000 Americans inherited $50,000 or more; 3 – 10 years earlier than expected due to COVID deaths. This created a large group of unplanned home buyers who otherwise would have waited years for the down payment funds.
    • While he agrees with many other housing experts that we have been under producing for well over 10 years, he disagrees with NAR which states that nationwide we are short 6.8 million units, he thinks the deficit is closer to 3 – 4 million units. Ivy Zelman thinks it could even be closer to one million. He said in multi-family our deficit is about 700,000. All reasons for continued price increases as long as demand remains, but not a dire situation.
    • Expect another era of roaring 20s. There is a lot of money in the system and not a lot of reason to pull it out, if greed turns to fear there will likely be a correction. Rates will stay low, the Fed will not raise them because they need to keep Federal debt cheap so the government can afford the debt. Additionally, he does not see the Fed tapering its monthly bond and MBS purchases. It has kept the market very liquid. The growth may slow but will stay positive.
    • We need to expand to capacity. Supply is lagging. During the pandemic lockdowns, we continued to consume but did not replace what was consumed. This expansion will drive growth and the roaring 20s, though it will be bumpy. The growth will not last forever, do not fight it, asset ownership will create wealth, spend wisely.

    National Real Estate:

    • According to NAR, the median existing-home sales price is up 23.4% year over year and after four months of declines in sales, in June, existing home sales increased by 1.4% from May.
    • The frenzy is calming and the sky rocketing, year over year appreciation rates are just starting to slow.

    “At a broad level, home prices are in no danger of a decline due to tight inventory conditions, but I do expect prices to appreciate at a slower pace by the end of the year. Ideally, the costs for a home would rise roughly in line with income growth, which is likely to happen in 2022 as more listings and new construction become available.”

    -Dr. Lawrence Yun, NAR Chief Economist

    “Supply has modestly improved in recent months due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales. Home sales continue to run at a pace above the rate seen before the pandemic.”

    -Dr. Lawrence Yun, NAR Chief Economist
    • Total inventory is up nationwide, giving buyers welcomed relief with slightly more options as inventory levels remain low.

    The AZ Market:

    • New home sales declined by 16% from June to July, yet strong demand remains.
    • Single family rents increased by 6.6% in May, year over year. Phoenix once again saw the largest year over year price increase at 14% followed by Tucson (11.1%) and Las Vegas (10.7%).
    • Arizona tourist spending declined by 41% in 2020 from 2019. In order to boost tourism, Governor Ducey recently announced the Visit Arizona Initiative which will utilize $101.1 million of federal relief funds.

    New Construction:

    Builder confidence, while still very high, declined by one point to 80 in July due to ongoing labor shortages and the high prices of materials.

    New construction mortgage applications declined by 3% in June from May and was down 23.8% from last year. 2020 was the biggest new construction year since 2006.

    In June, new single family starts are up 6.3% from May and up 29.1% year over year. Which is good news as completions were down in June by 6.3% from May.

    “In other words, builders aren’t hedging long-term plans on short-term improvements after the past year of pandemic challenges. As factors like materials costs stabilize over the next three months, buyers may start to see some inventory and price relief in the new construction market.”

    -George Ratiu, Realtor.com Senior Economist

    Lending:

    The adverse market fee, which was a 0.5% fee added to Fannie Mae and Freddie Mac refinances, has officially been axed. Starting August 1, the FHFA will no longer collect this fee. This is welcomed news for borrowers and the mortgage industry.

    In June, second-home mortgage rate locks declined by 11% year over year. Much of the decline is attributed to Fannie Mae’s and Freddie Mac’s cap on second home and investment property mortgages at only 7% of total loan volume.

    Mortgage rates dropped again, and the 15-year mortgage reached an all-time low.

    Despite money being so cheap, cash purchases are on the rise. Through April of this year, 30% of purchases are with cash, up from last year’s 25.3%.

    Real Estate News:

    • In 2019, Blackstone, an investment management company with $649 billion in assets, attempted to exit residential real estate investments when it sold its interest in Invitation Homes. The exit did not last very long, in May Blackstone announced the roughly $1 billion purchase of 5,800 apartments in San Diego County with the promise to keep rents affordable for tenants earning 80% or less than the area’s median income. In June, Blackstone announced a $6 billion purchase of Home Partners of America which owns more than 17,000 single family rentals across the country. And this month Blackstone announced a $5.1 billion acquisition of AIG’s affordable housing assets. With over $12 billion in residential real estate investments announced in the past 60 days, Blackstone is back in a big way.
    • In addition to Opendoor’s existing Agent Partner Program, it just announced a second Realtor referral program, Agent Access, which pays out a 1% referral fee plus bonuses ranging from $1,000 to $10,000 based on total number of referrals sent. Opendoor Partner Agents are not allowed to participate in Agent Access.
    • Last Friday, Cloudstar, a data security provider and cloud-hosting company, fell victim to a sophisticated ransomware attack. Its 42,000 users including hundreds of title and escrow companies, currently do not have access to secure documents as everything was taken offline. The company is currently working with forensics experts and law enforcement as negotiations progress.

    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. It is time for the calm after the storm.

    Copyright 2021 Sarah Perkins

  • Greater Phoenix Real Estate Update 7/2/2021

    The market is softening = slowing = normalizing = moving closer to balance which are all good things even though it feels weird. After the wild ride of 2020 and the nearly non-existent inventory levels of Q1 2021, the real estate market is working out its kinks. I have mentioned it before and will say it again, it is impressive what a person can get used to. We got used to 10 or 15 buyers for each listing. We even (kinda) got used to only 4,000 active listings (when we should have 25,000). Now we have to prepare today’s buyers and sellers (and ourselves) for another new normal, a much healthier one.

    National Real Estate:

    Existing home sales declined again for the fourth consecutive month in May but the rate of decline is slowing. Sales are down by nearly 1% since April and 14% since February to a seasonally adjusted rate of 5.8 million units. In 2020 there were 5.64 million existing home sales. Low inventory, falling affordability, and buyer fatigue are blamed for the declines. Sales are nearing pre-pandemic levels as the market continues to normalize and the pent-up demand from last year is exhausted.

    Speaking of falling affordability, the median existing-home price for all housing types in May was $350,300, up 23.6% from May 2020 ($283,500). This is an NAR record high and marks 111 straight months of year-over-year gains since March 2012.

    Pending home sales increased by 8% in May, month over month, after declines in April. The increase is attributed to the low interest rates and increasing inventory. Nationally, active inventory is up by nearly 16% since February.

    New Construction:

    New construction sales declined by 5.9% in May month over month, to an annualized rate of 769,000 units. This is the second month in a row of declines, April also had a 5.9% decline in new home sales. Rising sales prices combined with lumber, labor, and material shortages are blamed for the decline.

    Meanwhile, housing starts increased by 3.6% during the same time period putting new construction inventory levels at 5.1 months. When inventory levels are 4.3 months or less builders are happily building, when inventory levels are 4.4 to 6.4 months builders need evidence of sales growth to continue building, and at 6.5 months or more builders slow or even stop production. Builders only build houses they know they can sell.

    The new construction sales chart below shows the initial declines in sales followed by a giant increase and the recent declines from that peak level.

    The AZ Market:

    Here in Greater Phoenix, when it comes to real estate, everything is magnified. In 2008, when the market crashed, as a country values declined by 25%. Phoenix saw 45% declines. Today, as the entire country sees 23.6% year over year appreciation, Phoenix’s appreciation rate reached 33%, year over year. It should come as no surprise that as the market normalizes, Phoenix is normalizing faster. Inventory is up nationally 16% since February, in Phoenix, it is up by nearly 28% since February.

    May’s Case-Shiller Home Price Index was released on Tuesday. For the 11th month straight, the US has seen price gains. In May it was 15.4%, year over year, the highest reading in over 30 years. Greater Phoenix has topped this chart for the past 23 months and in April came in with a 22.3% year over year price gain. Case-Shiller is what the federal government, national builders, and Wall Street use to gauge price appreciation.

    Cities like San Francisco and New York had huge rental declines. Not only do Phoenix and Tucson top the charts for rental appreciation but four valley cities are in the top 10 fastest growing rents since March 2020.

    ShowingTime’s latest data shows that home showings saw an unusual dip in May, which could indicate further market stabilization. Nationally, showings usually peak in April and remain high through June. In AZ showings slow in the summer more than other parts of the country. We are currently running 32.4% below this time in 2019 and 24.4% below this time in 2020. (Phoenix declines were larger than the national declines)

    Evictions, Foreclosures, and Forbearance:

    Last week the CDC extended the eviction moratorium through the end of July and stated, “this is intended to be the final extension of the moratorium.” On Tuesday the Supreme Court denied the requests to lift the nationwide eviction moratorium filed by the Alabama and Georgia Realtor associations last November. Justice Brett Kavanaugh agrees that the CDC overstepped its authority by issuing the ban but denied the request. The Supreme Court will frown on any further extensions without congressional approval.

    Last week the foreclosure moratorium was also granted a final extended for another month, now set to expire on July 31. On Wednesday the CFPB announced its final ruling on how mortgage servicers are to handle foreclosure proceedings. Only those borrowers who do not qualify for assistance, fail to meet the assistance agreement, who are unable to be reached, or the home has been abandoned are able to be foreclosed on once the moratorium is lifted. Servicers must contact delinquent borrowers prior to foreclosing to offer loss mitigation plans. The rule goes into effect on August 31 which likely means that servicers will not be able to initiate foreclosure proceedings until the end of the year. For more information on the CFPB’s ruling and forbearance info, check out my AZ Forbearance Update from Wednesday, here.

    Lending:

    Rising sales prices likely caused the 5% week over week decline of purchase mortgage applications last week. They are also down by 17% year over year.

    Ginnie Mae announced a new 40 year mortgage term option created for struggling borrowers in order to lower their monthly payments and keep them in their home. The product will be available in October and will be sold on the secondary market.

    New Laws:

    • Within hours of the June 23 Supreme Court ruling, stating that the FHFA’s structure is unconstitutional, giving new power to the president to fire the head of the FHFA, the White House announced plans to replace Mark Calabria, the head of FHFA. Calabria then resigned and by the end of the day, Sandra Thompson was appointed as acting director of the FHFA. Her appointment will likely lead to more policy change and diminishes the likelihood of Fannie Mae and Freddie Mac’s exit from conservatorship. The irony behind this activity is that this lawsuit was brought by investors hoping to end the conservatorship so profits would flow to the investors rather than the government. Thompson’s appointment all but guarantees that Fannie and Freddie will remain in conservatorship for years to come.

    Real Estate News:

    • Not only are consumers using cryptocurrency to buy houses, now people are talking about utilizing non-fungible tokens (like crypto, stored on blockchain ledgers) for homeownership. This NFT-ing of real estate would allow the ownership of a home to be held in one digital wallet which opens up new options for fractional ownership.
    • A credit card provider says it’s partnering with landlords, like Blackstone and Lennar, to help provide “every young person a path to homeownership” by allowing them pay their monthly rent with a credit card, and apply the points they earn to making a down payment on a home. (I am not sure this is best idea)
    • Offerpad is now a mortgage broker. Offerpad Home Loans is licensed in AZ, CO, and AL and plans further, rapid expansion. Will they offer seller carrybacks? If so, the impact to traditional lending could be significant by nearly eliminating appraisals and other typical loan application steps required by traditional lenders.
    • Yesterday the Department of Justice withdrew the proposed settlement and the lawsuit it filed last November against NAR. The settlement for the antitrust lawsuit required NAR to repeal or change several rules regarding buyer agent commissions. The DOJ plans to refile the suit at a later date.

    Final Thoughts:

    Elliott Pollack wrote on Monday, “The impacts of supply and demand imbalances continue to be on full display in each weekly release of economic data. Consumer spending on goods has been hampered, not by lack of demand, but rather bottlenecks in production and the supply chain. Demand has stayed incredibly strong due to pent-up savings, and is driving up prices, with housing at the forefront. Fortunately, with continued vaccinations, more and more of the economy has reopened and spending will shift from goods towards services. This will help drive the country toward full economic recovery and will bolster those industries hit hardest such as food services, tourism, and hospitality.”

    Copyright 2021 Sarah Perkins

  • 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