Pandemic Effect: Closed MLS Sales Down 31%
Look Who’s Back: Weekly Contracts Up 40% in 4 Weeks

For Buyers:
Greater Phoenix contract activity dropped 39% over the course of 6 weeks  between March and mid-April.  The effects of those declines are now being reported over a month later as a 31% decline in closed sales.  This is not surprising, you can’t close what was never opened.  But that’s already old news, what is not getting reported yet is the 40% increase in accepted contracts over the past 4 weeks.  This is key information for buyers right now, especially if they’re on the fence waiting for the market to “crash”.  This 4-week increase in buyer demand will not be widely reported for 6 more weeks because these contracts still need to close. 

One mistake approved buyers make is waiting for closing reports before acting. By the time a property closes escrow and a sales price is publicly recorded, the condition that transaction was created under may have passed.  The opportunity for buyers lies in knowing how many contracts are being accepted right now in their price point and area.  They also need to know the average list price at contract to gauge where they are this week compared to 10 weeks ago.  This information can only be obtained through a REALTOR®.

They will discover a significant increase in contract activity across all price points in Greater Phoenix, but the average list price per square foot is only down on contracts written over $500K.  All other price points below $500K are seeing the average list price per square foot either higher than or equivalent to where it was 10 weeks ago in February.  This does not indicate an impending doom for home values.

Buyers hoping for cheap homes should not retreat in despair, however.  Mortgage rates have declined to an average of 3.26% according to Freddie Mac; last year at this time mortgage rates were 4.1%.  So while the median sales price rose 8.9% over last year, the principal and interest payment on a $300K, 30-year, fixed-rate mortgage went from $1,450/month to $1,307/month.  That’s down $143, a 10% decline over the course of a year.  The biggest mistake buyers make is sitting around waiting for sale prices to decline while their potential mortgage payment plummets.  Low mortgage rates are not something to ignore or take for granted as they can change quickly for better or worse.

For Sellers:
The increase in contract activity is great news for sellers.  However, there are fewer cash buyers offering top dollar for homes in “as-is condition” compared to 10 weeks ago; meaning increased pressure on sellers to do repairs and offer concessions to normal buyers in order to sell their home for their desired price.  This is reflected in the percentage of homes closing with seller-assisted closing costs, which increased from 18% to 25% over the past 4 weeks.  

The market over $500K is recovering slower than the other price ranges after dropping 58% in weekly contracts due to travel restrictions and the stock market crash from late February through March.  While contract activity rose 65% over the past 4 weeks, it’s still down 30% from its peak 10 weeks ago.  The irony is that one would expect a massive number of price reductions after such a dramatic drop in demand, but that was not the case.  Instead, sellers over $500K simply picked up their ball and left the field.  The highest percentage of cancelled listings were seen in the luxury market, which reduced supply and mitigated the loss in demand.  As a result, sales prices over $500K have remained stable thus far and are up just 0.9% from this time last year.

Phoenix Mayor Kate Gallego said Tuesday that the city will put all returns it earns from city real estate transactions into its general fund during the pandemic. That includes $6.8M of transactions that originally came from the fund and will now be used to offset a budget deficit.  Gallego made the remarks during Bisnow’s debut webinar for the Phoenix market on April 14. You can watch that event in its entirety here. “We have not had to furlough any city employees as of yet,” Gallego said. “Our economic and sales tax return data comes about 45 days after the close of the month, so we will be constantly monitoring that information and making adjustments accordingly.” Many of the city's numerous land transactions are related to programs and projects that use a federal fund, such as Phoenix Sky Harbor International Airport or the Public Transit Department. Typically, city land is sold via projects that have existing funding, proceeds go back to related special programs or funds, not the general fund. The city's Finance Department will review all land sale transactions. The mayor added that the city has also been attempting to streamline a sometimes cumbersome bureaucratic process for businesses affected by the coronavirus. “We have officially launched a virtual city inspection program for basic inspections including gas line and sewer line work,” Gallego said during the webinar. “It is another way we can fight COVID-19 and maintain the efficiency of the city.” The protection of jobs within the city was a common theme during the event. With Phoenix’s Sky Harbor International Airport nearly grinding to a halt, Gallego made a point of breaking down the 3,555 full-time capital improvement jobs currently at the airport, including exactly 1,800 jobs building the SkyTrain project. Phoenix’s diverse contributions from its commercial real estate sector was also highlighted, from businesses like O.H.S.O. Brewery that went from bottling beer to bottling hand sanitizer, to the transformation of downtown Phoenix into a biotech hub. The University of Arizona’s downtown Phoenix medical school campus made news last week when it allowed medical students to graduate early so they could help with the fight against the coronavirus. “I hope voters are grateful for supporting bonds that allowed us to diversify our economy,” Gallego said. “We have more resources and revenue from the life sciences industry in downtown Phoenix, and a much more diverse economy now than in 2008, and that is intentional. We want to come out of this entire situation as safely as possible, with as much success as a city as possible.” Gallego took questions from the audience and also announced the launching of Phoenix.gov/resources, a city of Phoenix website for job seekers, small businesses, nonprofit and arts organizations, senior citizens, families in need and disadvantaged students.

Pandemic Puts Housing in a “Pinch”
COVID-19 Aftermath: Good News for Normal Buyers

For Buyers:
The kickoff of 2020 was developing into a nightmare for normal buyers who just wanted to find a place to live.  Extreme competition for homes between wholesalers, cash buyers, vacation rental investors and traditional buyers depleted supply and created an environment consisting of multiple offers, appraisal waivers and an increasing number of sales over asking price. The Greater Phoenix housing market was on the precipice of seeing price appreciation accelerate at an alarming rate and had analysts wondering what could possibly slow it down.  Well, they have their answer, an act of nature. The COVID-19 pandemic came in like a wrecking ball in March shutting down tourism and crashing the stock market single-handedly over the course of a few weeks.  Hedge funds and iBuyers (funded by Wall Street) bowed out of purchases and vacation rental buyers put their plans on hold.  This is providing much needed relief to normal home buyers, if only they could leave their house. Stay-at-home orders to stem the impact of the pandemic has “pinched the hose” on what is arguably one of the hottest housing markets in the country.  This is causing a build-up of pent up demand that will undoubtedly return with some gusto when travel restrictions are lifted and a level of stability returns. Do not expect prices in Greater Phoenix to drop like they did in 2008, however. Back then when investors pulled out of the market, prices were so high that families making the median income could only afford 27% of what was selling.  This time around as investors once again pull out of the marketplace, families making the median income can afford 68% of what’s selling with today’s incomes and interest rates.  This is well within normal range and puts regular home buyers in a better position to pick up the pieces left by Wall Street and vacation rental investors. 

For Sellers:
Lock downs and travel restrictions across the country are causing buyers who need to relocate to Arizona, either for a job or to retire, to put those plans on hold for now.  The effects of COVID-19 span the job market, stock market, corporate profits, and exchange rates. This has had the highest impact on high-end luxury market buyers.  Not only are these buyers restricted from leaving their home cities at the moment, they have instability in their portfolios as well.  Under these circumstances it should not come as a surprise to see that weekly contract activity over $500K has slowed down by 64% since their peak on February 24th while price points under $500K have only seen a 30-40% slow down.
Sale prices are not declining at the moment, but seller expectations are adjusting.  Upticks in weekly price reductions tell us that sellers are beginning to ease up on pushing market value.  Sellers are also beginning to realize that it will take longer to sell their home under these conditions.  Weeks ago, some listings were receiving multiple offers within a matter of hours, but that’s not a reasonable expectation now.  Active listings that would’ve flown off the market 4 weeks ago could be on the market for weeks, maybe even months at this rate.  Information, communication and strategy will be important during the course of the pandemic response.  It is situations like these where professional REALTORS® get to show the value of their experience and service.

Officially a Frenzy: 11% More Contracts Than Listings For Sale
Contracts Over $1M up 60% Over Last Year

For Buyers:
Not even the COVID-19 corona virus can slow down the Greater Phoenix housing market.  For every 100 active listings in the Arizona Regional MLS there are 111 that are already under contract.  Greater Phoenix is officially a frenzy and it’s only March.  We can expect to see this continue at least through May without relief as buyer demand is typically highest in the Spring.
It’s even more dramatic in the Southeast Valley, West Valley and North Phoenix and all areas where prices land between $175K-$300K.  For a stark example, on March 7th in Glendale there were 3 properties for sale between $175K-$200K and 25 under contract.  In Chandler there were 3 properties active between $200K-$250K and 37 under contract.  In the North Phoenix Moon Valley area there were 8 properties for sale between $250K-$300K and 30 under contract.  
There is a reason why people continue to pounce on what’s available for sale.  The average price for a 1,500-2,000sf home is now $331K and continues to rise.  That may seem alarming considering it was $324K at the peak in 2006, but contrary to popular belief it’s more affordable today because of the interest rates.  In April 2006, with an average of 6.51% the monthly principle and interest payment on a 30-year fixed loan with 10% down was $1,854.  Today at an average of 3.45% the same home is $1,331, a savings of $523. More recently, over the last 16 months despite prices having risen 9.4% for median-sized homes the monthly payment dropped by approximately $112/month.

For Sellers:
There’s not much more to say to sellers under $500k, frankly their homes may be sold before we’re done saying it. The stark gap between supply and demand doesn’t ease up until budgets go over $600K.  Sellers in areas such as North Scottsdale, Paradise Valley, the Camelback Corridor and Downtown Phoenix still have plenty of competition to contend with, but well-priced, updated, move-in ready homes will still see heightened buyer interest.
The luxury market is doing exceptionally well, however sellers should not expect the stampedes seen in the rest of the market.  There are 522 properties under contract over $1M, up a whopping 60% over last year at this time.  However there are still 1,657 competing properties for sale in this price range and those that sold in February averaged 5-6 months on the market.

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When it comes to real estate, $1 million doesn’t go as far as it used to — especially in the world’s top cities.

In Monaco, the world’s most expensive city on a per-square-foot basis, $1 million gets you 162 square feet of prime real estate, according to a report from real estate brokerage firms Douglas Elliman and Knight Frank. Basically, it’s a one-bedroom — with only the bedroom.

Hong Kong ranked as the second-most-expensive city, with $1 million buying 226 square feet. London ranked third with 323 square feet, while in New York City, $1 million buys 344 square feet.

The report defines “prime” property as “the most desirable” in a city, or in the top 5% of market value. So you can find cheaper property in each city. But the “prime” property measure is useful for looking at the costs of property for the luxury buyers.

The least expensive city in the world for luxury buyers is Sao Paulo, Brazil, where $1 million gets you a whopping 2,174 square feet. The next cheapest is Cape Town, South Africa, where you get over 1,800 square feet for your million.

When it comes to the favorite city of the world’s wealthy, however, New York tops the list, according to the report. The Knight-Frank City Wealth Index looks at a series of metrics — including the population of rich people, investment climate, lifestyle — to determine the top city among the world’s wealthy. New York beat out London, winning the top grades for wealth levels and investment.

London ranked second on the top cities for the rich, followed by Paris and Hong Kong. Eight of the top 20 cities for the rich were in North America, with Los Angeles ranking fifth and Chicago ranking sixth.

The report also looked at the cities around the world with the best price performance for prime real estate in 2019. Frankfurt topped the list, with 10.3% growth, followed by Lisbon at 9.6% and Athens at 7%. The worst-performing city was Rome, with 2% growth, with Lake Como also having 2% growth.

For Buyers:
Supply continues to drop as the market heats up with the seasonal rush of Buyers.  Typically we would see supply rising at this time of year as January is a strong month for new listings to hit the market.  However this year new listings year-to-date are down 17% from last year and January 2020 had the lowest number of new listings recorded going all the way back to 2001.  Combine this with a 21% increase in sales volume and the 4th highest January recorded for MLS sales, and it’s no surprise that supply is plummeting.  
While supply is down in all price points, it’s felt the most between $200K-$250K. Supply in this price range is nearly 60% lower than this time last year and a quarter of sales in the last 3 months have recorded over asking price. 

Seller-paid closing cost concessions are also down.  Nearly 22% of all sales in the 1st Quarter to date have included some form of seller-paid or assisted closing costs.  That’s the lowest percentage recorded in nearly 5 years.

For Sellers:
The luxury market continues to go gangbusters in 2020.  Sales over $1 Million in 2019 outperformed 2018 by 10%, which makes it the #1 year for in Greater Phoenix in this price range.  January closings were up 52% in this price and listings under contract are up 43%.  

With all this demand, one would think price appreciation would be rising significantly however that hasn’t happened yet. The average sales price per square foot between $1M-$2M has only appreciated 1% while those between $2M-$3M have appreciated 0.2% and those over $3M have increased 6%.  The current appreciation rate per square foot is between 8-9% for Greater Phoenix as a whole.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2020 Cromford Associates LLC and Tamboer Consulting LLC

For Buyers:
The urgency for buyers cannot be stressed enough; real estate prices are not projected to decline in the Greater Phoenix area in 2020.  There is not one measure from any angle that supports that theory.  Not only will they not decline, they will not stop rising this year at the current levels of supply and demand.

  
On January 9th, active supply was counted at just over 12,000 listings for all of Greater Phoenix.  This is down 32% from this time last year and excruciatingly low.  To put it in perspective, a “normal” level of inventory should be at least 28,000 - 30,000 active listings in the MLS for a metropolis the size of Maricopa and Pinal County.  The last time inventory was recorded this low was in 2005 at 9,000 listings with a population of 3.8M.  Now Greater Phoenix has 4.8M people with less than 1% of existing housing available for sale.  With monthly sales up 17% over last year, fueled by population growth, job growth, income growth and low interest rates in the area, sellers have few reasons to sell below market value.  It’s not logical to expect prices to soften in this environment.

Buyers who have been waiting for sales prices to decline before they purchase have nearly missed the boat.  This is because while they were watching prices rise, the payments for those same homes declined for a year with declining mortgage rates.  However, when mortgage rates stabilized 6 months ago, hovering around an average of 3.75%, payments started to creep up again.  

In short, if someone wants to purchase a home and they have the means, then they should lock into one.  They should expect competing offers, expect to lose some opportunities, and expect to do some upgrades.  They should also expect to live in their new home for at least 5 years to build up enough equity to mitigate the risk of ups and downs in the future.

For Sellers:
This is an exciting time for those who need to sell.  Anyone who owns property has probably been contacted multiple times by multiple means throughout the year by people wanting to buy their home.  While sellers are under much less pressure to perform repairs and upgrades in order to sell their home, it doesn’t mean that they will sell it as quickly or for as much as those that are move-in ready.  But, it will sell in this market.  Those who are considering selling to an internet investor buyer (aka iBuyers who offer some up-front certainty and convenience in the selling process), should know that they still have negotiating power in the transaction and have the option to be represented by a Realtor if they choose.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2020 Cromford Associates LLC and Tamboer Consulting LLC

In follow up to the article I wrote last month regarding the initial steps to purchasing a home, I thought I would write one about if you’re thinking about selling your home.   This won’t be the actual process of selling, but a discussion of the thought process and steps you can take in advance of actually putting your home on the market.

First, start by working backwards.   This includes 2 things, where you going to live next, and when do you want to move into your new home.   This is important, because it will provide less chance of having to scramble to find a home should your current home sell very quickly.

 If you’re not considering to purchase a home after moving from your current home, this will make it much easier on the timeframe, depending on what you’ll be exactly looking to move into.   However, if you are considering purchasing a new home once your current home sells, then you’ll most likely be looking at a “contingency purchase”.   You can see my blog for a good article in how this process works.  Generally speaking in the early process, you’ll just want to know approximately where you want to move, your rough budget and available inventory with those parameters to see if homes you might like are most likely to be on the market when its time for you to start shopping.

If you are planning to purchase a home after selling your current home, you should check into financing, if needed as soon as possible.   It's important to know that you won’t have any problems with obtaining a mortgage on the future purchase, since you might not be able to stop the sell of your current home without breaching the contract with your buyer.   Even if you aren’t going to be purchasing for 6-9 months away, contact the lender to see what you can do to either improve your credit score, establish a down payment goal etc..

As far as timeframe is concerned, a fairly good rule of thumb to follow is:
1-2 weeks to prepare to go on market
60 days on market before accepting a contract (this number can widely vary depending on market for your home - this is the current Maricopa County average)
30-40 days to close the transaction after offer acceptance

Based on the above timeframe, it takes about 3-5 months from start to finish once you start the selling process.   Keep in mind, timeframes could vary depending on market style for your home, if the buyer is paying cash or financing, and how inventory compares to demand.

While considering all the above, you’ll want to also be considering what Realtor you will use to help with the process - obviously I hope that its me!  Items to consider would be work experience, location in which they are familiar selling, what resources they’ll use to market the property in addition to their opinion of value and marketing timeframe.

Fannie Mae boosts 2020 housing forecast 'significantly'

Strong reads on the economy have researchers at mortgage giant Fannie Mae revising their 2020 housing forecast much higher.

Fannie Mae’s Economic and Strategic Research Group predicts builders will expand production more than previously expected, due to a strong labor market and robust consumer spending. Low mortgage rates will also help.

After increasing just over 1% annually this year, growth in single-family housing starts will accelerate to 10% during 2020 and top 1 million new homes in 2021, the group predicts. That would mark a post-recession high but is still far below the annual peak of about 1.7 million single-family starts in 2005 and the 1.2 million annual pace experienced in the late ’90s.

Single-family housing starts have been improving steadily since May, and building permits, an indicator of future construction, are also trending higher.

“It will likely take several years, even at a more robust pace, for new construction to address the existing pent-up demand for additional housing, as suggested by a still-increasing share of 25- to 34 year-olds living at home with their parents,” according to the report.

The shortage of existing homes for sale has pushed more potential buyers to the new-build market. Mortgage applications to purchase a newly built home were up 27% annually in November, according to the Mortgage Bankers Association. Homebuilder sentiment jumped to the highest level in 20 years in December, according to the National Association of Home Builders.

“We now expect single-family housing starts and sales of new homes to increase substantially, aided by a large uptick in new construction as builders work to replenish inventories drawn down by the recent surge in new home sales activity,” said Fannie Mae chief economist Doug Duncan.

The increase in construction, however, is unlikely to ease the overall housing shortage. Researchers at Fannie Mae are predicting a modest decline in existing home sales through the third quarter of 2020, due to the shortage of listings.

Overall housing demand is incredibly high, especially at the lower end of the market, where builders are least active. Prices are rising fastest on the low end, sidelining some first-time buyers.

“This stronger price appreciation is also having the unfortunate effect of partially offsetting savings to potential homebuyers from lower mortgage rates,” Duncan said.

The average rate on the 30-year fixed mortgage is hovering just below 4%, a full percentage point lower than where it was a year ago. Low rates are boosting already strong demographic demand drivers in the market. Millennials, who delayed buying homes because of the recession, are now flooding into new and existing homes.

“Housing appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years, further bolstering our modest-but-solid growth forecasts through 2021,” said Duncan.