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Wow! 17% Spike in Contracts over $600K in August
34% of Homes Closed Over Asking Price

For Buyers:
The first few weeks of August saw a surprising 17% spike in listings under contract over $600K. This is highly unusual as typically contract activity declines in the 2nd half of the year, especially on the high end; but this is the year 2020 and it’s been full of surprises. What is causing this spike in buyer demand in the luxury market? Luxury sales are partially influenced by stock market performance and corporate profits. August was a good month for the stock market, but the 2nd quarter was not good for corporate profits at all. In fact, they fell to levels we haven’t seen in a decade.  The answer may lie in what’s been dubbed “wealth flight”.  Some states like California are considering increases in income taxes, corporate taxes and a new “wealth tax” in the wake of the pandemic. As a result, the threat of new taxes on already hurting balance sheets is enough for companies and their employees to make the decision to move. This, coupled with the work-from-home movement, is fueling demand in Metro Phoenix where taxes and the cost of housing are comparatively more affordable than other cities.  For buyers waiting for prices to decline, there is no indication of that happening soon despite apocalyptic predictions of another foreclosure wave; at least not while the Valley has a net increase in population moving to the area.  A reasonable expectation over the next year is that prices will continue to rise sharply in the short-term, then possibly rise slower if affordability rates begin to suffer.  The only beam of hope for buyers right now is a boost in new construction. 

For Sellers:
For at least 12 years, builders have been reluctant to ramp up production of new housing supply to accommodate population growth; which is understandable considering they were burned severely when the housing market crashed in 2008. This reluctance has led the market to our current shortage of homes for sale and a frenzy of competition for existing resale homes.  However, last July saw over 3,000 single family permits filed; the largest number filed in a month since March 2007. This should provide some much needed relief for buyers and some added competition for sellers in the coming months. While exciting, this increase in new home permits is not alarming.  The biggest month recorded was July 2004 with 6,291 permits filed.  
That said, 35% of homes closed through the Arizona Regional MLS in August sold over asking price. As incredible as that sounds, this is not the first time Greater Phoenix has seen this measure spike. In fact, 2005, 2009 and 2012 all saw higher percentages; each peak was short-lived over the course of just 2-3 months before sharply dropping again.  This is because as more sellers test market limits and ask for higher and higher prices, their likelihood of selling over asking price drops significantly.

Often I get asked about open houses during initial meetings with clients.   I recorded a quick video discussing some of the pros and cons of holding an open house during the marketing period of your listing.   What are your thoughts about them?  Leave a comment below!

July Breaks Records in 2020
65% of Homes Affordable in Greater Phoenix

For Buyers:
It’s a jungle out there for buyers, but despite recent appreciation rates the HOI* measure for Greater Phoenix increased to 64.8 for the 2nd Quarter 2020; the previous measure was 63.0. This means that a household making the current median family income of $72,300 per year could afford 64.8% of what sold in the 2nd Quarter of 2020.  By comparison, the HOI measure for the United States was 59.6. 
Historically, a normal range for this measure is between 60-75. During the “bubble” years of excessive appreciation between 2005-2006, the HOI plummeted from 60.1 to 26.6. Typically if it falls below 60, the market should start to see a drop in demand.  With the most recent increase however, Greater Phoenix is still within normal range and experiencing demand 20% above normal for this time of year.
What makes this market significantly different from the infamous bubble and crash is the relation between resale housing growth and population growth. In the early 2000’s, housing was growing faster than the population and creating a glut. This glut went unnoticed due to excessive speculator (i.e. “false”) demand fueled by loose lending practices. When loans tightened up, the glut came roaring into focus as vacant inventory soared to over double the normal levels.  However since 2006, the population has grown faster than housing.  It has taken 14 years, but this population growth fueled by job growth has finally consumed the glut of re-sale housing created during the bubble years and now the market is facing a shortage of homes for sale.
This type of market and appreciation is not sustainable over time, however it’s here now and properties purchased today are expected to continue appreciating over the next 6-12 months.

For Sellers:
So much for the “Summer Slowdown”, July had a record number of closings go through the Arizona Regional MLS; surpassing every July as far back as 2001.  July also broke records in dollar volume with $3.9 Billion sold. The best July ever recorded prior was in 2005 at $2.9 Billion. The monthly appreciation rate finalized 12.5% higher than 2019 and was the 4th highest appreciation rate for July going back to 2001.  
One third of homes closed were over asking price and only 15% involved any sort of seller-paid closing cost assistance; down from a high of 27% last May.  Half of all sellers who accepted contracts in the first week of August did so with 7 days or less on the market.
Contracts on luxury homes over $1M are up an incredible 93% over last year at this time. Between $500K-$1M, contracts are up 64%. Between $300K-$500K, they’re up 39%. Between $250K-$300K, up 15%.  If you need to sell, this is the time to do it.

For Buyers:
Greater Phoenix has a population of approximately 4.8 million people and 1.4 million single family homes, condos and townhomes in total inventory.  As of July 8th, only 8,579 of these units were available for sale through the Arizona Regional MLS.  If that number doesn’t cause you to gasp, then this might: only 1,023 are single family homes under $300,000 and that number is diminishing every day. The last month has seen a surge of buyer activity, but it was not met with an equivalent surge of new listings. New listings overall compared to last year were down 7.8% while contracts in escrow soared 24% higher.  For buyers under $300K however, new listings were down 22% in June compared to last year and are down 38% so far in July.  This is causing an extreme amount of buyer competition in this price range. When buyers expand to over $300K, then new home construction starts supplementing inventory and providing some much needed alternatives.  The top 3 cities for single family home permits are Phoenix, Mesa and Buckeye with notable spikes in building permits issued in Surprise, Maricopa and Queen Creek.  Most new homes are selling between $300K-$500K, but buyers looking for a brand new single family home under $300K still have some options. Their best bet is in Pinal County or Buckeye with average sizes between 1,800-2,000 square feet for their budget. Conversely, new listings over $500K saw a spike last month, up 20% over last year.  1,596 new listing came on the market and 2,046 contracts were accepted in this price range in June.

For Sellers:
Brace yourselves.  Half of the sellers who accepted contracts under $400K in the first week of July were on the market for just 8 days or less with their agent prior to contract acceptance.  Sellers who took contracts between $400K-$600K had a median of 14 days on the market with their agent and those who landed contracts between $600K-$1M had a median of 41 days.  It’s a good time to be a seller.  While 28% of all sales in July so far have closed over asking price, that percentage peaks at 41% for those between $200K-$300K. Top cities for closings over asking price are Tolleson, Avondale, Glendale, Gilbert and Youngtown.  Gilbert is the only city in that list with a median sale price over $300K.  Seller-assisted closing costs remain popular and were involved in 23% of all sales in the first week of July. That percentage increases to 33% on transactions closed between $150K-$300K.  Top areas where 50%-60% of sales involved seller accepted closing cost assistance were Youngtown, West Phoenix, Aguila, Glendale, and Tolleson. This supports the theory that sellers receiving offers over asking price in the West Valley and other affordable areas are still open to accepting closing cost assistance if a contract meets their most important needs.

Frenzy Is Back - 23% of Sales Close Over Asking Price
Luxury Rebound - Contracts Over $500K Up 159%

For Buyers:
Greater Phoenix is officially back to a frenzy market with more properties under contract than available for sale.  Over the past 4 weeks the number of contracts accepted weekly has jumped another 20% since last month’s report, bringing the total recovery since April 5th to 68% and 2.5% higher than it was in late February; before the stock market crashed and the stay home orders were imposed due to COVID-19.  

The most frenzied areas are those with average sale prices between $200K-$400K.  That includes just about all of Southeast Valley and West Valley, North and South Phoenix.  At last count, there were 2,061 properties for sale between $200K-$300K and 4,333 under contract already.  Between $300K-$400K, there were 2,006 available for sale and 3,017 under contract (24% higher than this time last year).  

While all price ranges have rebounded in contract activity, May saw the largest comeback between $500K-$1M where the number of accepted contracts soared 167% from a low of 148 contracts the first week of April to 395 the first week of June.  That’s 58% higher than last year’s count in the same week of 250 contracts. Even more dramatic, contracts over $1M are now up 85% compared to this week last year.

The result for buyers is an inventory that’s back to a pre-pandemic low. In our March update, inventory was at a historic low of 11,087 listings before vacation rentals began flooding the market for sale.  Inventory rose 35% over the course of 4-5 weeks and peaked in mid-April. Since then, inventory has consistently dropped week over week and now lies at 11,232; just 145 more listings than before this whole situation began. 

Low interest rates and positive affordability indicators continue to fuel demand and cause prices to rise.  The big question buyers ask, “Is it still a good time to buy?”. The answer is yes, for now.  Affordability is still within normal range, which is a good reason why there’s so much demand. However, if affordability drops below the normal range for those making the median family income, then the market will begin to cool.  We are not there yet. It’s best to get in while it’s affordable.

For Sellers:
Not surprisingly, there is an increasing percentage of closings over asking price.  23% of all closings so far in June have recorded over asking price, up from 17% recorded in January and 19% recorded in February.  That percentage increases to 38% for closings between $200K-$250K and 27% between $250K-$300K.  It’s not uncommon for sellers to experience multiple offers, escalation clauses and appraisal waivers in today’s environment. In fact, there have been reports of 70 competing offers or more on homes under $300K. 

Sellers who have been on the fence about listing their home lately should seriously consider it now and take advantage while the market is hot.  This spurt in buyer activity may peak very soon and then fall into the typical seasonal decline the Greater Phoenix market experiences every year from July to December.  Pent up demand from the pandemic is now being released, but there’s no guarantee that it will continue at this level for long.  If you planned to sell your home this year, now is the time to list it.

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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