Author: Russell Shaw

The Market Frenzy Continues. For Now.

Posted on by Russell Shaw

The effect the pandemic has had on the real estate market has been surprising to say the least.  Most homeowners are quite shocked when we inform them that the current market is the strongest seller market we’ve seen since 2006.  We certainly expected 2020 to be a sellers’ market, given that 2019 so strongly favored sellers thanks to a low supply of homes combined with strong demand.  But we have to confess that we didn’t imagine a pandemic would further strengthen that.  But, as counterintuitive as it sounds, it has fostered a frenzied real estate marketplace.

Supply                                                                                                     

Supply (homes for sale) began to dwindle once the local government ordered shutdowns.  Fears over contagion of the virus, homes suddenly converting to makeshift workplaces, job losses & furloughs, all combining with “sheltering in place” caused sellers to delay home selling.  The already low inventory that began the year winnowed to ridiculously low levels as homes under contract were not replaced by other sellers coming to market.  A balanced market is approximately 30,000 properties for sale – as of the date of writing we are at only 8500 properties!

Demand

On the demand side, the initial drop in demand that occurred in March and April strongly reversed course in mid-May.  This occurred primarily for two reasons.  First, demand was unseasonably suppressed in March – typically one of the highest months for demand yearly.  But the demand was just temporarily suppressed and returned with vengeance (the coiled spring theory – the longer something is suppressed the higher the bounce when freed). Second, demand was strongly spurred on by historically low interest rates. 

When low supply meets high demand, multiple offers collect on homes and results in upward pressure on pricing.  That is exactly what has happened to our market. Tina Tamboer of the Cromford Report comments:

“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.”(emphasis added)

So if prices are moving upwards, shouldn’t that dampen demand?  Yes, that is the theory of supply and demand being a scale that constantly rebalances.  But interest rates have a strong impact on affordability – even more than a moderate rise in pricing.  Which is exactly why demand still remains strong – these historically low rates have improved affordability despite the rising prices in the valley.  In fact here are some interesting numbers from Tina Tamboer regarding the “Home Opportunity Index” (HOI) which is calculated on a combination of pricing, lending guidelines, interest rates, and medium pricing in an area.

“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.”

2006 market all over again?

Despite the HOI for Phoenix remaining in a viable range, there are many who fear that 2020 has all the makings to repeat the notorious rise of 2006 followed by the infamous implosion in late 2007.  Despite such fears, this market is very different from the 2006 market.  At that time we had a glut of supply (i.e. housing was built faster than the population growth supported). Today there is no such glut. In fact we have the opposite issue – the population growing faster than housing.  Too many buyers, not enough housing is a key reason we currently have the hottest market for sellers since 2006. 

But if history is a teacher, we have learned that markets like this don’t last forever.  To that point Tina Tamboer further comments:

“…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.”

The Future

If we don’t expect a repeat of the market crash of late 2007, what do we expect to happen down the road?  Our personal guess (and this is admittedly a guess) is for supply to remain artificially low the rest of this year.  However we do expect to see a strong increase of sellers coming to market in 2021.  Why?  As government programs lapse (i.e. unemployment rates reverting to former payment levels, forbearance for mortgagees, landlord/tenant relief ,etc.) some homeowners will likely need to sell in order to relocate for employment, change to housing that better suits their economic situation, or move for altered needs (homes with more workspace or to more rural settings).  Additionally, just like demand, the coiled spring theory applies to supply. Sellers who postponed selling due to the pandemic cannot postpone forever.  We expect that to show up in 2021.  Does that mean we see a rash of foreclosures?  Absolutely not.  There is simply too much equity in homes (unlike 2007) for sellers to need to do that.  Sometimes history does not repeat itself.  Whatever the future brings, we are here to answer your questions and concerns.  Thinking of selling?  We are always delighted to examine the numbers in your particular neighborhood!

Russell & Wendy (mostly Wendy)

Your September Market Update

Posted on by Russell Shaw

Video starts at 3:18.The Phoenix market has been changing rapidly over the past several months – to keep you updated, Russell is here to give you the news.To see any previous market updates, visit our website’s blog:https://nohasslelisting.com/blog/If you would like to receive monthly market updates and more straight to your inbox, click here to sign up:https://nohasslelisting.com/newsletter-sign-up/Click here for video

How’s the Market?

Posted on by Russell Shaw

About that real estate market of ours – it certainly was impacted by the pandemic.  Perhaps the biggest surprise to most people is what the actual impact looked like rather than what they assumed would happen.  Let’s examine the impact in the key areas that compose a real estate market.

Prices

The primary concern for most home owners in real estate is pricing.  When a sudden economic shift occurs (such as a pandemic, war, acts of God, etc.) fear tends to take over the financial markets.  This can cause dramatic swings in the stock market as well as other industries – but the housing market is very slow to react.  In fact it can take months or even years to react.  The Valley has been in a very strong sellers’ market for a long time. A few months of pandemic was not enough to really move the needle on pricing.  But like normal times, different price points behave differently.  It may surprise you to hear that prices in the under 500K range actually rose during this time.  The 500K-1 million market saw some minor softening in pricing as did the upper luxury market of over a million.  But any reports to the contrary, sellers do not need to give away homes or take low priced investor offers to sell.  The average home is holding steady and improving in value.  Even the luxury market very recently is showing renewed strength.

Supply/Demand

Real estate prices are tied to supply and demand. As long as the demand exceeds the supply, prices will rise. The bigger the gap, the faster prices increase.  So what happened to supply and demand?  The market was at the beginning of the spring selling season – typically the most active time of the market- when the pandemic hit.  By the second week of March, the news and subsequent shuttering of states finally impacted the market.  Within a two week period a large percentage of buyers exited their contracts (including the “iBuyers” such as Open Door, Zillow, Offer Pad).  The “back on market” status did a jump as these cancellations accelerated.  In fact demand dropped a whopping 39% – indicated by the number of contracts accepted.  So while demand was dropping rapidly, what was happening on the supply side of the equation?

Sellers fell in to one of two camps.  One group, fearing that prices were headed for a fall, jumped on the market immediately to avoid the looming future price drops they feared. This caused a short term spike in new listings of about 2000 homes.  The other group, concerned that “no one would buy now” or concerned about allowing buyers in to their homes, moved to the sidelines removing their homes from the market.

The net effect was a shrunken market.  As supply and demand fell in nearly equal measure, sellers retained the control as they have for years but less transactions occurred.   To sum it up succulently, Michael Orr of the Cromford Report writes:

 “I would say the impact on the Greater Phoenix housing market has been less so far than many people expected. Transaction volumes are lower than normal, but not dramatically so. Home values have not been noticeably affected at all and are likely to increase during the second half of the year.”

What is selling has changed – Another effect of the pandemic was the mix of what was selling changed.  The above 500K saw more of drop in demand than the below 500K.  Stock market fluctuations tend to impact the above 500K market, and the pandemic’s economic impact was certainly reflected in the stock market.  Jumbo loans were temporarily suspended by some lending institutions and others changed their lending criteria for the worse.  Consequently, what was selling changed.  The upper market faltered, while the below 500K began to dominate the solds – dropping the average price per square foot price.  When you have fewer high priced per square foot homes selling – the overall average for the market drops.  So if you see headlines saying “price per square foot is dropping” implying prices are dropping, be aware that the author has not examined the underlying numbers.  Another interesting factor is that the 55+ community homes have suffered in sales numbers.  Perhaps not surprisingly, considering they are the most vulnerable population in the pandemic.

Summary:

The market is expanding and moving rapidly to catch up with the 2019 numbers.  If you are a buyer, please don’t wait for price drops that are not coming.  Buy now while interest rates are at historic lows.  If you are a seller, please don’t panic and sell to investors for fear that prices are plummeting or that your home cannot be marketed to the entire pool of buyers safely.  We are armed with tools of the trade like virtual open houses and selling without physical showings.  All of which protect you as well as your pocketbook.  And that remains our goal – unchanged by market conditions- to protect you, our client.

Russell & Wendy Shaw

(mostly Wendy)

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Posted on by Russell Shaw

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To Russell, Wendy, JC, Andrew and all the fine folks at Realty One – THANK YOU!

Posted on by Russell Shaw

After 19 offers we have accepted what we thought fit our objectives best. Thanks to Wendy for all of your counseling and advice. Outstanding job of taking things a measured step at a time and explaining  the process in detail. We appreciate that. We haven’t sold a home in 15+ years. Your patience with us was so genuine and sincere and after your counseling we felt like old pro’s. Andrew, I hope we didn’t make you work too late dealing with those offers! You can blame it on JC.  JC’s initial consultation and telling us how to stage the house was priceless. And I can’t leave out the big guy….I loved the personal calls from Russell. I felt like I was talking to a movie star!

After a whirlwind 55 showings and 19 offers it sold in 4 days with a SUBSTANTIAL premium! We aren’t at the finish line yet but we are sprinting towards a quick appraisal free close with the Shaw Team leading the way. I’ll make sure my neighbors know that the experience and professionalism of Wendy Shaw just increased the value of their homes (comps) by thousands of dollars due to her negotiation skills and getting such a magnificent price for my house.

This has been a life changing event for my wife and I and it looks like our dream of living in northern New Mexico is one BIG step closer. To all he Dream-makers at Russell Shaw Realty One, thank you all.

The Housing Market Isn’t Stopping!

Posted on by Russell Shaw

The real estate market is still alive and functioning –despite social distancing and stay at home orders. Like food, shelter is not optional. Understandably there have been changes. The number of transactions has dropped, but prices are not dropping as supply continues to be much lower than current demand.

2020 began with such a disparity between supply and demand that many buyers were shut out of the housing market trying to compete against multiple offers (we would receive as many as 10-30 offers on homes). Add to that the iBuyers and investors trying to pre-empt the purchasing of homes prior to coming to market and you can see why normal buyers had a very tough road to obtain housing. The extreme lack of homes for sale resulted in accelerating prices – causing many to compare it to 2005 (erroneously I might add, as 2020 had very different traits from what was fueling the 2005 marketplace).

And then came COVID-19. To quote Tina Tamboer, Senior Housing Analyst with The Cromford Report:

“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.”

As usual, housing markets are not only local in nature but different price points within that local market behave differently.  While the under 500K price point seems to be functioning well, the luxury market has felt a larger impact.  Tina Tamboer further explains:

“… 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.”

If you are struggling to understand whether to buy or sell in this market, and the changes we have put in place to do so safely, please contact us. We are here to answer questions with facts and advice.

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

Posted on by Russell Shaw

The COVID -19 virus and the housing market are squaring off.  It is early in the fight, so we are loathe to predict too much at this point.  In our 42 years of practicing Phoenix real estate in all its iterations – a pandemic virus is one we haven’t lived through.  But “disasters” whether war or terrorism or a housing bubble – all have one thing in common.  They do not survive long term.  So really, what is the worst case?  Demand drops until the virus abates or is medically solved (vaccines, medication etc.) Demand can only be suppressed for so long.  In the long run, the basic needs of man – food and shelter, always prevail.

Given how strikingly low the valley’s housing supply is – our market has the potential to weather a significant drop in demand.  Let’s look to the Tina Tambour of the Cromford Report for some interesting statistics.  Tina points out the number of active homes for sale is running chronically below the number that have contracts on them – i.e. the active supply is being gobbled up by contracts:

“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.”

In short, whatever the impact to the market – we will keep you informed.  We would urge you to not be overly concerned at this point.  We have one of the strongest housing markets in the country and any change to that would be a temporary one.  This too shall pass.