Hottest Seller Market. Ever.

Having been in real estate sales since 1979, we have learned that real estate is cyclical. Nothing lasts forever – although at times it sure can feel that way! That brings us to the seller’s market we’ve been in since 2015.  While most expected the pandemic to suppress demand and allow for a rebalancing of the market, the opposite happened. Demand remained above normal – but that is still not where the story lies.  The real story is about supply.  Or more correctly, the lack thereof.   Supply has plummeted to the lowest levels ever.  And new supply (i.e. sellers putting their home on the market to replenish the homes under contract) are arriving at a trickle rather than at normal levels.  Properties for sale are down 61% from this time last year.  Yikes.  Combined with still inadequate new homes being built, there are simply too few homes available to house those who wish to live here.  If we were old Mother Hubbard we would rightly say the cupboard is bare.

This is all confirmed by Michael Orr of the Cromford Report:

The housing market is experiencing moderately strong demand, but this is not the important matter. Variations in demand are almost insignificant. This is because the supply of re-sale homes is so poor it crashes below all time record lows almost every week…The supply situation is the worst we have ever recorded, lower than the first quarter of 2005, which used to hold the record….

Not only is the supply extraordinarily low, it has dropped by a large percentage since the beginning of the year. In a normal year we would expect to have more available supply in mid-February than we had at the start of the year. For example in 2015 active listings rose from 22,879 in week one to 24,041 by week 8… This is a 5% increase. In 2021 we started the year at 6,113 and by week 8 we have dropped to 4,731, a decline of 23%. This is unprecedented.

4,731 homes for sale in MLS is a shocking number for an area as large as Metro Phoenix with 4.5 million people.  Further, about 12% of the 4371 are “out of area listings” meaning in Arizona but not in the valley. That brings the real tally of properties for sale to around 4,000 homes.   To put this in perspective, a “normal” market would have around 28,000 homes for sale. Unprecedented indeed.

Rebalancing & Prices

The law of supply and demand says when supply is inadequate for demand, prices rise.  In fact pricing is currently moving upwards at a rate that is breathtaking to sellers and agents alike.  We saw 3% appreciation in the last month alone! Within the first half of this year, it is possible we could see prices rise 30%.  But (there is always a “but” isn’t there?!) this market will not last forever.  At some point rising prices cause affordability rates to drop, and that will begin to impact demand.  This is how markets rebalance.  As demand falls, supply begins to slowly build.  Sellers sensing record pricing levels, come to market in greater quantities.  Builders continue to build to exploit higher pricing and previously unsatisfied demand. Supply begins to build in earnest.  The market then shifts into balance, with prices ceasing to rise or rising very slowly.  This will happen.  The question is only how soon and how high will prices have to go to trigger the rebalance.  Correction can take some time. 

Pitfalls of an Extended Seller Market

If you are a buyer, the pitfalls of an extended seller’s market are obvious.  Multiple competing offers and spiraling prices can make buying a home a less than thrilling experience.  It takes perseverance, a good agent, and some grit to make it happen. 

If you are a seller, it would seem you hold all the cards – what pitfalls could lurk?  Yet in every seller’s market we see the same mistakes made over and over by sellers. 

  1. Taking the first offer the first day of listing – Once a seller is listed on the market they are understandably excited to receive an offer.  However, in a strongly unbalanced market – waiting a few days to collect multiple offers is a winning strategy for negotiating the most advantageous deal.  We counsel our sellers to allow us at least a few days to attract multiple offers and create a bidding war.  That strategy has often allowed us to get an additional 5-20% higher than list price!  It is critical you hire an agent that has been through more than one overheated sellers’ market so they know how to play the game to maximize your net.
  2. Not negotiating terms – Once the highest price is obtained, other terms can be negotiated that benefit the seller.  In some cases appraisals can be waived (i.e. the buyer puts additional cash down if the appraisal comes in below the sales price rather than the seller lowering the price to appraisal).  Homes can be sold “as-is” avoiding the need for repairs.  In some cases earnest money can be made non-refundable.  Essentially, terms to protect the seller can be as vital to negotiate as price.
  3. Pricing too high – This sounds counterintuitive in a red hot seller’s market.  Shouldn’t any price work?  Almost.  But even in the best market, overpricing can still stop offers.  Currently, 10% of the properties are not selling.  Yes, even with only 4000 properties on the market, it is possible to miss the hottest market ever.
  4. Doing it yourself – In a seller’s market the easiest thing to do is sell a home.  The challenge is to sell it for the most money. Any seller can post their home online or put a sign in the yard and get an offer.  Sadly the “do- it- yourselfer” is missing out on the competition that can be created by being on the market.  And that can cost them the 5-20% upside that competing offers can provide.  Additionally, just as overpricing is a mistake – some sellers underprice by about 10% due to the rapidly rising market.  They simply do not have access to the market statistics that a knowledgeable agent has.  There is a saying that the seeds of failure are sown in times of success.  Selling yourself feels empowering – but sadly even the best of home sellers can cost themselves thousands.
  5. Taking investor offers – If you have a cell phone or a mailbox, you are getting constant offers from investors trying to buy your home.  It sounds so good – no commission, no showings, all cash, as-is!  But let’s be honest, investors do not represent your best interests – they represent their best interests.  They make money when they buy, not when they sell.  That means they need to convince you that selling to them at their price is best for you.  It is never best for you.  Never.  How can you be sure of that?  Well look at what investors do – not what they say.  They only buy for-sale-by-owner homes, rather than listed homes, knowing they will buy below market that way.  But when they sell, they NEVER sell the way they bought – direct to buyers. They always sell on MLS.  Why?  Didn’t they just tell you that you are going to save because there is no commission?  Yet they hire agents and pay a commission when they sell!  Investors know to get top dollar they have to be on the market.  Just like you.

Still have questions about this rapidly changing market?  Call us!  We are always happy to explain your options and get you the facts so you can make an informed decision that is right for you and your family. 

Russell & Wendy (Mostly Wendy)

Goodbye 2020

Welcome to 2021 and the ever changing real estate market.  To know where we are, we need to examine where we have been.  2020 was a challenging year for all.  But surprising to most was not only how resilient the real estate market was despite the pandemic, but how truly important housing became.  For many, home suddenly became their new office or their children’s classroom.  Stay at home orders meant more time spent at home.  Renovation projects increased markedly.  Refinancing soared. Outdoor spaces were updated and repurposed as the new living room.  Appliance stores reported highest ever sales.

What most people did not anticipate is that demand would continue at such an elevated level right to the very end of 2020, largely ignoring the traditional seasonal patterns.  Meanwhile on the supply front, homes for sale dropped to the lowest levels ever. Lowest. Levels. Ever.  The scarcity of the supply of homes for sale is shocking even to those of us who have practiced real estate for over 40 years. Anyone who isn’t involved with buying or selling real estate likely has no idea the market is so hideously unbalanced in favor of sellers. To quote Michael Orr of the Cromford Report “Supply is collapsing at a jaw-dropping rate across large areas of the valley, especially those mid-price suburbs.  However, supply has been a problem for many years and we sound like a broken record when we talk about it… the tiny number of listings available right now is even lower than almost anyone imagined possible just a few months ago.” Demand seems unquenchable gobbling up the supply almost the moment it arrives on the market. Even the luxury price ranges are experiencing record breaking sales and supply is unusually low. Our number one source for inbound relocations to the valley is California, where by comparison, two people are leaving for every one that arrives. Our luxury market is a bargain compared to California pricing. In fact the only exception on supply shortage appears to be the 55+ community.  Although that market still favors sellers, there is far more supply in the age restricted areas.  Not surprising really, given the population most vulnerable to the virus would be less likely to attempt a move.

Fears  

As our market is experiencing seemingly unending demand with strongly evaporating supply, it may seem counterintuitive that fear rather than greed is the emotion of the day.  But many are concerned about the economic underpinnings of unemployment and the expiry of governmental programs that temporarily prop up delinquent homeowners and renters. Add to that the not too distant memories of the run-up in 2005 followed by plummeting prices amidst a tsunami of foreclosures; the fear is understandable.  However, this market is dramatically different than the 2005/2008 market for a variety of reasons.  First, back then we had more homes for sale than we had people to fill them.  Builders were building at a rate that overwhelmed demand.  Today, builders are building at about a third of the level they were then, and not in sufficient quantity to equal demand.  Simply put, there are not enough homes today.  Second, delinquent homeowners who bought even just a year ago can sell their homes (rather than foreclose) thanks to the equity buildup rising prices provides. Third, lenders are loaning to people with fully documented income and credit.  In 2005 lenders were offering zero down loans with no income documentation or credit check (fondly referred to as “Ninja” or “No No” loans – no income, no job, no assets). Fourth, rental rates have soared 15% in just the last 6 months.  With record low interest rates it is cheaper to buy a home than to rent one, despite rising prices. Still not convinced?  No one summarizes it better than Michael Orr:

“People who are worrying about mortgage delinquency rates should remember that foreclosures did NOT create the huge excess supply of 2006. The excess supply arrived 2 years before the foreclosures started in earnest. When the bank owned homes hit the market, it was already dreadfully over-supplied, so their prices dropped sharply. If we saw a new wave of distressed homes right now, they would be soaked up very quickly by eager buyers and prices would continue to rise. It would help move the market back to a more normal balance, so prices would rise at a more moderate pace. Most distressed homes would be unlikely to get to foreclosure because almost all of them have substantial owner equity and can be marketed as normal sales, or at worst pre-foreclosures, not short sales (which can often be tricky to close).

The current situation is very different from 2004 or 2005. Then a large number of newly built homes had been purchased by investors with 100% loans and were lying unoccupied with no tenants interested in renting them, despite record low rental rates. Many other homes had been purchased by owner-occupiers on fraudulent loan applications, who never even made the first monthly loan payment, living in their new home for free with minimal money down. Loan fraud was rampant in 2005 and 2006, largely driven by the mortgage industry itself rather than the borrowers. Wall Street firms (like Lehman Brothers) demanded mortgages to chop up and sell as securities and mortgage brokers could not supply enough without resorting to abnormal practices focused mainly on sub-prime loans. Remember Countrywide and Washington Mutual? Stated income loans? No documentation loans?

I repeat – 2020 is nothing like 2005. The 2020 housing market is not abnormally pumped with artificial credit, just starved of supply. Forecasting the future is extremely difficult, but drawing parallels with 2005-2008 is not helpful, nor is it logically appropriate”

Prices & supply

So what will 2021 bring in terms of pricing?  Forecasting is a thankless job and one that is bound to fail.  But we anticipate prices to rise for the first half of the year (and possibly for the next 2 years).  Why? Again, there is just not enough supply.  In shortages of supply – prices rise. That leads to the most important question, when will supply rise to normal levels (defined here in the valley as 28,000-30,000 properties)? It is likely going to take years to balance this market given that current supply is only around 6,000 properties for sale.  To correct the imbalance, Builders will need to build in more volume, delinquent owners will need to place their homes on the market, and those who need to sell for personal reasons (family formations, divorce, job relocations, etc.) do so.  Perhaps even the vaccine will allow for more homes to be placed on the market as jobs resume and migration accelerates.  Of course this market imbalance will not last forever. Pricing at some point will dampen demand – as the law of supply & demand dictates – allowing for a larger build up on homes on the market. At that time prices will level off or even fall.

Whatever 2021 shall bring, we will be here to report it to you.  Here’s to a bright 2021!

Russell & Wendy Shaw

(Mostly Wendy)

Demand Strong, Homes for Sale Scarce

 The real estate market of 2020 will likely go down as one of the strangest years in history.  That is saying something given the meteoric rise of 2005 and the catastrophic fall of 2008.  The pandemic hitting in March quelled the market for a few months – then released the normal patterns only time lapsed a quarter later.  Exemplifying this is the spike in the above 600K sales in August.  Typically the luxury market goes soft in the summer months as those with the most income tend to escape the summer heat.    Not this year.  Homes in the 600K+ range saw a rise of 17% in August!  Normally the stock market drives the luxury market – when wealth increases, purchases increase.  The 2nd quarter for corporate profits was far from stellar – with only a few exceptions (Amazon!) they were lower than any time in the last decade.

     So why the spike in luxury purchases?  You can thank taxes and our California neighbors.  To quote Tina Tamboer of the Cromfort Report:  “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.”

     Building has been much lower than our growing population warranted over the last 14 years.  Not surprising, given the overbuilding that occurred in 2005-2007 and burned many a builder.  But builders finally are responding as Tina further explains:   “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.

     For buyers this may mean that relief is on the way.  But building takes time.  For sellers, currently they are the main game in town and may want to take advantage of this window of high demand, low supply.

     Do you have a question about the market we didn’t address?  Please contact us – we are always here to help.

Russell & Wendy Shaw

2020 – Thanks for the memories?

It is hard to believe that we are in the waning weeks of 2020 – a year not likely soon forgotten.  While real estate was certainly not the top headline (pandemic, fires, protests, politics – need we go on?) it was in its own way a valley headline grabber. The chronically short supply of housing was the byword, while buyers proved that even a virus could not dampen their enthusiasm and demand for housing.  In fact the virus had seemingly two effects:  a temporary pause in buying resulting only in a delay in our seasonal patterns; and sellers more reticent to come to market.  The outcome was one of the strongest seller’s markets since 2005. 

2005 vs. 2020

Having lived through the 2005 frenzy and subsequent 2008 collapse of the housing market, fears of history repeating itself are understandable.  But the underpinnings of the 2005 market and the 2020 market are very different.  No one points out those differences better than Michael Orr of the Cromford Report.

“There are dozens of things that are different now compared with 2005, but the most significant include:

In 2005, thousands of homes were being purchased and left vacant as they were snapped up by speculators

In 2005, rents were low and headed lower because there were more homes than people who wanted to live in them

In 2005, almost anyone could get a 100% loan with minimal documentation, and thus had no skin in the game if prices were to fall (as they did)

In 2005, few people thought the market could decline

Mortgage fraud was rampant creating artificial demand

The developers had built (and would continue to build through 2007) more homes than were demanded by the population growth

For all 6 of these, the opposite condition exists today.

Vacancies are very low

Rents are high and rising sharply

Qualifying for a mortgage requires financial resources (for example, a job) and must be supported by documentation, and almost all home owners have equity

Many people think the market could go down, supported by articles claiming this is likely (although it is not)

Mortgage fraud is at a relatively low level

The developers have built fewer homes than demanded by population growth between 2008 and 2020.

It is not normal for the CMI to be above 200, never mind 300, so it will certainly come down from its current level eventually. However this is more likely to be as a result of much higher prices damping down demand, rather than a flood of supply entering the market. We would need to see almost three times the current level of supply to get back to normal.”

Fears  

Many fear that storm clouds are gathering on the horizon given the expiry of both forbearance programs and elevated unemployment pay. Others tie doom and gloom to post election fallout. Ultimately, whatever the source – the fear basically translates into a looming housing price crash.  These fears fail to take in to account the most basic fundamental underpinning of the housing market – supply and demand.   As the Cromford Report states: “There have been a number of articles written predicting that home prices will fall next year because of the damage to the economy by the COVID-19 pandemic. This will cause some people, those who took those articles seriously, to be very surprised by the huge increase in pricing that is currently going on. The extremely high CMI (CMI = Cromford Market Index; which predicts short term future pricing trends) reading indicates that the upward price trend will continue for the near and medium term, making any price reductions in 2021 rather unlikely.  …

The economy has severely damaged the finances of a large number of people. However most of those people were unlikely to be in a position to buy a home anyway. Those who are in a position to buy a home have had their determination to do so increased dramatically by the pandemic. The gap between the haves and the have-nots is widening.”

It is worth repeating a few facts.  First, price is a trailing indicator – meaning that it shows up months after the market shifts.  Second, we need three times the number of homes on the market to be at a balanced market.  Three times! Even in the housing debacle of 2008 it took a few years for the market to shift to a buyer’s market. (2006-2008)

Trends

 Although predicting the housing market is really a short term game, there are a few trends in play.

First, price increases.  Again the Cromford Report shares this information that may surprise you:

“Over the last 12 months, the average price per sq. ft. has increased over 17% and the current rate of increase in around 2% per month, meaning we are probably headed for an annual rate of over 20% fairly soon.” This is the reason we so adamantly tell our clients to avoid investor offers.  The market can move upward without the general population having any idea.  Your house is likely worth more than you know and an investor “fair market offer” can really be anything but.

Second, what about the foreclosures that have been temporarily squelched by forbearance programs?  Isn’t a flood of foreclosures headed our way?  Undoubtedly there will be some delinquencies that will need to be dealt with.  But thankfully the numbers the lenders are releasing imply that those numbers will be nothing like the avalanche we saw in 2007-2012.  And unlike those years, sellers have equity!  There is absolutely no reason to allow a foreclosure on a home with equity.  That is just a sale that needs to happen within a timeline. We Realtors’ do that daily – sell a home quickly and hand a check to the seller.  To look at actual numbers rather than fears, Black Knight Mortgage Monitor report shares the following facts:  “The state of Arizona has 5.7% of first position loans that are delinquent by 30 days or more. Only 0.1% are in foreclosure and the remaining 5.6% are non-current. Arizona ranks 38th among the states, with Mississippi worst (11.7% noncurrent) and Idaho best (3.8% non-current).”

Third, another trend relates to new builds.  Buyers who cannot find the resale home of the dreams often turn to new housing.  Unlike in days past, some builders are trying to benefit from the rising prices of homes by only accepting contracts on homes that are nearly complete.  Locking in pricing 6 months before the completion (traditional new builds) puts equity in the buyer’s hands rather than the builder’s hands.  Some builders are trying to change that by building specs and then selling right before completion at “today’s price”.  It is an interesting trend and one that will likely only survive in a strong seller market.

For those who have read all the way to this point, our apologies for the length (thanks mom!)   We wish you and your family a wonderful upcoming holiday season and we look forward to serving you in 2021.

Russell & Wendy Shaw (Mostly Wendy)

Warp Speed Market

Talking about the 2020 real estate market causes even seasoned agents who

survived the 2005 run up to shake their heads.  This is truly a year that feels like “there is nothing for sale”.  While listings coming to market are lower than last year’s numbers, the truth of the matter is that 30,343 new listings came to market between July and September. (source: Tina Tambour, Cromford Report) The fact is that demand has so outpaced supply that very few listings last on the market for even a week.  In fact over half the listings in the 3rd quarter were active only 9 days or less prior to contract.  And most of those had multiple offers – thereby lengthening the time on market just to field all the offers.

Unbalanced markets make for unbalanced emotions for agents and their clients alike.  Many a buyer, after losing home after home, is tempted to step to the sidelines for a more favorable buyer market.  Unfortunately for those buyers, stepping to the sidelines is not a great solution. The median sales price is up 18% since last October with the bulk of the appreciation occurring in the last 4 months.  As this strong appreciation in pricing continues, it will eventually dampen demand and increase supply.  But at that point buyers will be paying more for the same home months earlier.   To quote Tina: “As exhausting and stressful as it is for buyers and their agents, supply and demand measures indicate prices in Greater Phoenix will continue to rise well into 2021. Hopefully the short-term pain will lead to long-term gain for those who ultimately win a successful contract.”

Have questions about buying or selling?  We are always here to answer your questions.

Russell & Wendy Shaw

The Market Frenzy Continues. For Now.

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

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?

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)