February 2022

The Battle of Affordability.

Market watchers are predicting rising interest rates combined with rising prices are going to give the valley’s real estate market demand a one-two punch that even low supply cannot overcome.  And yet the historically and shockingly low levels of supply must make prices rise.  How can they both be right? 

“Housing Affordability” is a concept used to describe the combination of prices, interest rates, and average income for an area.  Generally when affordability exceeds the average for an area, prices mitigate or even drop because the majority of households cannot afford the cost of housing.  Yet in the greater phoenix market, while interest rates went from 3.11% in December to 3.55% in January, prices in the valley continued to rise.  In fact the median sales price went up another 2.4% in one month!  That is unexpected in a “normal” market – but this is not a normal market.  The supply of homes, both for sale and for rent, have been at record low levels for a couple of years.  There are simply too few homes for the number of people.

Despite the seemingly “endless seller’s market” this will end.  The question is when.  For more insight, we turn to Tina Tamboer of the Cromford Report (emphasis added):

“Despite prices continuing to rise, there is still an expectation that rising interest rates will eventually influence demand, and thus prices, sometime this year…. Over the course of 30 days, demand has gone from 23% above normal to 19% above normal, so there has been some shifting in demand that can be attributed to mortgage rates and their effect on affordability.  But demand is still very high, and supply moved from 72% below normal to 75% below normal during the same time frame. This drop in supply mitigated any relief the drop in demand would have had on rising prices.

When the total number of homes in an area is insufficient for the number of people living there, the interest rate has less impact on rising home values. There are fewer homes for sellers to move to, so they choose not to place their home on the market at all.  Even if demand falls due to mortgage rate increases, if it remains above normal while supply remains below normal, then property values will continue to rise.

Unless the supply of MLS homes for sale achieves a range of 16,000-24,000 listings, prices will continue to rise before demand drops low enough to stop them.”

There are subtle, early indicators of a market shift underway.  As always, we will continue to report the trends that ultimately evolve into an actual shift.  Contact us to discuss the market trends in your specific neighborhood that point to the best time to sell.

Russell & Wendy Shaw.

Market Snapshot January 2022

Given the unprecedented strength of last year’s real estate market in Phoenix, a slowdown feels long overdue. But thanks to supply remaining stubbornly low (2022 began with the lowest number recorded), the expected cooling off is not showing up just yet.  We saw some early weakening of the market in mid 2021, yet the low level of homes coming to market in the 4th quarter could not exceed a demand that still remains a bit above normal. Most concerning is the volume of investors in the marketplace vs. traditional home buyers.  Without them, we believe demand would be in fact below normal.  Despite our misgivings about the buyer mix, for now prices will continue to rise.

For more market insight, Tina Tamboer of the Cromford Report shares these sobering thoughts:

“It’s an accepted opinion among local analysts that income levels in Greater Phoenix cannot sustain another year of 28% annual appreciation, especially if interest rates continue to increase. However, seeing there is little relief from home builders adding more supply to the equation, it’s reasonable to expect the market to respond with a softening of demand. This trend started to reveal itself in the 2nd Quarter of 2021 in a subtle manner.

Since 2014, buyers purchasing their primary residence have made up 70%-76% of total residential purchases in Maricopa and Pinal County. In Q2 2021, that percentage dipped to 67%, and declined to 63% by October. While traditional buyers retreated, competing buyers for 2nd homes and institutional buyers made up of Wall Street-backed iBuyers, hedge funds and other investment groups stepped in. Price appreciation slowed from an average of 3.3% per month to 1.1%.

While 2022 is coming out of the gate strong, and the Spring is typically the strongest season for buyers, it remains to be seen how much control investors and 2nd home buyers will take if traditional home buyers retreat. The last time they ignored affordability issues within the community, everyone lost in the end.”

Questions about selling in this market?  Contact us, we are always here to help.

Russell & Wendy Shaw

Hello 2022

We hope you all had a wonderful holiday season. 

As our year begins it is appropriate to take a quick look at where we have been and where we may be headed for 2022.  2021 saw one of the strongest seller real estate markets ever.  What began as an accelerating sellers’ market in the 3rd quarter of 2020, went hyperbolic in the first half of 2021.  Multiple offers and contracts 10-20% over list price led to price appreciation in the 28-30% range for the year.  If you owned a home in the valley during 2021, you should celebrate your staggering new home value.


The cause of this extended seller’s market has been the ridiculously low supply.  We ended the year with supply 67% below normal and dropping as of this writing.  Hard to believe that 67% below normal is an improvement from where we were in March/April when we had only about 4100 properties for sale in the entire MLS. To make matters worse 10% of those properties weren’t in the valley but listings from outer areas (Prescott, Sedona, etc.) leaving the true number somewhere around 3600.  Builders, the source of new housing – struggled with supply chain issues, spiraling commodity costs, in addition to inadequate staff to build those new homes.  Hence, new housing has trickled on to the market rather than arriving in the torrent needed.


Demand has remained strong and stable (and is currently 23% above normal). However, a good portion of this demand is from institutional buyers rather than owner occupants.  This gives us some measure of concern for the future when the institutional buyers eventually leave the market.  Large hedge funds (landlord model) and the iBuyers (cash buyers that quickly resell) have been a significant factor in our marketplace.   Stable markets produce owner occupant demand – which wane under rising prices.  We have seen some softening due to price rises from this sector, a good sign.  But demand has not dropped from the institutional buyers.  Even with Zillow’s high profile exit from the iBuying arena, we believe iBuying will be a part of our marketplace for a long time.  However, we do expect institutional landlords to cease buying at some point when they have enough in their portfolio.  With rental rates in Phoenix rising the fastest in the country (up 14 % in 2021 vs the US average of 6%) you don’t have to ask why they are buying here. 

Until demand drops and supply jumps, there is no chance on pricing doing anything but going up.  That brings us to the future and how it may compare with 2021.

The future

Our real estate market has been in a seller’s market for so long (since 2015) that an unbalanced market has become our new normal. 

To put that in perspective, here are some fascinating numbers from Tina Tamboer of the Cromford Report:  “Over the past 21 years, Greater Phoenix has been in a buyer market for a combined total of 43 months (3.6 years), a balanced market for 55 months (4.6 years) and a seller market for 155 months (12.9 years).  This is important to discuss because the longer seller markets last, the more human beings change their definition of what “normal” looks and feels like. “Normal” for Greater Phoenix is not a balanced market, it’s a seller market.

So when national analysts suggest the housing market will cool off in 2022, many (if not most) local housing analysts believe it will remain a seller market, but a weaker one.  Prices don’t decline in seller markets, but listings may stay active for a few more days before accepting a contract. A full price offer may be enough to win a home. Buyers may have less pressure to waive appraisal and repairs.

However, after the last 18 months of extreme seller market conditions, anything less than sheer lunacy could feel like the sky is falling.”

We fully concur with Tina’s evaluation.  We do not expect pricing to drop in 2022, but to continue to rise.  Great news if you are seller, and a cause for further depression if you are a buyer.  However, we do not see pricing making the same level of gains as in 2021.  To further quote Tina:

“Even if demand were to decline tomorrow, sale price measures are the last to change in a shifting market. The first thing to go up would be the cost of the sale for the seller.  For example, days on market will increase, list price reductions will increase and then eventually seller concessions will increase before anything is reflected in the final sales price.  The pattern goes like this; homes are on the market longer than expected as sellers push the boundaries on price. If the market resists in the form of zero offers, a price reduction is recorded in response.  If demand dwindles to where only one offer is received instead of multiple offers, more pressure is placed on sellers to offer home warranties, do repairs, or consent to closing cost assistance in order to secure closing at their desired price. None of these indicators appear to be shifting at the moment, but that could change.  The key for sellers in 2022 is to stay on top of current market trends, listen to your REALTOR®, and be the first to shift expectations if buyer demand drops.”

We close with a thank you to you, our friends and clients.  We look forward to helping you with your real estate needs in 2022.

Russell & Wendy

(mostly Wendy)

Final thoughts for the 2021 market

As our year heads to a close, here is a quick look at where we are and where we seem to be headed for 2022.  2021 saw one of the strongest seller real estate markets ever.  What began in the tail end of the 3rd quarter of 2020, went hyperbolic in the first half of 2021.  Multiple offers and contracts 10-20% over list price lead to price appreciation in the 28-30% range for the year.  In fact, our real estate market has been in a seller’s market for so long (since 2015) that an unbalanced market has become our new normal. 

To put that in perspective, here are some numbers from Tina Tamboer of the Cromford Report:  “Over the past 21 years, Greater Phoenix has been in a buyer market for a combined total of 43 months (3.6 years), a balanced market for 55 months (4.6 years) and a seller market for 155 months (12.9 years).  This is important to discuss because the longer seller markets last, the more human beings change their definition of what “normal” looks and feels like. “Normal” for Greater Phoenix is not a balanced market, it’s a seller market.

So when national analysts suggest the housing market will cool off in 2022, many (if not most) local housing analysts believe it will remain a seller market, but a weaker one.  Prices don’t decline in seller markets, but listings may stay active for a few more days before accepting a contract. A full price offer may be enough to win a home. Buyers may have less pressure to waive appraisal and repairs.

However, after the last 18 months of extreme seller market conditions, anything less than sheer lunacy could feel like the sky is falling.”

For specific information about your neighborhood, reach out to us.  We are always here to help.  We wish you all a joyous holiday season and a very happy 2022.

Russell & Wendy

The Upcoming Valley Real Estate Market

“It’s tough to make predictions, especially about the future.” Yogi Berra

It’s the time of year where 2022 housing market predictions begin to appear. Zillow weighed in with their prediction for a national pricing rise of 14-16%.  But then again, these are the same people who just shut down their instant offers because their algorithms on future market pricing didn’t work.  Core Logic predicts a national housing price appreciation of only 1.9% due to rising interest rate concerns. But they predicted a drop in values last year of 6.6% and instead soaring prices occurred.  Zelman & Associates warns that investors are over-building and over-buying given the weak population growth and low household formation. They wisely have avoided predicting numbers.

We tend to side with Yogi.  Predicting home prices nationally is a ridiculous exercise.  Housing markets are local – and at times even local markets will appreciate at different rates based on the area and differing price points.  What can we safely say is true is this:

•           The market frenzy that was triggered 3Q of 2020 and through the first half of 2021 appears to be behind us.  This means that it is highly unlikely we will see the unsustainable price appreciation of 30%+ again.  More realistic estimates land in the 7-10% annual growth range for 2022.

•           Ultimately pricing is a supply and demand issue.  Price is a trailing indicator.  For prices to stop rising, supply will need to exceed demand.  That takes time.  So it is very safe to predict rising prices in the first half of 2022. Saying that a frenzy has ended does not mean price increases have ended.

•           Rising prices in a normal market dampens demand. This has already begun and will likely strengthen in 2022.  Seller behavior will need to change to accommodate less buyers.

Want a supply/demand analysis in your specific neighborhood? Contact us! 

Russell & Wendy Shaw

Signs of a cooling market

The Phoenix housing market is cooling, but it is far from cold.  Here are some interesting numbers from the Cromford Report.  From April 1st to October 1st, the number of homes for sale in MLS rose 92% going from 3,591 to 6,883 active listings (supply). In the same time frame, listings under contract dropped 9% (demand). Rising supply with lowered demand says the market is shifting.  Especially concerning is the lowered demand from owner-occupying buyers who are the heart of the housing market.  But before we panic, it is important to note that a count of 6,883 active listings is still extremely low. To put that in perspective, supply is still 45% lower than the pre-pandemic 2019 seller market and 68% below the last balanced market of 2014.  As of the writing of the newsletter, the active listing count has just risen above 8000 for the first time since late 2020.  But even with the numbers remaining well below normal, the rising trend is notable.  In “normal” markets the supply typically does not rise between April and October.  But it did this year. Additionally, other sources of inventory are around the corner.

Possible supply increases

Forbearance agreements are expiring – causing many to expect additional supply of homes for sale from troubled homeowners.  While most people in forbearance retain their homes, about 20% on average elect to sell.  Add to that another anticipated source of homes for sale: the iBuyers (Open Door, Offer Pad, Zillow, etc) The iBuyers bought very heavily – in what appears to almost be a turf war over who could buy the most.  As of this writing, Zillow has just announced they will not purchase any more homes through the end of 2021.  Given the number of homes they purchased, it is not surprising they called a halt, but this will affect demand.  The total iBuyer purchases hit an all-time monthly high in August with 1145 homes purchased (up 533% over August 2020).   Add to that September buys of 1062 (up 471% over last year) and they are carrying a lot of inventory that is scheduled to arrive to market soon.

Where is our market heading?  It is hard to guess given the trends have been somewhat masked by the investors dominating the market.  But, we think most likely sellers will find 2022 a very different market than 2021.  If you have questions about the market or cash offers vs traditional selling, contact us!  We are always here to advise and help.

Russell & Wendy Shaw

Market tidbits

For those hoping for a rebalance of the market (we confess to being in that camp) the steady progress which had been building since April has stalled. The answer to rebalancing is more supply and July delivered in spades with a rise of almost 25% more active homes for sale.  The last two weeks of August reversed that trend and September has been lackluster for new listings.  Currently we are not seeing any clear trends in the market, but here is a smattering of information on what we are seeing.


On the demand front, home buyers are feeling the pinch of affordability courtesy of the first half of the year which brought significantly higher prices.  Sales counts (closed sales) have started to drop and are slightly lower than last month and this time last year.  What is propping up demand is increased activity from all categories of investors (fix & flip, landlords, and instant institutional buyers) and second home purchasers.  Michael Orr of the Cromford Report confirms this: “If it were not for the activity of investors and iBuyers, and particularly the latter, the market would have cooled during August. This would have been following the trend established since April… Demand is improving but a lot of this is coming from investors and iBuyers so could die away quickly. Demand from ordinary home-buyers is subdued, no matter what the media might be telling you. If the iBuyers stop their spending spree then demand could fall quickly.” This leads us to the topic of iBuyers.

iBuyers ( “instant” buyers:  Zillow, Open Door, Offer Pad, etc.)

We have not commented about the iBuyers much lately.  When they first entered the market place in 2016, the high cost to the homeseller to eliminate a few days of showings in a seller’s market did not seem to make any business sense for homesellers.  But the models are ever evolving.  During the initial outbreak of Covid in March of 2020, iBuyers cancelled almost all their contracts – leaving a wake of very angry home sellers.  Fast forward to today, iBuyers are in a buying frenzy the likes of which we haven’t seen before.  With that has come improved offer prices.  Even though in most cases the consumer will make more on the open market than when taking an instant offer – we certainly understand that for some, time is more important than money.   So that our clients can examine all their options but with representation, we have formed a partnership with the largest iBuyer allowing us to obtain offer (s) on behalf of our sellers at no cost/no commission to the seller. 

But we digress, back to the iBuyer buying frenzy, Michael Orr of the Cromford Report further some cause for concern:   … iBuyers have purchased so many homes over the last month that they are significantly distorting the market dynamics. These homes are mostly going to be re-marketed shortly so they will almost certainly increase supply over the coming weeks… the iBuyers have purchased about 2,850 homes over the last 3 months. That represents almost 9% of re-sale purchases… If iBuyers had not done this, we estimate that supply would already be higher by some 1,800 listings…. We conclude that pricing would also be weaker without their intervention. This begs the question: what happens if they stop buying on this massive scale? The market is therefore more precarious than if demand were primarily growing through owner-occupiers.” (Emphasis added)

There is valid cause for concern about how the iBuyers’ actions will impact our market.  What we know for sure is this buying frenzy will not last forever.


Much concern has been expressed about the potential impact the expiration of the federal moratorium on foreclosures may have on our market (i.e. will a flood of foreclosures be headed our way).  Any worries seem to be overblown, as we are at historic lows for foreclosures and record high equity levels for most. Add to that the continuing low inventory – and foreclosure should be last on their list of options.

Tom Ruff from ARMLS Stat explains:

If we assume that the homes in forbearance were purchased prior to the COVID-19 outbreak in March of 2020 when the median sales price for a resale home in Maricopa County hovered around $300,000; based on today’s median of $405,000; their properties have appreciated 35% while in forbearance.

Distressed but equity rich sellers should avoid foreclosure at any cost.  The market is ready to absorb them quickly at the moment.

Rental rates

Homeowners may generally be unaware the impact the rental market can have on home purchases.  When it is cheaper to rent than own, people rent.  When it is cheaper to buy than rent, more people own.  When there is a shortage of homes for the population, both resale and rents should rise. Here are some interesting stats from Michael Orr:

“The average rental price per square foot, based on ARMLS listings, has increased from $1.00 in September 2019 to $1.36 this month. That is a 36% increase in just two years and must be a budget problem for tens of thousands of tenants. The 19 year period from September 2000 to September 2019 saw only a 28% rise, so the cost of renting has escalated over a very short period. The housing bubble of 2004-2008 saw little to no rise in rents and in fact the low point was 64 cents in February 2005, just as the for sale market was reaching its highest frenzy. This time is very different – showing that the rapid appreciation in home values is due to real shortage of housing rather than speculative activity based on easy money.

Although the cost of renting has jumped 36% over 2 years, the average home price per square foot has increased by far more – from $169.26 to $262.21 (September month to date), a jump of 55%.”

Will all these tidbits coalesce in to a trend?  Time will tell. As always, we will keep you informed.

Russell & Wendy (mostly Wendy) 

The Market Shift Continues

As we have been reporting for a while now, supply is increasing as the market continues to shift towards rebalancing.  The number of homes for sale is up 42 % since May, and up 24.7 % in just the last month – which would be alarming if we didn’t start from a ridiculously low point of supply. The new supply of homes for sale is showing up most prominently in the price range from $400,000 – 1 million.  But, far from alarming, this increasing supply is actually good news.  Bubbles do not recover this way, normal markets do. Sellers, who have waited on the sidelines to capture the rapidly increasing values the first half of the year provided, are finally easing back in to the market as appreciation rates have started to abate. 

Does that mean we are headed towards plummeting prices?  No.  Balanced markets tend to appreciate in keeping with inflation rates.  But it does mean that the days of 50+ offers on homes are likely over.  Price reductions have already crept back in to the market – they are up 131% since May with a median drop of $14,000.  A sure sign of a market that no longer will bear pricing that is too exuberant.  In short, a sense of normalcy is on its way.  If you have been waiting to sell, these signals may be a sign that you need not wait anymore.

Demand remains in a normal range, but seasonal patterns have returned to the market.  The seasonal pattern for buyers accelerates at the first of the year hitting its peak March thru May and then gradually declining each month through the end of the year.  As demand begins to decline seasonally and the supply continues to slowly build, eventually you end up with a balanced market.

The Market Begins to Cool

The Market Begins to Cool

The market has been in such an overheated condition this year that any headline of a “market slowdown” is almost inherently misleading.  Yes, the market is slowing.  But it is a good sign, not a bad one. The market shift actually began in March, and now is confirmed.  In addition to the shift, the market is following our typical seasonal pattern; slowing in the back half of the year once the spring buying season is over.  Last year the pandemic extended the buying season as people could not flee the valley for vacations.  This year we expect, as in years past, activity to gradually slow through the end of the year.

It is important to understand that the market balance in favor of sellers has been and continues to be driven by the levels of supply.  Yes as prices rise, demand drops.  But it is the increased supply – both in unsold properties and in the form of new listings that is driving this rebalancing market.  We are in the early stages of the rebalance.

What to know if you are a seller:

Sellers are going to need to adapt to a market that is shifting.   You likely will not see the carloads of showings, multiple offers and spiraling pricing as desperate buyers fight to outbid each other.  You will see more properties not selling if improperly priced for their condition. That does not mean homes are no longer selling or that prices are plunging.  But seller expectations do need to adapt. Michael Orr of the Cromford Report comments on this issue: “The number of active listings is increasing by roughly 300 per week. The number of showings is in decline and the number of contracts getting signed is getting smaller as each week goes by.

All this makes sense. When prices leap by over 35%, demand is suppressed and supply stimulated.

The obvious question is how far this trend will go before it levels out. The honest answer is that no-one knows. Buyers are more cautious now than they were in 2005. Sellers’ normal first reaction will be denial. Some will blame their agent. These sellers will probably be complaining that they are not getting the viewings and offers their house deserves. This is because they have so quickly become accustomed to a frenzied market. They will now need to get re-adjusted. The market still favors sellers, but buyers will start to gain a little more respect.”

What to know if you are a buyer:

Despite the increasing supply, it is still not easy to buy a home.  The supply of homes for sale must rise to the range of 28,000 properties to have a truly balanced market.  As of this writing, we have 5627 properties on MLS without offers.  Prices are going to continue to go up until supply increases significantly.  The exact amount and rate of appreciation is what is unknown.  The fact that they will continue to rise is predictable- as even in a balanced market pricing keeps pace with inflation.  If interest rates are low (they are, but won’t be forever) and prices are going to continue to rise (they are, even if more slowly) it makes sense to buy now.  So our advice?  If you are a buyer who can buy, buy now.


The Median price for homes in the greater Phoenix area is up a whopping 35% from 2020.With a rebalancing underway, we do not expect to see anything like that kind of increase in the back half of 2021.  But, as long as supply remains low, prices will increase albeit more moderately.  To quote Tina Tamboer of the Cromford Report: “At its current rate of decline, the Greater Phoenix market is still projected to remain in a Seller Market for 16 months. That’s a target of October 2022 before prices stop rising.” Prognosticating in real estate is a thankless task.  Remember that these projections are based on today’s numbers.  Market shifts, while somewhat predictable, can be quite stubborn in conforming to exact timelines.

Hidden Market Factor: There is a hidden market factor that sellers should be aware of that could affect them.  The expiry of governmental home retention programs on July 31st. Tina further explains: “However this year there’s an event coming up that could alter that scenario, that is the end of forbearance for many homeowners. While the vast majority of forbearances have ended with homeowners staying in their home, anywhere from 16%-20% have resorted to selling their home one way or another according to the Mortgage Bankers Association. This could result in an increase in supply over the next few months, adding extra days of marketing time to your listing and possibly a few price reductions.”  Although we do not anticipate a major impact to our market, it could speed up the shifting timelines towards balance.

As always, we will continue to watch the numbers and keep our clients informed.  Want an up-to-date forecast for the market whether buying or selling?  Contact us.  We are always here to help and inform.

Russell & Wendy Shaw

(Mostly Wendy)

Market Musings

In a persistently strong seller’s market – real estate newsletters can feel the opposite of news.  Like the weather in Phoenix – our real estate market can be antithetical to headlines.  Factually there are consistent changes, but large real estate shifts require time.  So let’s review the current market patterns.

Why is this the hottest real estate market?  Most people would answer that demand is driving this market, but that is a fallacy.  Rather this market is being driven by the scarcity of homes for sale.  Yes, our demand has been slightly above normal. But demand could drop well below normal levels and still have little impact on the market simply because the current supply is so scarce.  We need about 7 times the amount of homes currently for sale to balance the market.  Therefore the key to the market rebalancing is increased listings – both active and new to market – not decreased demand.

The scarcity of homes for sale is largely attributable to 15 years of under-building. Additionally new listings coming to market are lower than 2020 levels, which were not impressive to begin with.  Add in some homes that are not being sold due to forbearance and other governmental programs that are artificially propping up otherwise would-be home sellers, and we simply  have too few homes for sale for the number of people who want to live here. 

As of the writing of this article, we can see the first signs of a slight increase of new listings coming to market.  This is too early in its infancy to say if it will continue.  Also, demand is weakening courtesy of rising prices.  This is exactly what is supposed to happen in a healthy market – demand weakens when prices rise. Is there a rebalancing of the market on its way?  Yes, but supply can take a long time to build which means that balance is a ways off. 

Where are all the buyers coming from? California?

The luxury market does appear to be benefiting from inbound Californians, along with other states.  The luxury market has been setting new records since mid-last year.  To quote Tina Tamboer of the Cromford Report:

The luxury market has been exploding since last summer and continues to be at the strongest level ever seen in Greater Phoenix. The number of listings under contract over $1M is up 156% over last year; but the number under contract between $2M-$3M is up 296% and over $3M is up  212%. In a typical market, sales prices in this range would be landing around 93% of list price.  However in the 2021 market, the sales price ratio is averaging 98% of list.

In addition to luxury buyers making a strong appearance, the purchase of second /vacation homes are up 36.2% over this time last year and rental property purchases are up 52.1% from last year according to the Cromford Report.

 “It is clear that compared to last year, far more sales are going to investors and those buying second homes. The primary residence buyer seems to be the segment that is losing out. Perhaps the rising prices and interest rates are having a greater impact on these buyers (who probably have less financial resources than investors and people buying their second or third home). By itself, this is not a huge development, but it is a new sign that the market may be starting to get a little frothy. Primary residence purchases are the backbone of the market and we do not want to see a market dominated by other buyers when we are looking for signs of good health. “

Given that both resale pricing and rental rates are soaring it is not shocking that investors are making an appearance in this market.  Primary residence buyers are in the market as well, they just tend to lose in multiple bid scenarios – losing to the strong cash positions of both investors and second home purchasers.

Can home prices keep rising?  Are they about to drop?

Obviously home prices cannot rise forever at the current pace of 2-3% per month.  As prices rise, affordability drops thereby causing a corresponding drop in demand.  That allows supply to build up.  Price drops only occur when supply is well in excess of demand for an extended period.   Because our supply is so constricted, we fully expect price increases to continue this year- and possibly for a couple of years – as a buildup of supply takes time.  Michael Orr further comments:

“This is a more significant and long-lived increase in price than any of the booms we have witnessed since the 1950s. We have over a decade of sustained under-building in the face of population growth to work off. This is not some market aberration that will quickly resolve itself. The annual appreciation rate has already exceeded 24% (measured by monthly average $/SF) and there are higher numbers to come. Also what does “cannot be sustained” mean. If it means that prices will one day be lower than today, that we would consider an unlikely prospect. At some stage the boom will fade but we expect prices to stabilize at a much higher level than 2Q 2021. In the words of Stephen Kim of Evercore ISI, we are entering housing’s “Golden Age”.

Are we in another bubble?

Although this is a topic we have previously commented on, it bears repeating.  This market is not like the 2005 market (and subsequent 2007 market meltdown) despite having spiraling prices and multiple offers in common.  Let’s compare:

2005                                                                                 2021

Too many homes for the population                        Too few homes for the population

Excess of vacant homes                                               Very few vacant homes

Wall Street fueled fraudulent lending                       Standard lending practices

Lack of home equity                                                     Large amounts of home equity
Rents were falling (6% in a year)                                Rents are rising (a 21% rise)

People believed it wasn’t a bubble (it was)              Most think it is a bubble (it’s not)

The seeds of failure are sown in times of success No matter how much we discuss the extraordinary strength of the market, most sellers are still shocked when they actually experience being a seller in this market:  Multiple offers, waived appraisals, as-is options, & spiraling pricing.  Sellers who fail to grasp how extraordinary the current market is, are making choices that unfortunately cost them tens of thousands of dollars when they sell.    Some sellers still believe the gimmicks – “online cash offer with no showings” “Sell in hours” “do it yourself” “we don’t put you on MLS so you save on the commission”.  All of these pitches cost you money if you select them.  What sellers can fail to understand when they sell through a limited service real estate company or on their own – is that it is the loss of the upside money is the largest expense of selling.  Because sellers can easily see the expense of a commission but can’t see the sales price they could have achieved, they are vulnerable to sales pitches. The way to get top dollar is to market to the largest pool of buyers and agents, allow a sufficient amount of time for showings (in this market only 4-7 days are typically needed) and negotiating to encourage and exploit multiple offers.  It is the multiple offers properly negotiated that creates the frenzy, not curtailed hours of showings or limiting the buyers who see your home.  The expense of a commission is cheap compared to the loss of the upside.  Having sold real estate over 40+ years, we’ve seen all the gimmicks.  In those years our goal has never changed – getting you the most money. It is not uncommon that we are negotiating an additional 30k-50K in unexpected profit for sellers.  Though we understand this sounds self-serving, we repeat – hard work and good marketing will always beat gimmicks. Always.