Here we are in August and the upward trend continues as buyers still moving here and supply cannot catch up forcing prices to climb and selection to be Scarce. This is now and in real estate, it takes months, quarters, and years for change sometimes but to reverse the market to get the Cromford Report index back to normal levels of 100 will be a long time. Here are some of the notes on our market update in Arizona:
Wall Street & iBuyers:
- Real estate is not dependent on the success of Wall Street, however real estate improves when Wall Street is stable.
- As the stock market has stabilized since the March roller coaster, real estate activity has increased significantly.
- iBuyer re-entered the market in May.
- It is a difficult market for iBuyers to purchase anything
- In June Opendoor purchased 28 properties.
- In June Offerpad purchased 46 properties.
- In June Zillow purchased 18 properties.
2nd Quarter Purchase Types:
- 83% of all purchases were owner-occupied
- 8% of all purchases were second homes
- 8% of all purchases were landlords
- Buying more and more new homes, easier for investors to acquire
- 4% of landlord purchases were new homes
- 0.7% of all purchases were iBuyer
- Categorized under 2nd home purchases
- Highest ever for iBuyer was 4.6%
- 15% of purchases are cash
- Money is cheap
- 2012 also had low-interest rates but it was much tougher to get a loan then.
- Normally, this time of year we see a peak of cash purchases but with the low rates money is cheap
Affordability, Employment, and Forbearance:
- Phoenix affordability is still good.
- A family making a median household income of $72,300 should be able to afford 60%-75% of what is selling in the market.
- When affordability drops a resistance emerges in the market, and usually see a correction.
- Today’s affordability is lower than it was in 2006
- July 2020 payments are 3% lower than in 2005
- July 2020 payments are 30% lower than 2006
- Based on average price and monthly payment for a 1500-2000 square foot home in great Phoenix.
The data for this chart is due to be updated on August 8th for the 2nd Quarter 2020
- How many of our unemployed are furloughed with jobs coming back?
- Phoenix has the strongest job market in the country and has sustained the fewest job losses.
- The number of mortgages in forbearance is declining
- Normally this would be an indicator but given that we do not know how many of these are strategic forbearances versus truly dire situations we will have to wait and see the outcomes over time.
- There are several powerful housing assistance options for Arizona owners and renters.
The document was updated on 7/31, here is the new link:
https://assets.noviams.com/novi-file-uploads/ama/COVID-19/AMA_EPRA_Resources__7-31-20_.pdf
Length of Ownership:
- Homeowners have a lot of equity.
- 394,000 owners have owned their homes for 1-5 years and already have 10% appreciation.
- 269,000 owners have owned their homes for 7-12 years.
- 125,000 owners have owned their homes for 16-20 years
- Not much risk of losing value. The only ones who don’t have a lot of value would be the people who purchased in the past 12 months but even those people have had increases.
- Remember today’s demand is true demand. Rental rates are rising with housing appreciation, different from the bubble.
- 2005 had false demand. Rental rates decreased.
The Cromford Market Index:
The Cromford Market Index Continued:
- 100 is balanced, below 100 is a buyer’s market, above 100 is a seller’s market, prices drop below 90, prices rise at 110.
- On 2/5/2020 we were at 215.1
- On 3/20/2020 we were at 241
- Early August we were at 318. This is really high.
- On 7/28/2020, it was 307.8
- Prior to this run, the previous peak was 312.9 in the spring of 2005.
- Today’s market is triggering some 2008 PTSD
- CMI is the predictor, it moves first and then appreciation follows.
Price Appreciation:
- 2005 had 26% appreciation
- Today we are tracking a 12.8% appreciation
- Appreciation has not yet responded to CMI, the appreciation rate will start rising, even faster.
- Headlines are deceiving, always look at the source and the state.
- Pricing is about supply and demand, our supply is nearly 63% below balance while our demand is nearly 18% above balance.
- In 2007 our supply was 113% above balance and demand was 43% below balance.
- Prices will likely continue to increase throughout the rest of the year but many unknowns after the election, how long covid stays, and where Unemployment takes us.
How did we get here?
- In 2005 demand peaked at 30% above 100, false demand.
- Based on preliminary research which may change as Tina dives deeper into these comparisons possibly including other types of housing or adjusting comparison years:
- 2001-2006 housing stock grew 26% while the population grew 16%.
- 2007-2019 housing stock grew 17% while the population grew 26%.
Supply:
- On 7/26 we had 7,674 active listings, 41.1% below 2019.
- 25,000 active listings would be a reasonable expectation to have available.
- All of the increases in inventory due to the virus have been absorbed.
- All price points have decreased, not enough listings to keep supply rising.
- Higher price ranges a bit softer but prices are still going up.
- 1,119 available listings under $300,000. Levels have stopped dropping as quickly, beginning to see a flattening out of the drop.
- Many Canadian owners are renting their properties over listing them.
- We are starting to see increases in builders in certain places. Permits are up 11.9%.
- Multi-family new builds are up 30.1%. Most of the building is for apartments which do not help with resale. More are turning into rental than for sale.
Demand:
- 5.4% of sales in July have closed with 0-1 days on market.
- 50% of sellers were on the market 9 days or less before they got a contract
- Weekly accepted contracts surged in the first 4 weeks after the shut-down, surged again in June.
- May is the normal annual peak for accepted contracts.
- June typically sees a seasonal downtrend and this is when inventory increases.
- As of 7/26 accepted contacts are up 3.3% compared to 2019.
- Not expecting any big bold movements, if everything stays as is, this will be a normal second half of the year.
Demand Continued:
- $500K-2M demand is huge and increasing.
- Low end weakening and high end strengthening, when these all close the overall average sales price will increase.
- New contracts are up 5% for the $250K-$300K price range, year over year.
- New contracts are up 29% for the $300K-$500K price range, year over year.
- New contracts are up 67% for the $500K-$1M price range, year over year.
- New contracts are up 76% for properties over $1M, year over year.
Contract Ratio:
- Measures total properties under contract compared to active properties available.
- Pinal County has nearly double the properties in escrow versus what is active.
- On 7/2 contract ratio was 164.
- Areas with average sales prices of $200K-$400K have the highest contract ratios.
- 85307 has a contract ratio of 1800 with 1 active listing and 18 in escrow.
- Some areas have 3x more in escrow than active
- Many areas have 2x more in escrow than active
Closings:
- As of 7/26, 28% of all closings in July closed over asking
- Closing cost assistance peaked in May.
- 27% of closings had seller concessions in May
- 17% of closings had seller concessions in July (as of 7/26)
- Contracts are up, supply is still declining, buyers are looking.
- We are looking at an annual appreciation rate for this year of 12.8% (normal is 3%)
- Properties in the $200K-$225K range have an 11.4% appreciation rate, the highest for any price point.
- Properties in the $2M-$3M range have a 4.4% appreciation rate.
Final Thoughts:
- Contracts are up 3.3% over this week last year.
- Demand continues to increase in the $300K-$1M range.
- Supply is still declining.
- Prices will continue to increase. The market responds slowly and changes slowly. We will have time to pivot as we see continue market changes.
- Regular housing is not heavily influenced by the elections. Luxury responds to the stock market which responds to elections.
- Q4 usually has a seasonal decline and Q1 one has a seasonal increase.
For more information on the market call me at 480-466-4917
Jay Bru
jay@jaybrugroup.com