Please click the video for an explanation of the charts, or click here. Lets get into it.
Employment:
The national unemployment claims through December increased slightly. Not enough to change it from 6.7%. Last week’s preliminary numbers show another increase in initial claims.
The people with the lowest levels of education and the lowest income earners are struggling the most. Unemployment is impacting landlords and renters more than homeowners.
Private sector earnings increased most dramatically in Q2 2020. More and more jobs in AZ have higher wages. Incomes are increasing.
2018-2019 had earnings decreases.
Forbearance:
- Lately, we are seeing weak numbers and small decreases.
- We will likely see this come to a head in March and April. All plans are in 3-6 months long with a maximum of 12 months.
- There is a lot of misinformation and a lack of info on the borrower’s side. Some may get NOTs. Servicers have unclear guidelines and tracking could be better.
- Even in the best markets properties still foreclose. On average, prior to 2020 there were about 69,000 foreclosures nationwide a month.
- There will be an increase (not huge) in foreclosures because of the backlog due to the moratoriums.
- As soon as the NOTs are recorded Realtors and investors will go after those properties. People will want to buy the houses and the sellers will be able to have a normal sale.
Corporate Profits:
The end of 2020 was surprising, for Q3 2020 corporate profits were way up. They bounced back and set a record which is what drove the demand for luxury real estate. The strong stock market drove confidence up.
Increasing corporate profits is a significant indicator for luxury real estate. Q3 2020 had huge corporate profits with an increase of 27.5% over Q2 2020. Nationwide luxury real estate is booming and Arizona is no exception. In October, the largest residential sale in the state closed at just over $24 million in Silverleaf in Scottsdale.
The stock market is on the rise, again. Wall Street does not like uncertainty. It improves after elections, regardless of who is elected because it likes to know who is in the White House and Congress. Political uncertainty is poison for the stock market.
Why do we have a housing shortage?
This is a housing shortage for real. This is not like 2005-2008.
We are waiting for the census for the newest numbers, not yet for the county but soon.
Expects all numbers by May 2021.
In 2019 we were already in trouble. We under built the past 10 years. We had a glut of housing in 2008 and it has all been absorbed. Since then we have been behind. Overbuilt for 10 years and then underbuilt for 10 years. All housing types; rental, condos, townhouses, single-family.
From 2010 through 2019 our population increased by 18% while housing units increased by 9%.
AZ ranked #3 for population growth from June 2019-June 2020. Behind Texas and Florida. CA lost people for the first time in over 100 years.
23% of inbound migration to Arizona is from California.
We have a diversity of labor force and job growth. More jobs are coming because we have lots of highly skilled workers. It is pushing out the people who cannot afford the housing prices. Workforce housing is really being impacted.
Moving Company Data:
Moving companies United Van Lines, Atlas, and National share their client data trends. United provides a deeper dive into the data, all are worth checking out.
Since moving trend data is older, another way to gauge where people are moving from is based on home searches. Redfin shares the search trends for its users.
The Cromford Market Index:
Available on the main page of the Cromford Report: http://cromfordreport.com/ (without a subscription)
The Cromford Market Index Continued:
- 100 is balanced and prices rise at the rate of inflation, 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
- On 5/15/2020 we were at 145.2
- Yesterday we were at 461.4.
- Prior to this run, the previous peak was 312.9 in the spring of 2005.
- CMI is the predictor, it moves first and then appreciation follows.
We are 30% above normal for demand. Supply is about 72% below normal. Our supply was stable for most of the year, just at a very low rate. In December inventory started dropping. Demand also started dropping in December. Supply dropped faster than demand and it is still in favor of sellers. Demand is down 4% but supply is down 5.6%.
On 1/1/21 we were at 432 and now we are in the 461.4, super-fast increase.
We cannot even discuss prices going flat, let alone down until CMI starts dropping. This indicator needs to drop to even lead to a price decrease. It will still take us a year to get to a balanced, aka normal, market for prices to go flat. At this rate, if demand dropped now, prices would not decrease until at least 2022.
Affordability:
What could possibly slow this down? Affordability challenges.
At the end of 2018, we dropped below the affordability range and we had an immediate decline in demand. We almost hit a balance in 2018. Then in 2019, we got back into the normal affordability range.
Normal is 60-75 in Q3 2020 we were at 61.9. For Q4 2020 Tina expects that we will drop below normal affordability. Makes it more expensive for buyers.
The low-interest rates have kept the median monthly payment down. Since 2018 the monthly PITI has increased by $23 while the median sales price is up to $68,000 to $328,000. The PITI for the median home is $1,574 with an interest rate of 2.67%. In 2018, the median home was $259,995 and with a 4.87% interest rate, the PITI was $1,551 a month.
Emotions:
Supply is dropping and demand is still high. Until the demand and supply come closer to each other the prices will keep going up. The numbers simply do not support the theory that prices will go down.
People are emotional about what they think will happen. But the numbers do not support it.
Not a good idea to sell and rent for a year. Rents are increasing faster than sales prices. In 2005 with decreasing rental rates, it made sense. In 2020 rents increased $254 a month or 16%.
It is not great to buy in a buyer’s market and then watch their value decline. It is best to buy at the end of the buyer’s market. The beginning of a buyer’s market has the highest prices.
It is always good to buy at the beginning of a seller’s market and sell at the end of a seller’s market.
Are we in a peak market? No, will prices appreciate from here? Yes. The numbers all point to yes.
We are not at the peak.
To truly time the market, buyers needed to purchase real estate in 2015. That was the beginning of our seller’s market.
Inventory:
- We are 52% below where we were this time in 2020.
- The first week of January is always the lowest supply week.
- January 2021 was the lowest first week in January in at least 20 years. Historically low. Shockingly low.
- Seasonally adjusted, we should have 21,000-25,000 the second week of January. Not 5,000!
- About 10% of all listings in MLS are outside of greater Phoenix. We are way, way, way low.
- We had 10% more listings in Q4 2020 than in Q4 2019.
- We had 12.5% more listings in December 2020 than in December 2019 but have 31% greater demand.
- In 2020, about 100,000 homes were listed, 38 than in 2019.
- New listings are 36% below January 2020. There were only 2,088 new listings in the first 11 days of the year.
New Builds & Developments:
- Single-family permits are up 24.1% through November 2020.
- Builders are struggling to maintain a healthy labor force
- Lumber prices increased by 161% due to fires in the west and a beetle infestation in the east.
- Multi-family permits are by 21.6% through November 2020. 90% is for rentals only about 10% is for sale.
- Multi-family sales increased by 0% from 2019 to 2020.
- In the past 8 months resale has passed new home sales. New home sales are recorded once it closes and people move in, usually are negotiated 8-10 months prior.
- The new single-family median sales price increased by 6.1% in 2020.
- New single-family sales volume increased by 15%.
Builders are building in many areas throughout the valley around job expansion. Tons in Florence and Casa Grande. The Town of Maricopa is getting a hospital.
Be sure to check out the Land Use Explorer http://geo.azmag.gov/maps/landuse/ on the Maricopa County Association of Governments website, https://www.azmag.gov/Programs/Maps-and-Data. The Land Use Explorer shows expansion, what is approved, proposed, and pending.
Demand:
- Listings under contract are up 20.1% year over year. Tina expects to see a spike in under contract listings through May.
- A lot of listings are selling before they actually hit the MLS. Coming soon never gets counted towards supply because it goes straight into under contract.
- 33% of all closings in December were for over asking.
- So far in January, we are at 35% over asking.
- The median over amount is $5,500.
- Very few concessions were paid. Only 10% of closings had any seller concessions. Huge drop, 60% decrease a year ago.
- Year over year appreciation for resale homes is 21.6%.
2020 Records:
Q4 2020 the best Q4 ever. We had 27,804 sales, up 25% from 2019.
Sales only 4% more than 2019 due to the slow spring.
Listed 111,000 listings.
Sold about 101,000 listings.
90% of everything that was listed sold.
Luxury crushed it in 2020, pushed all averages up.
The heavy top end is pushing prices up.
In 2020 we hit #2 for MLS sales, beat 2019 by 4%. 2005 remains #1 for units sold.
In 2020 we #1 for dollar volume. Beat 2019 by 19.5% and blew away 2005.
The Contract Ratio:
- The Contract Ratio is 171 right now.
- For every 100 listings active there are 171 in escrow
- January is always the lowest for contract ratio and December is always the second-lowest, until 2020 and now December and January are the top months for this year.
Final Thoughts:
New listings are under contract in a matter of days. We are not at the peak, prices will rise probably all the way through 2021. You have time, Real estate markets move slowly. Things change over the course of years.
Prices in 2021 will continue to rise most likely throughout the year. May slow down as demand wanes with rising prices.
If you have any questions about where your house price will be now or in the future, please reach out. Make sure to watch the video for a better explanation here.
Jay Bru
480-466-4917
jay@jaybrugroup.com
