August 2021 AZ Real Estate market update

Here is the latest addition to the Phoenix Metro real estate market update, helping you decide whether to buy or sell a property In Arizona. Its been a very frustrating time for many people that need a place to live competing with cash and out-of-town buyers but like my last market update was labeled “Relief Coming for home Buyers” This is still true but can’t come fast enough for many. Real estate prices, conditions, and contract contingencies are slow to change but are happening. I am personally buying a property right now so I do believe in this Arizona market. I study the market and I know that Arizona is one of the fastest-growing states, great for business, has an inventory shortage, and is a major tourist destination. I know if you watch the news and get sucked into some youtube guru’s clickbait saying the market is going to crash, you have to realize the data does not suggest this, and if you go through these charts, understand the Cromford market index, and watch supply and demand, you’ll be able to see the big picture through the numbers.

There have been many regrets and frustration with many buyers and sellers as of late. Buyers want a place so bad that they keep putting offers in and getting rejected, the offer presently must still be aggressive on a good property right now. As aggressive I mean a shortened 10 day inspection period, agreeing to pay a set amount over the appraised value, submitting a clean offer without many requests, and being flexible. If you ask a buyer that’s been looking for 6-12 months now, they would say they should have offered more on a house in the past. That house may have gone up 25-100k by now. But there is going to be an inflection point where this crazy 25+%/year appreciation is going to stop but will the prices reverse? There’s no good reason why a $400k home right now is going to be worth $350k in 1-2-3 years. The black swan event may be that the prices stabilize and appreciate at a normal 5%/year or hold for a long long time. That’s my prediction but we can’t predict much past 1 year or so, just make trajectories. For prices to reverse we would need to see the Cromford market index be below 100, days on market to rise, fewer bidding wars, supply rising to 15000 plus homes, and demand to normalize. Always keep track of jobs, population growth, days on the market, supply, and demand in predicting home prices.

Here is a quick viewpoint for what the market is doing right now and what’s coming shortly: Click here for the full report.

• Months of Supply is currently 1.24 months (This is how long it would take to sell every house on the mls if no new listings come on, normal is 6 months. We would need for this number to rise before home prices to reverse or level off.
• The Average days on market is 28 days, this is super low and expected to rise.
• Monthly Sales down 15.4% Year over year mostly due to inventory shortage.
• Inventory is still down 17% year over year but up 6% month over month so it is climbing. There is still a major housing shortage in Arizona.
• Supply is still very low but growing. The biggest discrepancies are the homes priced Under $300k very scary, and the $2-3 million luxury range, but $400,000-$800,000 homes, supply is normalizing.
• Average sale price up 27% year over year (This is insanity).
• Cromford market index = 349 August 20th and falling in most cities. (above 100 = sellers market)
• Homes take 10-12 months to build if you’re considering a new construction home as of right now.
• Price reductions from listings coming back to normal especially in the $400-800k range.
• Buyer fatigue is real especially under $300k, people are giving up 🙁 Rents are high which leads to increase homelessness.
• A very good market for sellers, but buyers can still see there homes appreciate for another 6-18 months depending on their city.

Phoenix grew at a faster rate than any major city in the past decade, we are now the fifth-largest city in the
nation. The Phoenix population grew by 160,000 between 2010 and 2020, an increase of 11.2%.

For cities with a population of at least 50,000, Buckeye and Goodyear were among the ten fastest growing with Buckeye grabbing the number one spot. Buckeye grew faster than any other city in the nation, growing nearly 80%. Its current population is now 91,000.

Sellers:

• You’re in a good position to sell for the next 6-12 months depending on what city you live in and can expect appreciation in this time period. So if you were trying to time the top of the market, or near, I’d probably start planning to sell and making fixes to sell. If you were going to renovate a home before selling in any market in time, this would be the one to do so, because the pay off is there.
• As the market slightly weakens, you can expect less mulitiple offers, less appraisals waivers, less inspection waivers, higher days on market, price reductions, more home warranties, and more seller concessions. Prices still on average rise in this situation.
• Price reductions on listings are currently rising.
• The biggest problem with sellers selling their home, is that they have no where to go and its difficult to buy a home if you need a contingency offer on your home selling. Post possession agreements are still in play and can help, I can explain.
• Pools are in high demand right now.
• Perfect time to downsize if able to.
• Keeping your home in good shape is the key to selling, please take care of your home if you expect to get top dollar. Start early and fix items that haven’t been attended to in years, it does make a difference.

Buyers:

• The market is strong and prices will continue to rise, there is no crash insight and no evidence that one is coming in the next few years. Please trust us on this one, just keep track of supply, population growth, cromford market index, and months of supply. Buttttt, ultimately your going to miss out on this past appreciation lottery and be buying at record highs.
• Off market properties and deals are hard to come by still with foreclosures being very rare.
• If you need to buy a home to house your family I would still encourage you to buy rather than waiting, you’ll only pay more for that house in a year. If you cannot afford a house, renting isn’t a great option either as rent rates are very high as well. Housing is very serious right now so you have to pay attention.
• Stay the course and keep trying, listen to your agent.
• Keep your credit score high and start saving money.

Stats to watch out for to see a balanced market, normal appreciation levels, and/or a reversal in prices:

• Watch the Cromford market index. 100 is the influxtion point of it being a sellers or a buyers market
• Watch Inventory levels. We are currently at 6700 appoximate listings and we need to be at 16000 for things to be at normal supply in the Phoenix metro.
• Watch stats on Population growth, jobs, and economy. If AZ is in the top %’s, which we are, than likely the demand for housing is high.
• Watch building permits and the home building around. We need to be building more like in 2005 levels at 27000, and we are at 17000 permits currently. This can take years.

• 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. 2014 was a balanced market.
• On 3/20/2020 we were at 241
• On 5/15/2020 we were at 145.2
• We peaked on 3/14/2021 at 514.9
• Prior to this run, the previous peak was 312.9 in the spring of 2005.
• Cromford market index is the predictor, it moves first and then appreciation follows. Cannot predict the CMI.
• Prices will only reverse when the cromford market index is below 100 and this could take some time, when? Noone knows for sure but there’s not reason for this market to turn around with the population growth and the supply shortage still going on.

Click here for the Phoenix Metro area stats report for July 2021 from ARMLS, the MLS stats. For the real Data geeks: More of the same.

https://drive.google.com/file/d/1i6ejF3e1j4gMjSPZd0K0MKysWXnVk6aw/view?usp=sharing

The only way to help a housing shortage is to build more homes. There is a large disparity between homes built in the last ten years compared to the prior ten years. In 2011 there were only 2,886 newly built homes sold in Maricopa County. The lack of new construction in the past decade has led to the limited supply we face today. As Michael Orr stated in his monthly observations, “New home builders currently experience elevated demand because so many buyers have given up on trying to find a re-sale property. But the demand they perceive is due to the low supply of re-sale homes, not some unusual buildup of buyer demand. The new and re-sale markets are not separate because almost every buyer can switch from one to the other based on personal decisions. Buyers are spilling over to the new home market that would normally have chosen a resale home.”
Home builders are currently not able to meet that demand. Anecdotally on social media, I’ve read reports of
builders having difficulty meeting their closing date projections, and the data might well support these observations. I was advised by Jim Daniels with RL Brown Reports that the time between the issuance of a building permit and the home closing has been increasing. The reported COVID-19 related disruptions in our supply chain and labor force are clearly a challenge to home builders. I would not be surprised if we saw little to no increase in the number of newly built homes sold this year as compared to last.

Jay Bru

480-466-4917

jay@jaybrugroup.com