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10/7/20 Market Update

10/7/20 Market Update

10/7 Market Update

Our economic recovery is complicated and Q4 2020 will be a continuation of the complication. We expect we will see more of the same; tight inventory, high demand, continued recovery – slower than we would like but progress nonetheless, and holiday commercials will replace political ads.

The AZ Market:

Real estate consultant Jim Belfiore expects to see a coming wave of new home construction in Pinal County, specifically in Coolidge, Florence, and Casa Grande.

Cromford Market Index (CMI): Is the best leading indicator available (balance is 100, above 100 is a seller’s market, below 100 is a buyer’s market, prices rise at 110, and drop at 90). Last week it was 350.2, way above the pre-COVID peak of 241 and over 200 points above the 145.2 we hit on May 15. The past 7 days saw a 5.1 point increase.

Supply: New listings have increased by 11% but they were absorbed as quickly as they arrived so our total inventory remains very low. As of last week, our inventory is 63.8% below normal. Active listings excluding under contract accepting backups (UCB) are still around 8,100 (we should have 25,000) down over 41% year over year.

Southeast Valley New Listings: In the comparison of new listings in 2019 and 2020 for Tempe, Mesa, Chandler, Gilbert, Apache Junction, and Queen Creek, 2019 followed the typical annual cycle showing more activity in the first half of the year; while 2020 is not following any typical patterns.

Demand: Pending sales are up 25% year over year, huge despite our low inventory and time of year. Our demand is nearly 27% above normal. Demand rates slowed early in September and picked up some speed towards the end of the month.

Sales & Prices: In August, 35% of homes closed over asking price. Phoenix metro area closed sales are up nearly 17% year over year. The median sales price is $326,800, up 17% year over year. Healthy appreciation is 3% annually.

National Real Estate:

In August we hit 6 million (seasonally adjusted annual rate) existing home sales. The last time we hit that number was December of 2006. Sales were up 10.5% year over year. This is particularly surprising since there were only 1.41 million properties (annualized rate) on the market in August, the lowest level on record, with limited data prior to 1999. (Matthew Gardner, Windermere Chief Economist)

The Fannie Mae Home Purchase Sentiment Index illustrates consumer confidence for buying and selling Real Estate. According to the most recent update, from August, consumers believe it is a good time to buy. The buyer consumer confidence index has fully recovered to pre-pandemic levels. What is interesting is that seller consumer confidence has not fully recovered. This is seen in our low inventory levels with continued high demand.

Many expect that when consumer confidence for selling fully rebounds is when we will see an increase in inventory. As sellers gain confidence and enter the market the extreme sales price appreciation will slow and buyers will have more choices. This will be good for buyers and for the overall health of the real estate market.

Do not let the idea of rising inventory levels scare you. We desperately need more available listings across the country. Nationwide available inventory is down 36.4% year over year. (NAR)

New home sales hit a 14 year high in August and crossed the 1M in sales mark. While new home listings decreased by 4.1% in August. Labor shortages and high cost of lumber are likely factors. (Redfin)

Commercial Real Estate:

  • 90.1% of apartment renters made full or partial payments by September 20, up from 90% in August. (National Multifamily Housing Council)
  • Investor confidence continues to struggle for commercial real estate in most sectors. (Green Street)

Real Estate News:

  • Spencer Rascoff, former CEO of Zillow, is co-chairing a new special purpose acquisition company (SPAC) with a goal of taking a tech company public. It is through a SPAC Opendoor and UWM will go public. (Inman)
  • Realtor.com and Rocket Mortgage announced an advertising partnership that directs buyers to Rocket Mortgage’s pre-approval application for a digital mortgage approval.
  • Facebook announced it is working on a new augmented reality glasses project. Remember Google Glass? Similar but with newer technology. The project is several years from completion. Proptech investors are already planning on how to use it within real estate and property management. Starting in San Francisco and Seattle, Facebook has teams out collecting information via sensors gathering video, audio, and location data. Facebook is collecting data from inside buildings as well.

Mortgage & Forbearance:

  • For the 16th straight week loans in forbearance decreased. They went from 6.93% to 6.87% dropping the number to roughly 3.4 million mortgages enrolled in a forbearance plan. (MBA)
  • Mortgage applications are up 22% year over year.

“The share of loans in forbearance continues to decline and is now at a level not seen since mid-April. Many homeowners with GSE loans are exiting forbearance into a deferral plan and resuming their original mortgage payment, but waiting to pay the forborne amount until the end of the loan,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist.

Resources:

Economy:

  • College enrollment is down 2.5% year over year. During economic downturns, community colleges tend to see an increase in enrollment however, this year enrollment is down 7.5%. (National Student Clearinghouse Research Center)
  • Personal savings rates have increased to 24% compared to early March when they were 7%. Bank deposits are up $2 trillion in 6 months. (Matt Stephani, Cavanal Hill Investment Management)
  • Elliott Pollack expects that nearly all industries in Greater Phoenix will be fully recovered by the end of 2022 and that housing will continue being the strongest sector.
  • Hotel occupancy rates in August in Arizona were 47.9%, up from 46.5% in July, and down from 64.6% in August 2019.
  • One in six or about 100,000 restaurants have closed permanently, leaving about 3 million people out of work and an expected $240 billion in losses by the end of the year. (New York Times)
  • In July, the most recent available data, US airlines carried 73% fewer passengers than in July 2019, better than the 96.1% drop seen in April 2020 compared to a year earlier. (US Department of Transportation)
  • Nationally, new business applications dropped from 27,000 a week to 18,000 a week from mid-March through mid-April. By early July they were up to 40,000 a week, the average is 22,500 a week. Applications have dropped since July but remain 20% above normal. This economy is driving entrepreneurship! (Elliot Eisenberg)

Unemployment:

  • Elliott Pollack on Phoenix unemployment, “While the United States was losing 98 percent of all jobs created between the last recession and February, greater Phoenix only lost 41 percent.”
  • Initial unemployment claims were 837,000 last week, a decrease of 36,000. (US Department of Labor)
  • Last week, continuing unemployment decreased 980,000 dropping to 11,767,000. (US Department of Labor)

Final Thoughts:

Matthew Gardner said, “In all, the reports were very solid and show housing as being the shining light in an economy that is still mired by the COVID-19 pandemic.”