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12/18 Market Update

12/18 Market Update

12/18 Market Update

Unsurprisingly, the US housing market will finish out the year as the best performing sector in our entire economy. It is good to be part of the solution. Given the performance, low inventory, and low interest rates driving up demand, a new challenge is emerging – affordability.

Experts forecast a stabilizing housing market for 2021. A stable housing market is good. It is expected that inventory will rise and prices will continue to increase, only at a slower rate. This is not a collapse, it is normalization and it is the path towards stability. Be mindful of the fear-mongering headlines, no bubble, no collapse, no foreclosure crisis. In 1710, writer Jonathan Swift wrote, “Falsehood flies and the Truth comes limping after it.” Somethings never change.

Economy:
Elliott Pollack summed it up with, “The economy will normalize in the second quarter of 2021 due to having COVID-19 vaccines in wide distribution. There is significant pent-up demand in the real estate market, and people are sitting on gobs of cash because they’ve had nowhere to spend it for the past nine months, so we will see explosive growth at first, then continue to grow at above normal trend lines through 2023.”

The Phoenix metro area ranks as the top U.S. job market in 2020 among bigger cities and Arizona has the third-best job market among states trailing only Utah and Idaho. (Elliott Pollack)

Real Estate News:

  • On 12/21/2020 Opendoor will be publicly traded on the NASDAQ with the symbol “OPEN.”
  • Mr. Cooper, formerly Nationstar, settled with the Consumer Financial Protection Bureau (CFPB) and will refund $90 million to customers and will pay $6.5 million in damages for foreclosing on borrowers after loan modifications were completed. (HousingWire)
  • Knock Nest is now available in Phoenix. It is a leaseback program that allows homeowners to sell their property Knock and then rent it back from them. Leases have 12-month terms after which the seller turned renter has the option to renew the lease, buy the property back, or move out.
  • Last week Airbnb had the largest IPO in 2020 with an opening trade valued at $101.6 billion; as of opening day, Airbnb is worth more than the three largest hotel chains combined, which are Hilton, Marriot, and Intercontinental. (Business Insiders)
  • Forbes is launching an exclusive, international luxury listing marketplace. The platform is invite-only and the minimum listing price allowed is $2 million.
  • CoStar is unlikely to unseat Zillow’s clear position as the most visited portal. However, it continues to make moves to create more competition between the two companies. With the acquisition of Homesnap, CoStar is creating new competitors for subsidiaries of Zillow’s who currently have no competitors, such as StreetEasy in NYC. (Inman)


The AZ Market:

Cromford Market Index (CMI): The CMI is the best leading indicator available (balance is 100, above 100 is a seller’s market and below 100 is a buyer’s market. Prices rise at 110 and drop at 90). Yesterday it was 400.1, an all-time record high. A week ago it was 387.7, a lot of movement in a week! On May 15 it hit bottom at 145.2.

Supply: The reason for the CMI’s height is low inventory. After stabilizing for a few months this summer and fall, available listing inventory is dropping again. We are down to 6,645 active listings excluding UCB. That is down 18% since last month and 50% year over year. It is also 66.4% below normal.

Demand: Our demand is 34.4% above normal, coupled with incredibly low inventory buyers are struggling to get offers accepted. Despite seasonal demand decreases, we still have 4.2 buyers for every available listing.

  • The Taiwan Semiconductor Manufacturing Company just paid $89 million for 1,128 acres in north Phoenix. The factory expects to bring 1,600-1,900 new jobs. (Rose Law Group)
  • According to Realtor.com, Phoenix is #6 of the top 10 strongest housing markets expected in 2021, rankings based on job market strength, affordability (despite rising prices, we are the cheapest big city in the country), and proximity to other major metros.
  • NAR and 20 economists forecasted the top 10 strongest metros for economic strength based on domestic migration, low unemployment, mobility, and more…and Phoenix came in at #1!!

National Real Estate:

  • As of Monday, there were only 469,000 single-family residences for sale nationwide. There is a total of 84 million single-family residences which means only 0.6% is on the market. (Altos)
  • With 1.4 million NAR members and only 469,000 listings, there are 3 Realtors for every available single family listing in the country.
  • Inventory usually drops from Thanksgiving through the second week of January, at which point could see 50,000-60,000 new listings hitting the market each week thereafter. (Altos)

Appreciation:

  • The average national, annual appreciation since 1991 is 3.8%. This is where the 3-4% average came from. (KCM)
  • The average national, annual appreciation since 2012 is 6.1%. (KCM)
  • Greater Phoenix has seen a nearly 17% appreciation year over year, which has created some concerns about the 2005 bubble, however, today’s market is dramatically different.
  • Earlier in the year, the average American homeowner with a mortgage had $177,000 in equity. Today it is $194,000, few had that kind of equity in 2005.

“Such a frenzy of activity, reminiscent of 2006, raises questions about a bubble and the potential for a painful crash. The answer: THERE IS NO COMPARISON. Back in 2006, dubious adjustable-rate mortgages taxed many buyers’ budgets. Some loans didn’t even require income documentation. Today, buyers are taking out 30-year fixed-rate mortgages. Fourteen years ago, there were 3.8 million homes listed for sale, and home builders were putting up about 2 million new units. Now, inventory is only about 1.5 million homes, and home builders are under-producing relative to historical averages.”
-Dr. Lawrence Yun, Chief Economist of NAR

Forbearance:

After 25 weeks of decreases, we had 2 weeks of increases, followed by a week of staying flat, and now last week, we had a decline in total mortgage loans in forbearance. It dropped from 5.54% to 5.48% or roughly 2.7 million borrowers. This is good news for 3 weeks makes a trend.

While people are leaving their forbearance plans, more are leaving through a loan modification which indicates that not everyone has been able to get caught back up, even if they are working.

Forbearance numbers by stage:

  • Just under 19% are in the initial stage.
  • Just under 79% are on an extension.
  • About 2.5% are re-entries.

Of the total forbearance exits from June 1 through December 6, 2020:

  • 30% continued to make their payments throughout the term.
  • 16% were caught up upon plan exit.
  • 13% did not make all of their payments and exited forbearance without a loss mitigation plan in place.

Delinquencies:

While yes, there will be homeowners impacted by foreclosure, it will not be a giant number like we saw in 2009-2012. We are not in a bubble, today’s price appreciation is due to a supply and demand imbalance, not false demand as was the case in 2005.

  • Keep in mind all loans in forbearance that are late are marked as delinquent despite not being penalized for being late. (Black Knight)
  • Delinquencies improved in October, decreasing by 3.3% to 6.44%, their lowest level since March. At 1.8 million, seriously delinquent loans, which are 90+ days late is dropping but is still 5x what it was in February. (Black Knight)
  • Arizona’s delinquency rate is 5.4%, (national is 6.4%) there are 13 states with lower delinquency rates than AZ so we are almost in the top-performing quarter of the states. (Black Knight)
  • Delinquency rates are the lowest for condos at 4.7%, then 6.8% for single-family houses, and over 9% for 2-4 unit multifamily properties. (Black Knight)

“The COVID-19 pandemic has primarily hit renters, but it has impacted a lot of homeowners, too. As the housing market muscles its way through the current economic downturn, I see foreclosures forming more of a trickle rather than a flood.”
-Matthew Gardner, Chief Economist for Windermere

Lending:

  • Yesterday, for the 15th time this year we hit another all-time low for mortgage interest rates. (Freddie Mac)
  • 2020 is on pace to hit nearly $4.4 trillion in first-lien mortgage originations, largest such volume of any year on record.
  • Q3 2020 set records across the board, with the largest single quarter of purchases ($455 billion), refinances ($867 billion) and total lending ($1.3 trillion) ever recorded. (Blackknight)
  • Through September, about 6.4 million homeowners refinanced their primary mortgage, with that number expected to reach over 9 million by the end of the year.
  • Of the roughly 138 million US housing units, 42% have no mortgage, of the roughly 77 million that do have a mortgage about 50% have interest rates in the 4s% or higher. (KCM)
  • While the Fed does not control mortgage interest rates, it’s consistent purchasing of treasuries and mortgage-backed securities has kept rates low. At the most recent meeting, the Fed announced that it would continue purchasing at the same rate until there is “substantial progress” towards an overall stronger economy. (MBA)b

Commercial Real Estate:


Prior to COVID, roughly 6% of employees worked from home. In April, 85% of employees worked from home. In mid-October, 73% of employees worked from home and our numbers have stayed about the same since. Dallas has the lowest rate of working from home at 60% and San Francisco has the highest rate of 87%. (Elliot Eisenberg)

93.6% of renters living in large, professionally managed apartment complexes paid their rent through the end of November. That number was 95.2% through November 2019; a decrease of 1.6%. Despite the decrease, it is better than initially expected. (Elliot Eisenberg)

About 6% of new single-family homes are built-to-rent and will not enter the market at all. It is expected that nearly 700,000 will be built by 2030. (RCLCO real estate advisors) According to a 2018 National Bureau of Economic Research study, roughly 35% of rentals are single-family properties and the demand is rising.

Phoenix-based Christopher Todd Properties is currently developing 943 single family built-to-rent homes in greater Phoenix. These communities have apartment-style amenities like gated entry, community pool and fitness area, and carports for parking.

Courtesy of Christopher Todd Properties
Christopher Todd Communities at Stadium, a built-for-rent property of 300 houses in Glendale, Arizona.

Final Thoughts:

Logan Mohtashami of HousingWire said it perfectly, “And remember, my friends, always be the detective, not the troll. Math, facts, and data matter, and the rest is storytelling.”