7/28/20 – Market Update

There is definitely some irony in the fact that real estate caused the Great Recession and only 10 years later real estate is driving our current economic recovery. As we face our economic reality of today; we have to look at the good (real estate), the bad (employment struggles and school closures), and the ugly (unemployment).

“While other segments of the economy may be stuttering, the housing market continues to be a bastion of hope,” Bill Banfield, Executive VP of Capital Marketing at Quicken Loans said, “Today’s (builder confidence) report indicates builders are confident consumers will purchase new homes in this era of rock-bottom mortgage rates, despite the high unemployment numbers and other negative economic reports.”

The Good: Real Estate

  • Nationally, homes are selling at the fastest rate ever recorded, on average within 20 days. (Zillow)
  • From May to June home builder confidence went up, housing starts increased over 17%, permits increased by 2%, and single-family completions increased by 9.6%. (US Census Bureau)
  • The national median sales price hit an all-time high in June at $311,300. (Redfin) This makes June the 100th month in a row with median sales price increases. (NAR)
  • Closings were up nearly 21% in June from May. We are now (only) 11.3% behind June 2019 in closed units. (NAR)
  • Industrial real estate, which was growing prior to March, has increased in appreciation and demand. Warehouses and large distribution centers are in high demand across the country. “The reality is these numbers are not the byproduct of the COVID pandemic; they are in spite of the COVID pandemic,” Colliers International principal Matthew Stauber said. (Phoenix Business Journal)
  • Mortgages in forbearance declined again for the fifth week in a row. 7.8% of mortgages are in forbearance which is about 3.9 million loans. (MBA)

“The sales recovery is strong, as buyers were eager to purchase homes and properties that they had been eyeing during the shutdown,” NAR Chief Economist Dr. Lawrence Yun said, “This revitalization looks to be sustainable for many months ahead as long as mortgage rates remain low and job gains continue.”

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, below 100 is a buyer’s market, prices rise at 110, and drop at 90). As of July 26th, it was 303.9, higher than the pre-COVID peak of 241 and significantly up from the bottom of 145.2 we hit on May 15. Up over 20+ points in the past 7 days.

Supply: The available inventory has started to stabilize. The drastic listing count decreases have slowed and have remained flat for the past 2-3 weeks. This stabilization happens to be at an extremely low level. As of last week, our inventory is over 61% below normal. Our total active inventory is down 29% year over year. When we remove under contract accepting backups (UCB) we are down 43% year over year.

Demand: Pending sales are up 17% year over year, which is significant given how much lower our inventory is today. Our demand is 14.6% above normal and increased by over 3% in the past seven days.

Sales & Prices: Phoenix metro area closed sales are up 20% month over month and up 13% year over year. The median sales price is $315,000, up nearly 5% month over month and 12% year over year. Healthy appreciation is 3% annually.

Southeast Valley New Listings, Pendings, and Closings: This week over week comparison for Tempe, Mesa, Chandler, Gilbert, Apache Junction, and Queen Creek since March 15 shows the very recent supply stabilization. Closings always spike at the end of the month.

The Bad: Employment Struggles & School Closures

  • Commercial office space occupancy protocols are being adjusted. The plans of phasing employees back into the office in groups of 25% has not worked out. To date, many office buildings are at around 5% occupancy. Rent payments remain near 100%. (Phoenix Business Journal)
  • Employers are looking for childcare options in order to get employees back to work.
  • “The back-to-work and back-to-school efforts are certainly linked,” Global Health Crisis Coordination Center Executive Director Ken Berta said, “We will need to get our children safely back to school to get all employees back to work.” (Bisnow)
  • Demand is increasing for private schools, tutors, and small-group homeschooling options. Given these options are only available to those who can afford it, there is a growing concern of an even larger disparity between the haves and the have nots.
  • It is unclear how the school closures will affect housing and employment, but the potential influences are significant. If schools do not reopen and there is a shift away from traditional education, people will not base their moves on school districts potentially changing the geographic distribution of wealth.

The Ugly: Unemployment

  • First-time unemployment claims hit 1.4 million last week, up 109,000 from the previous week. This is the first week over week increase in 15 weeks. (Bureau of Labor Statistics)
  • Continuing unemployment claims dropped by 1.1 million to 16.2 million last week. Indicating new hires are outpacing layoffs. (Bureau of Labor Statistics)
  • This does not include the roughly 13 million independent contractors receiving benefits through the Pandemic Unemployment Assistance Program. (Wall Street Journal)
  • Both the expanded unemployed and the independent contractor benefits through the CARES Act are due to expire on July 31.

Other AZ News:

  • Unemployment in Arizona in June was 10%, lower than the national rate of 11.1%. (Bureau of Labor Statistics)
  • Arizona’s job losses are less than 48 states, behind only Utah. (Elliott Pollack & Company)
  • In June jobs were down 3.3% in Arizona year over year, nationally they were down 8.7% year over year. (Elliott Pollack & Company)
  • Greater Phoenix is the strongest employment market in the country; jobs are down only 3% year over year. (Elliott Pollack & Company)
  • Business applications are up 59.5% year over year. (Elliott Pollack & Company)
  • Single-family permits increased 4.3% year over year in the Phoenix metro area. (Elliott Pollack & Company)
  • Governor Ducey announced the extension of the moratorium on residential rental evictions from July 25 to October 31. (Governor’s Office)
  • A new plan has been created by city of Phoenix officials to add 50,000 new housing units by 2030. According to a housing gap analysis, Phoenix needs an additional 163,067 housing units to accommodate the population growth.

Emerging Trends:

  • Retail sales increased by 18.2% in May and 7.5% in June. Retail is now up 1.1% year over year. (US Census Bureau)
  • With the looming CARES Act expiration, publicly-traded multi-family property owners are adjusting protocols as they intend to collect past due rents or start the eviction process.
  • According to a recent Yelp survey 53% of the roughly 24,000 restaurants that have closed since March 1, have closed permanently. Other permanent closure rates are 35% for retail, 26% for gyms, 24% for beauty shops. The restaurant closures have sparked commercial investor interest and they are out looking for deals. (Restaurant Consultant Paul Ficalora)
  • The Fannie Mae monthly National Housing Survey which measures consumer confidence for housing shows a V-shaped recovery. Consumer sentiment for buying has made up all of the losses since March and is now matching November 2019 numbers. Consumer sentiment for selling is increasing and is on pace to fully recover by next month.

Other Real Estate News:

  • According to the Mortgage Bankers Association this week, purchase applications are up 19% year over year, continuing the increase for nine consecutive weeks. Refi applications are up 122% year over year.
  • The First Time Homebuyer Pandemic Savings Act is a newly proposed act that allows first time home buyers to use up to $25,000 from their 401K as down payment, tax-free and penalty-free. It would expire on 12/31/2021. This new act builds on and extends existing provisions of the CARES Act that allows new and repeat buyers to use up to $100,000 of their 401K penalty-free, but not tax-free, and is due to expire on 12/31/2020.
  • The motion for a preliminary injunction filed by Top Agent Network (TAN) against NAR’s Clear Cooperation Policy has been denied. This is after their motion of a restraining order was denied in late May. The judge also stated that TAN is “unlikely to succeed” in their argument. Additional motions have been filed by brokerages and associations. (Inman)
  • The judge ruled against Realogy’s lawsuit forcing SIRVA to complete the $400 million acquisition of Realogy’s relocation company, Cartus. The judge stated Realogy violated the deal’s terms but could pursue a $30 million termination fee.
  • Realtor.com created a new Seller’s Marketplace platform offering traditional and iBuyer selling options. Rather than launching their own iBuyer, Realtor.com partnered with Opendoor, EasyKnock, HomeGo, and WeBuyHouses.com.
  • The Florida Panhandle is the best place to own a vacation rental according to rental management platform Rented Inc. Phoenix is #6. Here are the top 10:
Source: Rented.com *based on a 3 bedroom, 2 bath stand-alone home

Final Thoughts:

Arizona is leading the pack in our economic recovery. Real estate is a driving force in that recovery. As we continue in these uncertain times it is important to be aware of the facts in order to part of the solution.