8/6 Market Update

8/6 Market Update

Realtors, lenders, buyers, and sellers are exhausted. The Spring and Summer home selling season has been crammed into two months. Not to mention the worldwide pandemic, economic uncertainties, delays in school re-openings, and a heated political climate. To say that there is a lot going would be an understatement. Despite the stress of the unknown, we do know that real estate is the one thing driving our economic recovery.

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). Last week it was 312.9 (matching the CMI’s record high from the spring of 2005), higher than the pre-COVID peak of 241, and more than double bottom we hit on May 15 of 145.2. Despite the over 15 point increase in the past week, the increase is slowing, slightly, which is good.

Supply: The available inventory continues to stabilize; it just happens to be at an extremely low level. As of yesterday, our inventory is 62.5% below normal. Active listings excluding under contract accepting backups (UCB) are down 42% year over year and 11% month over month.

Typically, the second half of the year sells less than the first half. Starting in July we tend to see an increase in available listings and that increase remains through November. It is too early to tell if 2020 will fit the pattern.

Demand: Pending sales are up 17% year over year, which is significant given how much lower our inventory is today. Our demand is 17.2% above normal and continues to increase.

Sales & Prices: Phoenix metro area closed sales units are up 13% month over month and up 19% year over year. The median sales price is $315,000, up over 3% month over month and 11% year over year. Healthy appreciation is 3% annually.

AZ News:

  • According to a recent WalletHub report, four Valley cities made it in the top 30 of the best places to rent in America. #10 Scottsdale, #18 Gilbert, #25 Chandler, #27 Peoria.
  • New unemployment claims in Arizona continued to decrease with 3.8% fewer claims than last week. (US Department of Labor)
  • Arizona hotel occupancy is down 26.3% year over year. Faring better than most other states. (Elliott Pollack)
  • Phoenix is still the biggest iBuyer market where they are buying the most houses. With that said iBuyer purchases are down 80% from January. (Mike DelPrete)

Mortgage & Forbearance:

  • FHA mortgage interest rates increased slightly bringing an 18% drop in FHA refinance applications. Despite the slight increase in conventional refinances, total mortgage applications dropped 0.8% week over week. Refinances are still up 121% year over year. (Mortgage Bankers Association, MBA)
  • Mortgages in forbearance declined again for the sixth week in a row. 7.74% of mortgages are in forbearance which is roughly 3.9 million loans. (MBA)
  • About 1.8 million loans in forbearance are seriously delinquent on their mortgage payments. (KCM)
  • 77% of the past due owners have at least 20% equity and 90% have at least 10% equity. (KCM)

Economy & Unemployment:

  • Stock market earnings for Q2 2020 were down 44.1% year over year. For comparison, Q4 2008 earnings were down 69.1% year over year. (FactSet)
  • As expected Q2 2020 GDP was horrible, declining 9.5%, the largest decline ever recorded (recorded started in 1947). Prior to this, the largest drop was Q1 1958 with a decrease of 2.6%. Given that the recovery started in May, Q3 2020 GDP has the potential for positive growth. (Elliot Eisenberg)
  • The restaurant industry continues to suffer some significant setbacks. In July 100,000 restaurants closed temporarily, the southern and western regions having the most closures. (National Restaurant Association)
  • An estimated 8,000 hotels across the country may close permanently by October. Some investors consider these shuttered hotels as potential options for affordable housing. (American Hotel & Lodging Association)
  • New unemployment claims rose again slightly last week from the previpus week to about 1.4 million. This is the second week of increases after 16 weeks of decreases. Last week’s increase was only 12,000 week over week. Continuing unemployment increased slightly this week up to around 17 million. (US Department of Labor)
  • Unemployment rising is not indicative of low home buying activity. Mortgage availability is a bigger indicator. (KCM)

Rental Markets:

  • Rents in expensive areas closer to major employment hubs are declining. San Francisco has seen the largest drops and is down 7.4%. New York City has dropped 6.4% from March to June. Decreases are expected to continue. Areas further out are seeing increasing rents. (Apartment Hub)
  • With the expiration of the CARES Act and the expanded unemployment benefits, renters stand to be the hardest hit. (Zillow)
  • 91.3% of apartment renters made their July payments, a drop of only 2.1% year over year. (National Multifamily Housing Council)
  • Single-family rentals continue to perform the best. Like the for-sale inventory, the available rental inventory in Phoenix metro is very low and has a growing demand. (Phoenix Business Journal)
  • If you know anyone struggling to make their payments, please refer them to https://housing.az.gov/

Emerging Trends:

  • In a recent Realtor.com survey, 21% of respondents said they are more likely to buy a home sight unseen.
  • According to Redfin, other metro searches hit a record high of 27.4% in Q2 2020, up from 26% in Q1 2020. Top cities searched on Redfin are Phoenix, Sacramento, Las Vegas, Austin, and Atlanta.
  • A commercial leasing company with 30,000 renters based in Florida has added a doctor to its full-time staff to help with wellness and to create a greater sense of confidence for the renters. (Realty Magazine)
  • Despite early opposite projections, NAR membership has increased this year. As of June, there were 1.397 million members, an increase of 1.7% year over year. NAR expects 2020 could see an all-time high membership exceeding 1.4 million. (Inman)
  • Nationally, June buyer showings increased over 50% year over year according to ShowingTime.
  • 32% of employees want to work from home permanently and are willing to make changes to get more space and/or more affordable housing. (Tom Ferry)
  • Green Street Advisors predict that office demand could drop by 10%-15% as more people work from home more permanently. They also expect this will push workers from expensive gateway cities to more affordable sunbelt cities like Phoenix, Raleigh, and Charlotte.
  • Multifamily investors pull back on affordable housing investments as the eviction moratorium is extended. ITEX Group President, Chris Akbari said, “If that moratorium goes through, they’re probably not going to be investing in new projects. They’re going to be investing their time and capital in trying to protect their current projects that are going to be suffering from not having income coming in and not being able to evict people who were unable to pay their rent.”

Real Estate News:

  • June had a 21% sales increase, the largest monthly increase since 1968, when NAR started gathering this data. Also, in June we had the lowest available inventory in 20 years. Total sales are projected to be down 6.4% in 2020 from 2019. Yes, there are fewer buyers but more importantly, there are far fewer sellers. (Matthew Gardner, Windermere Chief Economist)
  • NAR’s Pending Home Sales Index shows June increased 6.3% year over year and increased 16.6% from May to June. “It is quite surprising and remarkable that, in the midst of a global pandemic, contract activity for home purchases is higher compared to one year ago,” NAR Chief Economist Dr. Lawrence Yun said in a statement. “Consumers are taking advantage of record-low mortgage rates resulting from the Federal Reserve’s maximum liquidity monetary policy.”
  • Sales of new single-family homes increased by nearly 14% year over year in June. The highest new home sales month since 2007. (US Census Bureau & HUD)
  • On Wednesday last week, Zillow announced they are allowing most of its employees to work from home indefinitely. Google, Facebook, Twitter, and Slack also recently made the same statement. (Zillow)
  • A new partnership has been formed between Zillow and D.R. Horton, the nation’s largest homebuilder. The builder’s new home buyers may sell their current house to Zillow and may be eligible for cash credits and free local moving services. (Zillow)
  • According to Redfin, with increasing competition and bidding wars, 20% of winning offers are waiving inspection contingencies.
  • Zavvie, an iBuyer comparison platform exclusively for brokerages, and EasyKnock, a home purchasing and leaseback startup, announced a new partnership to help more homeowners sell their property through a variety of options. (Zavvie & EasyKnock)

Final Thoughts:

Matthew Gardner, Windermere Chief Economist said, “Sales will continue to recover in most markets and will only be held back because of a lack of supply. Of course, nobody can deny that we are still in very unique times, and significant uncertainty remains, but housing is performing relatively well and, as I have said to you for the past few months, I stand by my position that housing will lead us out of the current economic contraction.”