Blog

The AZ Market:

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 345.1, over 100 points above the pre-COVID peak of 241 and nearly 200 points above the 145.2 we hit on May 15. The past 7 days saw a 2-point increase, a far cry from the 20 point increases we saw in June.

Supply: Inventory remains low but has stopped dropping. As of last week, our inventory is 64.1% below normal. Active listings excluding under contract accepting backups (UCB) are at 8,100 (we should have 25,000) down over 40% year over year and down 2.5% month over month.

Southeast Valley New Listings: This a bi-weekly 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. 2020 is not following any typical patterns.

Demand: Pending sales up 21% year over year, huge despite our low inventory and time of year. Our demand is nearly 24% above normal. The demand continues to rise but at a very slow rate.

Sales & Prices: In August, 35% of homes closed over asking price. Phoenix metro area closed sales are up nearly 19% year over year. The median sales price is $325,000, up 16% year over year. Healthy appreciation is 3% annually.

Commercial Real Estate:

Q4 2020 Projections (Bisnow):

• Industrial: Strongest performing asset type driving tons of building which could lead to increased vacancy rates.
• Office: Prior to the pandemic roughly 5% of employees worked from home. In May it was estimated that 42% of employees were working from home. An estimated 15% will work from home as we come out of the recession. Office rents are decreasing and sub-leases are increasing.
• Hotel: Demand bottomed out at nearly an 84% drop the week of April 11. The increases have been small and the end of the year it is expected demand will still be down 60%-70% year over year.
• Retail: US retail space was struggling prior to the pandemic with mall closures. Analysts expect 20,000-25,000 store closures this year.
• Multi-Family: Vacancy has increased slightly from 4.3% to 4.6%, less than expected. Surprisingly enough apartment rent payments are strong. As of August 27, 92% of apartment rents were paid either partially or fully. With the CDC moratorium on evictions many housing associations are voicing their concerns for lack of landlord support.
• Restaurants: In January restaurants were expected to see a 4% growth rate in 2020. However, according to Yelp in July 16,000 restaurants that were temporarily closed, shut their doors permanently. Aaron Allen & Associates, a restaurant consulting firm expects 231,000 to close permanently this year.

Real Estate News:

• Summer vacation rentals across the country are turning into fall and even winter vacation rentals as remote working allows employees new-found freedom. (Redfin)
• The National Association of Home Builders/Wells Fargo Housing Market Index hit 83 this month, a record high for the 35-year-old index. There is a looming shadow though, lumber prices have increased 170% since April and the raging west coast wildfires are putting lumber stocks at risk. (CNBC)
• The 4 largest builders in Lexington, KY stopped building altogether due to the sky-high lumber prices. (Sherri Kelley)
• From February to July the number of young adults, aged 18-29, living with their parents has increased from 47% to 52% or 26.6 million, the first time this number has been above 50%. Closed college campuses and the higher unemployment rates for younger people are the leading causes. (US Census Bureau & Pew Research)
• Phoenix has the 8^th highest rate for data center leasing. Considering we are fairly new to this market and more and more are coming here each year, expect this to increase. (AZ Big Media)

Opendoor:

After the rise and fall of iBuyer marketshare, from roughly 0.6%, nationally, in January to 0.1% in July. These companies are scrambling to reinvent themselves. Even Phoenix, where Opendoor launched in 2014, saw the marketshare drop from 6% in January to 1.4% in July.

iBuyers like Knock.com completely changed course and now partner with Realtors and are no longer purchasing property at all. Others pivoted towards traditional sales and higher agent referrals, Offerpad is now paying a 3% referral fee, up from the previous 1%, and partnerships like Realtor.com and Opendoor.

Since the beginning none of the iBuyers have turned a profit. Softbank’s Vision Fund, the largest investor in Opendoor is paying more attention to profitability. If any of the iBuyers lose their funding they will not be able to survive at all, despite any of these recent pivots.

After the disastrous 2019 IPO attempt by WeWork, another organization funded by Softbank’s Vision Fund, profitability has taken center stage for the multi-billion dollar investor.

After a few days of rumored talks, on Tuesday, Opendoor announced it is going public. In order to avoid pre-IPO scrutiny, which took down WeWork, Opendoor merged with Social Capital II, a special purpose acquisition company or SPAC, also knows as a blank-check company. Since Social Capital II is already publicly traded Opendoor will not have to explain to Walls Street why they want to go public but still have never turned a profit. Social Capital’s business is solely for taking companies public and has no other business. (Bloomberg)

Despite an impressive $4.7 billion in revenue in 2019, Opendoor had a net loss of $327 million, up from the $192 million in net losses in 2018. The merger gives Opendoor a valuation of $4.8 billion and a likely infusion of $1 billion in capital.

Final Thoughts:

Real estate continues to thrive despite significant headwinds. We continue to watch rentals, eviction moratoriums, and what that means to landlord survival. But overall, home has never been more important and for the 160 million employed Americans, the positive it that there are options.