The AZ Market ~ 11/23 Market Update

The AZ Market ~ 11/23 Market Update

11/23 Market Update

To say that these are times are weird would be an understatement we have confusing elections, a worldwide pandemic, high unemployment, and the residential real estate sector is supporting the US economy.

“Pending contracts are up strongly, implying that this winter may be one of the best winters for home sales activity. I mean, it’s not going to be spring or summer, so one has to compare this winter with other past winters. And by winter to winter comparison, this year could be one of the best based on the breakout of the pending contracts at a much higher level.”
-Dr. Lawrence Yun, Chief Economist for NAR

The chaos brings many questions. Are we in a housing bubble? No. Is this sustainable? No. Does that mean we are due for a crash? No.

The AZ Market.

Housing & Population Growth:
The worst thing for a housing market is vacant homes.

  • 2001-2006:

-Maricopa County’s population grew by 16%.

-Single family inventory grew 23%.

-Oversupply of housing.

-Mortgages were easy to get, crazy appreciation, houses were purchased with no intention of being lived in, lots of vacant homes.

  • 2006-2019

-Maricopa County’s population grew up by 26%.

-Single family inventory grew only 17%.

-Undersupply of housing.

-Not at risk for lots of vacancies, there is not enough housing for the population.

  • 2020:

-Extreme undersupply of housing.

-Inventory has been dropping for the past 6 years.

-Very few vacant homes.

In 2014 our inventory levels were normal at about 25,000 active listings. Inventory has been decreasing for 6 years and we now have around 8,000 available listings, 63% below normal. Supply has stabilized for the most part and actually started to increase. The 13% increase of new listings in Q3 2020 and 5% increase in October alone went unnoticed as they were absorbed as quickly as they came on the market. In order to have a crash, we would need supply levels like we had in 2007 which was around 57,000 active listings.

Supply has stabilized as demand continues rising. We are putting in enough listings to maintain our listing position, even as demand increases. Demand is currently over 35% above normal. This time of year we normally see about 9,500 listings in escrow and this year we have over 13,000 in escrow. In normal cycles November and December have decreased buyer demand, not this year!

Sales & Appreciation:
Sales volume is extraordinary for this time of year. In October 35.4% of sales closed over asking, the average is about $5,400. Sales were up 22% year over year in October.

October 2020 had a year over year appreciation rate of 19.7%. Tina Tamboer with the Cromford Report expects this number to continue to increase through the end of the year. In January 2020 when Tina mentioned a 10% appreciation for 2020 it was shocking, this is, well, twice as shocking!

Affordable housing is quickly becoming a big focus both locally and nationwide. Prices are rising very quickly, at unsustainable levels. That does not mean that prices will drop, it means that they will eventually rise more slowly. This will happen either when supply increases or demand decreases. Prices only decrease in buyer’s markets, not in balanced markets.

The Home Opportunity Index measures affordability, the normal range is 60-75, meaning that Americans earning the current median income, can afford 60-75% of the homes on the market. The higher the number the more affordable the city.

Affordability dropped from Q2 2020 to Q3 2020. Nationally, it decreased from 59.6 to 58.3. Greater Phoenix remains more affordable than the national average but our quarter to quarter decrease was much more significant. We dropped from 64.8 in Q2 2020 to 61.9 in Q3 2020, which means Arizona households earning the median income of $72,300 can afford 61.9% of what is on the market. The median income did not change from Q2 to Q3. (NAHB/Wells Fargo)

“Favorable mortgage rates will continue to bring fresh buyers to the market. However, the affordability situation will not improve even with low-interest rates because housing prices are increasing much too fast.”
-Dr. Lawrence Yun

New Homes:

  • In October, greater Phoenix saw a 58% year over year increase in new construction sales. (Jim Belfiore)
  • In October, new homes made up 22% of all residential sales in greater Phoenix. (Jim Belfiore)
  • In addition to low supply driving prices up, lumber costs, due to shortages, have increased the cost of a new home by about $16,000. (Bureau of Labor Stats)


  • Rents have increased by 17% since April. Increasing rents is a sign of true demand. Vacant properties cause declining prices. Vacancies are incredibly low.
  • Monthly mortgage payments are lower, for the median house, than are rents. Rents are increasing faster than purchase prices.
  • Median monthly lease for a single family 1,500-2,000 square foot rental increased by $255 year over year to $1,850.
  • According to Corelogic, in September, Phoenix rents saw a 6.9% year over year increase, the largest in the country. Phoenix has topped the chart every month of 2020.

Real Estate News:

  • Yesterday the Department of Justice (DOJ) simultaneously filed an anti-trust lawsuit against NAR and a proposed settlement. The two organizations had confidentially reached an agreement that makes changes to NAR’s code of ethics and MLS policies regarding providing information on commissions and MLS participation.

Details from the DOJ

Details from NAR

  • Last week NAR’s board of directors approved changes to its Code of Ethics and Standards of Practice. According to Andrea Brambila of Inman, the changes apply “to all of a Realtor’s activities, not just those related to real estate; prohibit hate and harassing speech against protected classes; prohibit all discrimination, not just willful discrimination, against protected classes; and recommend that ethics violations be considered under membership qualification criteria.”
  • Similar to Picasa, Gold Gate, a new commercial real estate firm, is offering fractional ownership for luxury real estate worldwide. Owners can buy “shares” or months in different luxury properties all over the world.
  • A $15,000 first time homebuyer credit is part of the housing proposal created by President-elect Joe Biden. Dr. Lawrence Yun, Chief Economist for NAR stated that it is helpful for first-time buyers entering the market but it is only a part of the solution. He went on to say, “But that’s not the full story, the full story is that stimulating the demand just by itself I think is insufficient. Right now the housing market is facing a significant housing shortage. So if we add further stimulus to the demand without addressing the supply… it will simply bump up the prices even higher.”

Real Estate Trends:

  • In 2020 first-time home buyers made up 31% of purchases, down from 33% in 2019 and the lowest level since 1987. (NAR) Increasing affordability challenges are the likely culprit.
  • October new home construction starts increased 14.2% year over year and hit the highest level since 2007. (US Census Bureau)
  • Year over year, iBuyer market share is expected to drop by 50% nationwide by the end of 2020. (Mike DelPrete)

Lending & Forbearance:

  • Phoenix is the #2 city for VA loan origination during fiscal year 2020, Phoenix saw a 115% increase year over year behind Washington DC. (Phoenix Business Journal)
  • The MBA revised its 2020 end of the year projections:

-An estimated $3.9 trillion in total mortgage originations for 2020, the highest since 2003 and 50% up from 2019.

-At $1.97 trillion, 2020 will have a 91.5% year over year increase in refinance originations, again highest since 2003.

-At $1.42 trillion, 2020 will have a 16% year over year increase in purchase originations, the highest since 2005.

  • Last week total mortgages in forbearance dropped to roughly 2.7 million or 5.47%, down from 5.67% the week before.
  • Over 76% of loans in forbearance are on extension, meaning they have been in forbearance for more than 6 months. Just under 21% of loans in forbearance are in the initial stages. (MBA)

Final Thoughts:
Jobs continue to recover (we have made up over 50% of the jobs lost), albeit at a slower rate than we saw over the summer. Economists continue to be cautiously optimistic and expect improvement and growth in all sectors. The good news of highly effective vaccines drove Wall Street confidence up. The FED is carefully watching and will adjust its treasury holdings and mortgage backed security purchases to keep things as stable as possible. A busy winter season will likely lead into even busier spring and summer seasons. There is a light at the end of this tunnel and it is getting closer.

Info provided by:

Madison Blean

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