Phoenix Real Estate continues to set Records in 1st Quarter of 2021. Sales of residential real estate outpaces 2020, which was an exceptional year for real estate. Our market is blustering hot!
“What is causing this blistering feat? We need to look no further than hysterically low inventories, where active listings (excluding UCB *Home under contract accepting backup offers and CCBS *Contract Contingent on sale or closing of buyers home – only 3.2% ) are 69.26% lower this year compared to 2020.
The term absorption rate is a metric used in the real estate market to evaluate the rate at which available homes are sold in a specific market during a given time. It is calculated by dividing the number of homes sold in the allotted time by the total number of available homes. By historical real estate standards, an absorption rate greater than 20% is associated with a seller’s market while an absorption rate below 15% is associated with a buyer’s market. A six-month supply is considered a balanced market. We currently have a supply of .37 months with an absorption rate of 272.50%.
When we look at the ARMLS gross dollar sales volume for the first quarter the numbers are almost in
reprehensible. In the first quarter of 2021 ARMLS reported a gross dollar sales volume of $11,223,212,029. The gross dollar sales volume surpassed the record-setting pace of last year by a staggering 36%…
• There is a lot of conversation today in our market about an influx of California buyers relocating to Maricopa County. According to the recorded affidavit of value, 6.23% of all buyers in March had a California address. I believe these buyers are truly moving to Arizona. You might be surprised to learn that in March of 2005, this percentage was more than double at 13.46%.
There is a huge difference between a real estate investor and a real estate speculator. An investor buys the value, while a speculator buys on the bet prices will rise. In 2005 California speculators were flying to Phoenix and grabbing as many new builds as they possibly could, never planning on living here. There strategy was to contract on a new build with a minimal down payment, wait the 8 to 10 months for the home to be built and then sell on completion. Their purchase was simply a short-term bet. The early speculators in late 2004 and early 2005 won big on their bets, leaving the buyers living in their homes holding the bag.
• In 2005 there were very loose loan underwriting standards. NINJA was a slang term for a loan extended to a borrower with little or no attempt by the lender to verify the applicant’s ability to repay. It stood for no income, no job, no assets. Today the underwriting process includes verifying the applicant’s identity, checking their stability and amount of their income, verifying their employment, reviewing their tax returns, examining their financial statements, checking their credit score and perusing their credit reports to make sure they can afford the loan, as well as adhering to strict underlying guidelines.
• Interest rates today are 3.13% according to Freddie Mac. In March of 2005 rates were 5.93%.
• Real estate markets are cyclical, and this cycle will end too, but I do not see our current market following the disastrous path of 2005. 2021 is a byproduct of market dynamics while 2005 was a result of speculation without restraint.
As I see first-time buyers struggle to procure a home, the most frequently asked question is, “When will
the market shift?” My only response is “no time soon”. In the short term, I just do not see where the additional supply needed to balance our market will come from. There is a common belief that once the COVID-19 Mortgage Forbearance is lifted the housing market will sea a tsunami of homes become available. With Mortgage Forbearance just extended (again), millions of homeowners with federally guaranteed mortgages have the option to extend their forbearance an additional six months, and the federal foreclosure moratorium deadline has been pushed back to June 30, 2021.
This means for Maricopa County, 2021 will see its lowest foreclosure activity ever. The first signs of a market shift will be subtle and the agents in field will be the first to notice. Listing agents will begin seeing fewer offers. They will still sell the home quickly, but they will see the number of offers decline. The real indication of a market shift will show in the supply vs demand…, but the current extremes can not and will not change dramatically overnight. So, we will keep monitoring the data searching for those subtle changes. In the meantime, if you were shocked by our quarterly numbers, all I can say is wait until you see our semi-animal numbers.” Tom Ruff ARMLS Stat Report March 2021
Sale prices are averaging over 100% of asking prices as buyers compete to purchase homes. As a result home values and homeowner’s equity continues to rise. The percentage of inventory under $500,000 is shrinking as prices rise.
As of April 19th 2021:
Inventory 0-$499,999 dropped to only 62.71% of total inventory $500,000-$999,999 grew to 23.2% and $1,000,000+ to 14.1%
$200,000-$299,999 was 16.9%
$300,000-$399,999 was 22.13%
$400,000-$499,999 was 15.06%
So what’s the impact on sellers and buyers?
Sellers are seeing reduced time to sell their home and higher sales prices. As a result of multiple offers sellers are making fewer concessions in the negotiation process. If you own your home you’ve been making money. The Catch-22 is if you also want to buy another home. If you are thinking of doing both there are a number of different strategies you can use to do this.
Buyers expect competition when making offers. You may have to make offers multiple times before seeing yours accepted. Give yourself more time to find your new home. Record low interest rates are allowing buyers to afford homes as prices rise.
If you are looking to buy or sell or perhaps both and want to discuss your best options for accomplishing your goals please feel free to reach out to me.
There 3 types of real estate markets which vary in intensity
Seller’s Market where inventory is low and buyer demand is high. The real estate market since 2020 is by far the most extreme version of this!
Balanced Market inventory and buyer demand is more evenly balanced. Homes take longer to sell and there is more give and take in the negotiations.
Buyer’s Market surplus of homes for sale verses buyer demand. Power in negotiations has shifted to the buyers. Takes substantially longer to see showing and offers. In extreme buyer markets, I have seen sellers offering everything from a new cars to vacations to the buyers. Sellers may be also offering concessions to help the buyer with closing costs.
It takes time for markets to shift from one to another. We could have over 4 times the current inventory and still be in a seller’s market. We have been in a seller’s market for years. Indications that the market is changing – inventories and time to get a home under contract will rise. Agents will see fewer offers on listings.
Mortgage Interest Rates are still in 50 year low range giving buyers the ability to afford more home. As economy improves expect interest rates to rise. Bad economic news tends to push rates down.