Here are the basics - the ARMLS numbers for January 1, 2021 compared with January 1, 2020 for all areas & types:
Active Listings (excluding UCB & CCBS): 6,055 versus 12,141 last year - down 50.1% - and down 18.0% from 7,388 last month
Active Listings (including UCB & CCBS): 9,788 versus 17,577 last year - down 44.3% - and down 21.6% compared with 12,481 last month
Pending Listings: 6,135 versus 4,662 last year - up 31.6% - but down 16.5% from 7,347 last month
Under Contract Listings (including Pending, CCBS & UCB): 9,868 versus 7,539 last year - up 30.9% - but down 20.7% from 12,440 last month
Monthly Sales: 9,989 versus 7,788 last year - up 28.3% - and up 8.9% from 9,175 last month
Monthly Average Sales Price per Sq. Ft.: $211.62 versus $179.97 last year - up 17.6% - and up 1.8% from $207.84 last month
Monthly Median Sales Price: $332,000 versus $289,500 last year - up 14.7% - and up 0.6% from $330,000 last month
Buyers cannot be blamed if they are in despair about the lack of supply. We have less than half the number of active listings without a contract that we had a year ago. This time last year we described the lack of supply as shocking, so what do we call the current situation? We actually saw more new listings arrive during 2020 than we did during 2019, but only 1.4% more. The annual sales rate increased by 6% so the extra supply proved thoroughly inadequate in the face of the demand.
Prices have accelerated due to the huge imbalance between supply and demand, but as yet we have only seen part of that reaction. Sales prices are a trailing indicator and lag behind the leading indicators by up to 15 months. We can therefore expect to see prices move even higher during the next 12 to 15 months with appreciation rates possibly rising over 20%.
Those who think the increases in mortgage delinquency are going to to halt these rise are wishful thinking. The level of delinquency is nothing like as bad as it was during the 2006 to 2008 crisis and the level of delinquency has improved for the last 6 consecutive months. Any extra supply coming onto the market, due to home owner financial distress, is likely to be snatched up quickly by desperate buyers. Few of the homes with delinquent loans are likely to make it to foreclosure. They can be quickly sold prior to foreclosure to pay off any loans and the record levels of home equity will leave the vast majority of sellers in the black even if they can no longer afford their mortgage payment. It is the strong home equity levels that will motivate distressed buyers to sell up rather than walk away. In 2007 prices started to crumble due to huge excess supply, meaning many homes went underwater quickly and homeowners could see no advantage from avoiding foreclosure. The current situation is opposite, not similar.
January is usually the strongest month of the year for new listings - you can see this in our seasonal trend chart here. Therefore if we are going to see any relief for buyers, it should arrive during the next 4 weeks. If it does not, then the peak selling season of February through May is likely to be limited by what little is available. This may put a cap on any growth in unit sales, but it will not put much restraint on dollar volume as prices rise to compensate.
Supply Down 48%, Contracts Up 35% CARES Act and Eviction Moratorium Due to Expire December 31st
For Buyers: Existing protections in place for homeowners during times of financial hardship have come to the forefront in 2020. While both renters and homeowners alike were struck with unemployment and loss of income this year, homeowners in particular were provided with more immediate relief and a pathway to recovery than their renting counterparts.
Case in point, there are few experts in the field predicting a foreclosure crisis for homeowners; however there are many housing experts concerned about an eviction crisis for renters after the eviction moratorium ends December 31st. Under normal circumstances in Arizona a homeowner typically has to miss multiple monthly payments before the lender files a Notice of Trustee Sale, which then provides another 90 days for the homeowner to remediate the situation prior to foreclosure. However, a renter can be at risk of eviction within a few shorts weeks after missing a single rent payment depending on their landlord’s disposition and rental agreement.
The CARES Act extended another layer of protection for homeowners through forbearance, allowing them to postpone their payments in 3 month increments for up to a year without an effect on their credit. Many lenders have already put in place refinance options after forbearance for homeowners who have accumulated thousands of dollars in unpaid mortgage payments. There is no such plan for renters after the eviction moratorium. Their rents will be due in full and if they haven’t received rental assistance or sufficient unemployment benefits to cover the amount owed, they will be facing eviction and their credit will be affected.
So for those questioning whether or not purchasing a home is a good financial decision, the answer is yes. The value of owning a home is not just in its market value, but in stabilizing monthly housing costs during a period of rising rents and the comfort of more protection during times of financial and job insecurity. Losing one’s home, whether rented or owned, is one of the most stressful things a human being can endure.
For Sellers: If you are one of the many homeowners facing the end of a forbearance period sometime in the next 3-4 months, you have at least 5 options to remediate your situation. 1) STAY IN YOUR HOME and consult your retirement plan administrator about tapping into your retirement account without penalty until December 31st to cover your unpaid payments; 2) STAY IN YOUR HOME and consult a lender about refinancing your unpaid payments into a new loan; 3) MOVE OUT and rent your home for more than your mortgage payment to cover missed payments or replenish your retirement account; 4) MOVE OUT and consult a lender about acquiring a new loan on a more affordable home; 5) MOVE OUT and sell your home for more than your mortgage balance, walk away with your equity and credit intact to purchase another day.
None of these options were viable solutions for homeowners facing the 2008 housing crash 12 years ago. These options are why there is little risk of a foreclosure crisis and price crash in 2021. Because population growth has consistently outpaced housing growth every year over the past 10 years, rents and values are projected to continue rising through 2021 in Greater Phoenix unless builders are able and willing to ramp up production at ludicrous speed. They are doing their best, but even 25,549 permits issued and 19,889 sales closed on brand new single family homes through October this year hasn’t proven to be enough to satisfy the level of demand for housing that has descended on Greater Phoenix. Sellers need not worry about their home values declining anytime soon.
Here are the basics - the ARMLS numbers for December 1, 2020 compared with December 1, 2019 for all areas & types:
Active Listings (excluding UCB & CCBS): 7,388 versus 13,869 last year - down 46.7% - and down 14.9% from 8,682 last month
Active Listings (including UCB & CCBS): 12,481 versus 18,322 last year - down 24.1% - and down 10.2% compared with 13,901 last month
Pending Listings: 7,347 versus 5,864 last year - up 25.3% - but down 6.6% from 7,862 last month
Under Contract Listings (including Pending, CCBS & UCB): 12,389 versus 9,572 last year - up 29.4% - but down 8.2% from 13,081 last month
Monthly Sales: 9,205 versus 7,131 last year - up 29.1% - but down 3.6% from 10,024 last month
Monthly Average Sales Price per Sq. Ft.: $207.71 versus $179.92 last year - up 15.4% - and up 0.2% from $207.71 last month
Monthly Median Sales Price: $330,000 versus $281,000 last year - up 17.4% - but down 0.6% from $332,000 last month
The supply situation has gone from bad to worse with many areas hitting record lows for the number of homes available to buy. This is not because of a low number of new listings. The flow of new listings was respectable in November and exceeded the total for November 2019 and 2018. However, it increased by far less than the annual increase in demand and many of these new listings went under contract within days of listing. We exited November with 15% fewer homes for sale than we entered it. We have run out of adjectives to describe the weakness of the supply situation. It looks almost certain that supply will collapse further during December, so if we had a good adjective we would need a better one for January 3. Demand is extraordinarily strong for this late in the season, so we currently have a market that is more unbalanced (in favor of sellers) than we have ever seen before, even at the height of the 2005 bubble. But next month will be even more extreme.
You may wonder why average and median prices did not rise in November over October. This is because the sales mix shifted in favor of smaller homes - the average size dropped from 2,061 sq. ft. to 2,016. This is a 2.2% fall, an unusually large shift for a single month. There were more ordinary homes in the mix and fewer of the ultra-expensive luxury homes. The unit volume was huge however, especially considering the tight supply. November was a very short month with only 18 working days, so 9,205 is a very impressive number for closed listings, up almost 30% from last year, when we thought we had a very strong market.
There seems to be a certain amount of denial in some quarters. Concerns about delinquency rates and forbearance are being widely discussed. The idea is often expressed that this can reverse the current situation, as if this is a foregone conclusion. We do not think the level of delinquency is anything like high enough to seriously disrupt the housing market. For such drama you probably need to look to the commercial real estate market, particularly the retail, office and hotel sectors. Housing has been bolstered by the pandemic. This is a worldwide phenomenon, not confined to Arizona or even the USA. At times of medical emergency, people really value their homes across the globe.
We would agree that a market cannot keep getting hotter forever, but according to Black Knight Financial Services, the level of delinquency has fallen for the last 5 months. Pre-payment activity is the highest since 2004. It is likely that we will see more distressed sales in 2021 than 2020, but 2020 was a record all-time low and reverting to normal would help a bit with the supply situation. In fact we would have to see a colossal increase in delinquency from current levels just to get back to normal supply conditions.
There is a widely held but mistaken belief that foreclosures cause price declines. It is the other way round. Price declines destroy owner equity which eliminates their incentive to avoid foreclosure. In fact in Arizona foreclosure becomes a preferred option when you have negative equity because it wipes out all the loan, not just the amount covered by the trustee sale proceeds. Many other states do not allow this. Short sales do a similar thing but require many parties to cooperate. Foreclosure is easy and quick and you walk away with your loan written off.
However when you have significant equity the situation is very different. The owner wants to release that equity for their own use. With the average appreciation over the last 12 months of 16%, most owners currently have a lot of equity. Smart people are not going to let their home go to foreclosure if they can help it; they will sell it and repay their loan with the proceeds, keeping the excess funds and their credit intact. This will continue unless prices decline significantly. Prices only decline when there is an excess of supply.
In 2006 average $/SF started to decline after June and established a strong downward trend in 2007 due to a huge excess of supply. This was BEFORE the foreclosure wave really got going, not after. The peak of foreclosures happened between 2008 and 2010, dumping unloved homes onto the market and accelerating the price decline, reaching the lowest point in 2011. Note that it was the excess supply of 2006 that triggered the price declines which then triggered the foreclosures. With excess supply in 2006 and 2007 it was very hard to sell your home to avoid foreclosure and few investors were interested in catching a falling knife.
I hope it is obvious how the current situation is different from 2005. The most significant factors are the very low vacancy rate (very high in 2005) and the very high rate of rent increases. Rising rental rates are a fundamental support for home prices because they represent a great return on investment for potential landlords. In 2005 rental rates were very low and declining, a very ominous sign that few people noticed at the time. Today, rents are increasing at a rate of 15% in just the last 6 months.
Predictions for December:
closings will be higher than November
average price per sq. ft. will rise from November
dollar volume will set a new all-time record for December
supply will decline further reaching a low point on January 1, 2021
For Buyers: The Rent vs. Buy scenario has become heavily in favor of buying over the last 5 months. Eviction moratoriums due to the pandemic have greatly reduced turnover rates in a rental market that is already short of supply. Lease rates on listings through the Arizona Regional MLS have increased 17% since April overall; and for a home between 1,500-2,000sf the median lease price in the 4th Quarter is $1,850 a month, up a whopping $255 from the 4th Quarter last year.
While leases have been rising, home values have also risen 16%; however declining interest rates have kept the monthly payments level. The median sales price for a 1,500-2,000sf home is currently $316,000, up $27,000 since April. Despite this 9% increase (assuming a $15,000-$30,000 investment and interest rate under 3%), purchasing a home could possibly save a renter hundreds of dollars on their monthly budget while simultaneously building equity and ensuring a level of stability in their housing cost.
For Sellers: While many people are waiting for the final results of the 2020 election, at least one thing is for certain in Greater Phoenix. The housing market will not crash in 2021 regardless of the outcome. It may be hard to believe, but the new and resale housing markets don’t move quickly. Unlike the stock market where it takes a push of a button to sell a stock and record the price, it takes longer to sell a home between the marketing time and escrow process. In today’s market, it may take up to a week to negotiate an offer and another 30-45 days for the price to be publicly recorded. When a market weakens, it takes longer.
Supply in Greater Phoenix has been gradually shrinking for 6 years and was the driver behind price appreciation until the pandemic. To put things in perspective, the Arizona Regional MLS should seasonally have between 25,000-30,000 listings active at this time of year; as of November 9th there are under 8,600. That type of shortage doesn’t happen overnight and new construction will not be able to fill the gap quickly.
Listings Under Contract should seasonally have between 9,000-10,000 in escrow at this time of year; as of November 9th there are over 13,000. This level was reached in June and has stayed consistent for nearly 5 months. Even if demand were to scale back in 2021 and return to a normal level, the market would not see a massive drop in prices; just a slowing in appreciation.
Here are the basics - the ARMLS numbers for November 1, 2020 compared with November 1, 2019 for all areas & types:
Active Listings (excluding UCB & CCBS): 8,682 versus 14,525 last year - down 40.2% - but up 7.4% from 8,101 last month
Active Listings (including UCB & CCBS): 13,901 versus 18,322 last year - down 24.1% - but up 4.5% compared with 13,305 last month
Pending Listings: 7,862 versus 5,919 last year - up 32.8% - but down 1.7% from 7,999 last month
Under Contract Listings (including Pending, CCBS & UCB): 13,081 versus 9,716 last year - up 34.6% - but down 0.9% from 13,203 last month
Monthly Sales: 9,992 versus 8,037 last year - up 20.5% - and up 3.6% from 9,641 last month
Monthly Average Sales Price per Sq. Ft.: $207.37 versus $174.14 last year - up 19.1% - and up 4.3% from $198.84 last month
Monthly Median Sales Price: $332,000 versus $285,000 last year - up 16.5% - and up 1.6% from $326,800 last month
The flow of new listings remained strong until late October but has started to fade noticeably over the last week. Since we are already very short of supply, this does not bode well for buyers who are likely to be fighting each other over a dwindling list of homes for sale during the last 2 months of the year. With demand at a very high level, especially for the normally quiet fourth quarter, the market is even more out of balance than it was last month.
Closed sales were over 20% higher than in 2019 during October. This is even more remarkable given that in 2019 October had 23 working days, 1 more than in 2020. With the average price per square foot up over 19% from last year, the dollar volume is exceptionally high at $4,272 million, up from $2,786 million last year. And last year we thought we had a strong market. We are running out of superlatives to describe the state of the current market.
Average and median prices are running away skywards, but some of this is fuelled by a sales mix which increasingly favors upscale properties. During October we saw 37 closed listings over $3 million. This is not only the highest total for any October in history, it is the highest total for any month in history. The average for all months since 2001 is 9 and in October 2019 we counted 10.
The size of the market below $300,000 is shrinking fast, constrained by lack of supply and by the fact that last year's home at $270,000 is now priced well over $300,000. However any home priced under $300,000 is likely to see hordes of buyers.
Is there any sign of the upward surge in pricing losing pace. In a word - No.
At this time last year we had no idea of the impending pandemic, but unless something similarly surprising happens in the next few months, the housing market in Greater Phoenix is unlikely to stop rising.
For Buyers: A common complaint in the resale market is “there’s nothing for sale”. However from July through September, the Realtor® community added 30,340 brand new listings to the Arizona Regional MLS and sold 27,746, leaving just 8,203 remaining listings for sale. That makes this 3rd Quarter the 2nd best in Greater Phoenix history for closings, falling just 436 sales short of 2005. If that’s not impressive enough, there are another 13,502 properties currently under contract and scheduled to close in the next 30-45 days; up 36% from this time last year. With this information we can conclude that there is plenty for sale, but many listings are simply not in Active status longer than 24 hours in order to be counted.Getting the supply count to rise right now is like trying to fill a bathtub when the drain is wide open.
Over half of all listings that went under contract in the 3rd Quarter were Active for only 9 days or less prior to contract. To quote the movie “Spaceballs”, that’s ludicrous speed! As exhausting and stressful as it is for buyers and their agents, supply and demand measures indicate prices in Greater Phoenix will continue to rise well into 2021. Hopefully the short-term pain will lead to long-term gain for those who ultimately win a successful contract.
For Sellers: Appreciation has accelerated significantly since June of this year. The median sale price is up 18% since last October, but the current measure of $329,900 is up 12% from where it was just 4 months ago at $295,000. While that’s exciting for sellers, the speed at which homes are selling is causing some to worry they will not find somewhere to go after their home closes. As a result, Realtors® are dusting off rarely used seller contingency addendums stating that any accepted contract will be contingent on the seller finding a home themselves prior to close.
Compared to last year, sellers are asking 15-20% more for their homes in all price ranges between $150K-$500K. Between $500K-$1M, list prices are up 9-13% and 3-8% for price ranges over $1M. The highest percentage of sales over asking price in the last 30 days are occurring between $200K-$400K with a measure of 34-45%. While that’s a high percentage, it’s not the majority of sales. Most properties are still closing at or below asking price. However for those who did go over asking price under $400K, most winning bids were within $7,000 of list.
Here are the basics - the ARMLS numbers for October 1, 2020 compared with October 1, 2019 for all areas & types:
Active Listings (excluding UCB & CCBS): 8,101 versus 13,755 last year - down 41.1% - but up 0.9% from 8,028 last month
Active Listings (including UCB & CCBS): 13,305 versus 17,592 last year - down 24.4% - but up 1.0% compared with 13,178 last month
Pending Listings: 7,999 versus 6,011 last year - up 33.1% - and up 1.4% from 7,892 last month
Under Contract Listings (including Pending, CCBS & UCB): 13,203 versus 9,848 last year - up 34.1% - and up 1.2% from 13,042 last month
Monthly Sales: 9,667 versus 8,022 last year - up 20.5% - and up 4.9% from 9,213 last month
Monthly Average Sales Price per Sq. Ft.: $198.68 versus $169.60 last year - up 17.1% - and up 1.9% from $194.98 last month
Monthly Median Sales Price: $327,000 versus $279,500 last year - up 17.0% - and up 0.6% from $325,000 last month
The flow of new listings was strong throughout September, with roughly 17% more listings posted than in September 2019. However this did not result in much change to the available supply. This rose a barely perceptible 0.9% which is in line with normal seasonal trends. However, buyers must celebrate what little good news they can - 73 more active listings than last month. Yay!
With the chronic shortage of re-sale homes, many buyers are turning to new-builds. Here they will not face multiple offers, but they may well find some builders are not accepting contracts except for homes that are near completion. The reason is that prices are climbing steeply and some developers do not want to tie themselves to a fixed price until the home is almost complete. The builders are experiencing an extreme seller's market and buyers (and their agents) are likely to feel a little less appreciated than usual. Developers can also spend less on sales and marketing when they can easily sell all the homes they are able to build. Some (but certainly not all) are reducing the commission they will pay to buyer's agents.
The reason that available supply is not increasing, despite the large increase in new listings, is that demand refuses to die down. It is unusual for the number of listings under contract to be higher on October 1 than September 1, but this is what we see in 2020. Even more startling is the amount by which the number of listings under contract exceeds the 2019 level - 34%. The market was strong this time last year, but now it is on fire.
Closings were also strong during September - up over 20% from September 2019. To be fair, September had one extra working day in 2020 compared to 2019, but this does not take much away from the impressive number of closed listings.
There have been a number of articles written predicting that home prices will fall next year because of the damage to the economy by the COVID-19 pandemic. This will cause some people, those who took those article seriously, to be very surprised by the huge increase in pricing that is currently going on. The extremely high CMI reading indicates that the upward price trend will continue for the near and medium term, making any price reductions in 2021 rather unlikely.
Over the last 12 months, the average price per sq. ft. has increased over 17% and the current rate of increase in around 2% per month, meaning we are probably headed for an annual rate of over 20% fairly soon.
The economy has severely damaged the finances of a large number of people. However most of those people were unlikely to be in a position to buy a home anyway. Those who are in a position to buy a home have had their determination to do so increased dramatically by the pandemic. The gap between the haves and the have-nots is widening.
Foreclosure notices in Maricopa County numbered 99 during September. This is down 76% from September 2019. Some people are predicting that foreclosures will rise in 2021. I would agree that the record low levels of foreclosure activity in 2020 cannot last forever, but data released about delinquencies by the lending industry suggests that there is unlikely to be the sort of foreclosure flood that we saw in 2007 through 2012. Remember that the record monthly count was 10,712. That was truly a mountain of foreclosure notices and we currently have no more than a molehill.
Wow! 17% Spike in Contracts over $600K in August 34% of Homes Closed Over Asking Price
For Buyers: The first few weeks of August saw a surprising 17% spike in listings under contract over $600K. This is highly unusual as typically contract activity declines in the 2nd half of the year, especially on the high end; but this is the year 2020 and it’s been full of surprises. What is causing this spike in buyer demand in the luxury market? Luxury sales are partially influenced by stock market performance and corporate profits. August was a good month for the stock market, but the 2nd quarter was not good for corporate profits at all. In fact, they fell to levels we haven’t seen in a decade. The answer may lie in what’s been dubbed “wealth flight”. Some states like California are considering increases in income taxes, corporate taxes and a new “wealth tax” in the wake of the pandemic. As a result, the threat of new taxes on already hurting balance sheets is enough for companies and their employees to make the decision to move. This, coupled with the work-from-home movement, is fueling demand in Metro Phoenix where taxes and the cost of housing are comparatively more affordable than other cities. For buyers waiting for prices to decline, there is no indication of that happening soon despite apocalyptic predictions of another foreclosure wave; at least not while the Valley has a net increase in population moving to the area. A reasonable expectation over the next year is that prices will continue to rise sharply in the short-term, then possibly rise slower if affordability rates begin to suffer. The only beam of hope for buyers right now is a boost in new construction.
For Sellers: For at least 12 years, builders have been reluctant to ramp up production of new housing supply to accommodate population growth; which is understandable considering they were burned severely when the housing market crashed in 2008. This reluctance has led the market to our current shortage of homes for sale and a frenzy of competition for existing resale homes. However, last July saw over 3,000 single family permits filed; the largest number filed in a month since March 2007. This should provide some much needed relief for buyers and some added competition for sellers in the coming months. While exciting, this increase in new home permits is not alarming. The biggest month recorded was July 2004 with 6,291 permits filed. That said, 35% of homes closed through the Arizona Regional MLS in August sold over asking price. As incredible as that sounds, this is not the first time Greater Phoenix has seen this measure spike. In fact, 2005, 2009 and 2012 all saw higher percentages; each peak was short-lived over the course of just 2-3 months before sharply dropping again. This is because as more sellers test market limits and ask for higher and higher prices, their likelihood of selling over asking price drops significantly.
If you, or anyone you know, is looking to buy or sell, Please let me know!
Here are the basics - the ARMLS numbers for September 1, 2020 compared with September 1, 2019 for all areas & types:
Active Listings (excluding UCB & CCBS): 8,028 versus 13,609 last year - down 41.0% - and down 5.3% from 8,477 last month
Active Listings (including UCB & CCBS): 13,178 versus 17,577 last year - down 25.0% - and down 0.6% compared with 13,259 last month
Pending Listings: 7,892 versus 6,350 last year - up 24.3% - and up 4.5% from 7,550 last month
Under Contract Listings (including Pending, CCBS & UCB): 13,042 versus 10,318 last year - up 26.4% - and up 5.8% from 12,332 last month
Monthly Sales: 9,225 versus 8,916 last year - up 3.5% - but down 12.5% from 10,543 last month
Monthly Average Sales Price per Sq. Ft.: $194.85 versus $169.18 last year - up 15.2% - and up 1.9% from $191.16 last month
Monthly Median Sales Price: $325,000 versus $280,000 last year - up 16.1% - and up 3.2% from $315,000 last month
The housing market remains extremely strong and continues to hit news heights. The closings in August were down from July, but this is partly due to August having fewer working days than July. The fact that pending listings and listings under contract rose between August 1 and September 1, tells us that demand is not weakening despite the lower number of closings. The balance between closed sales and contracts that have not yet closed has swung in favor of the latter.
We can see that supply remains very low indeed, but has only declined 0.6% over the past month. We anticipate that supply will start to grow over the next 30 days. This is because we are seeing far more new listings than we observed during the first half of the year. With the average price per square foot up more than 15% it is not surprising that this is tempting a few more sellers. In theory it should be tempting a few less buyers, but the low mortgage interest rates have kept buyer interest very high.
A startling figure is 26.4% - the amount by which listings under contract exceed this time last year. The level of growth is highly unusual.
Once again, supply is low and demand is high, so prices have to rise. The price increases have really started to accelerate over the past 2 months we now see appreciation over 15% measured by monthly $/SF and over 16% when measured by the monthly median sales price. This is even more shocking given that August is usually one of the weakest months of the year for pricing. By the time we get to year end, we can expect these numbers to be even higher.
The market is more stable than last month, with the Cromford® Market Index hovering near its all time high. The expected growth in supply over the coming 3 months should give some welcome relief to buyers. At least they should have a little more choice. However, there will be little to no respite from multiple offers and the ensuing stress levels. We expect price rises to eventually start negatively impacting affordability causing more buyers to drop out of the market and start a cooling cycle. But eventually could mean quite a long time in the current conditions. The market remains hard to predict, so instead will require close and timely observation.
We do that, so you don't have to. If you read our daily observations, you should not be caught by surprise.
July Breaks Records in 2020 65% of Homes Affordable in Greater Phoenix
For Buyers: It’s a jungle out there for buyers, but despite recent appreciation rates the HOI* measure for Greater Phoenix increased to 64.8 for the 2nd Quarter 2020; the previous measure was 63.0. This means that a household making the current median family income of $72,300 per year could afford 64.8% of what sold in the 2nd Quarter of 2020. By comparison, the HOI measure for the United States was 59.6. Historically, a normal range for this measure is between 60-75. During the “bubble” years of excessive appreciation between 2005-2006, the HOI plummeted from 60.1 to 26.6. Typically if it falls below 60, the market should start to see a drop in demand. With the most recent increase however, Greater Phoenix is still within normal range and experiencing demand 20% above normal for this time of year. What makes this market significantly different from the infamous bubble and crash is the relation between resale housing growth and population growth. In the early 2000’s, housing was growing faster than the population and creating a glut. This glut went unnoticed due to excessive speculator (i.e. “false”) demand fueled by loose lending practices. When loans tightened up, the glut came roaring into focus as vacant inventory soared to over double the normal levels. However since 2006, the population has grown faster than housing. It has taken 14 years, but this population growth fueled by job growth has finally consumed the glut of re-sale housing created during the bubble years and now the market is facing a shortage of homes for sale. This type of market and appreciation is not sustainable over time, however it’s here now and properties purchased today are expected to continue appreciating over the next 6-12 months.
For Sellers: So much for the “Summer Slowdown”, July had a record number of closings go through the Arizona Regional MLS; surpassing every July as far back as 2001. July also broke records in dollar volume with $3.9 Billion sold. The best July ever recorded prior was in 2005 at $2.9 Billion. The monthly appreciation rate finalized 12.5% higher than 2019 and was the 4th highest appreciation rate for July going back to 2001. One third of homes closed were over asking price and only 15% involved any sort of seller-paid closing cost assistance; down from a high of 27% last May. Half of all sellers who accepted contracts in the first week of August did so with 7 days or less on the market. Contracts on luxury homes over $1M are up an incredible 93% over last year at this time. Between $500K-$1M, contracts are up 64%. Between $300K-$500K, they’re up 39%. Between $250K-$300K, up 15%. If you need to sell, this is the time to do it.
Here are the basics - the ARMLS numbers for August 1, 2020 compared with August 1, 2019 for all areas & types:
Active Listings (excluding UCB & CCBS): 8,477 versus 13,746 last year - down 38.3% - and down 3.5% from 8,788 last month
Active Listings (including UCB & CCBS): 13,259 versus 17,920 last year - down 26.0% - and down 7.1% compared with 14,279 last month
Pending Listings: 7,550 versus 6,479 last year - up 16.5% - but down 5.5% from 7,993 last month
Under Contract Listings(including Pending, CCBS & UCB): 12,332 versus 10,653 last year - up 15.8% - but down 8.1% from 13,424 last month
Monthly Sales: 10,536 versus 9,340 last year - up 12.8% - and up 8.5% from 9,714 last month
Monthly Average Sales Price per Sq. Ft.: $191.02 versus $169.72 last year - up 12.6% - and up 4.5% from $179.82 last month
Monthly Median Sales Price: $315,000 versus $280,000 last year - up 12.5% - and up 3.3% from $305,000 last month
The housing market is extremely strong and has been hitting a number of new records in the last few days. See the Daily Observations for more details on these.
We can see that supply remains very low indeed, but has only declined 3.5% over the past month, a much weaker trend than last month. This is because we are seeing far more new listings than we got during the first half of the year. This increase in new listings appears to be setting in for the long run, which is a little bit of good news for buyers.
July 2020 was a very active month for closings, up almost 13% compared with July 2019. All those closings have caused the number of listings under contract to decline 8% since last month, but the total remains very high for early August and it is up nearly 16% compared with August 2019. We can conclude that demand has not only recovered from the COVID-19 pandemic, but has reached heights that make it very strong by any historical standard.
We should all know that when supply is low and demand is high, prices will rise. They certainly did that with a vengeance during July. The monthly average price per sq. ft. rose 4.5% during just 31 days, something we would think quite normal if it were an annual increase. This happened during a summer month, making it even more remarkable, because summer months are usually rather weak for pricing, even in strong markets.
The same thing show up in the median sales price - up 3.3% in a single month, and up 12.5% for the last 12 months.
Appreciation rates are now well into double figures, something which we have not seen for 6 years.
Despite the rise in new listings, the environment is extremely unfavorable for buyers. Not only do they have to contend with prices rising at an unusually high rate, when they do find a house on which they would like to make an offer, they will probably find dozens of other buyers with exactly the same idea in mind.
We do not see things improving for buyers during August, and most sellers can get away with being pretty much as unreasonable as they wish to be. Frustration, tension and stress are the order of the day.
The market will not stay like this forever, but there is no immediate sign of a change in direction. We will consider the chances of a sea-change this time next month.
For Buyers: Greater Phoenix has a population of approximately 4.8 million people and 1.4 million single family homes, condos and town-homes in total inventory. As of July 8th, only 8,579 of these units were available for sale through the Arizona Regional MLS. If that number doesn’t cause you to gasp, then this might: only 1,023 are single family homes under $300,000 and that number is diminishing every day. The last month has seen a surge of buyer activity, but it was not met with an equivalent surge of new listings. New listings overall compared to last year were down 7.8% while contracts in escrow soared 24% higher. For buyers under $300K however, new listings were down 22% in June compared to last year and are down 38% so far in July. This is causing an extreme amount of buyer competition in this price range. When buyers expand to over $300K, then new home construction starts supplementing inventory and providing some much needed alternatives. The top 3 cities for single family home permits are Phoenix, Mesa and Buckeye with notable spikes in building permits issued in Surprise, Maricopa and Queen Creek. Most new homes are selling between $300K-$500K, but buyers looking for a brand new single family home under $300K still have some options. Their best bet is in Pinal County or Buckeye with average sizes between 1,800-2,000 square feet for their budget. Conversely, new listings over $500K saw a spike last month, up 20% over last year. 1,596 new listing came on the market and 2,046 contracts were accepted in this price range in June.
For Sellers: Brace yourselves. Half of the sellers who accepted contracts under $400K in the first week of July were on the market for just 8 days or less with their agent prior to contract acceptance. Sellers who took contracts between $400K-$600K had a median of 14 days on the market with their agent and those who landed contracts between $600K-$1M had a median of 41 days. It’s a good time to be a seller. While 28% of all sales in July so far have closed over asking price, that percentage peaks at 41% for those between $200K-$300K. Top cities for closings over asking price are Tolleson, Avondale, Glendale, Gilbert and Youngtown. Gilbert is the only city in that list with a median sale price over $300K. Seller-assisted closing costs remain popular and were involved in 23% of all sales in the first week of July. That percentage increases to 33% on transactions closed between $150K-$300K. Top areas where 50%-60% of sales involved seller accepted closing cost assistance were Youngtown, West Phoenix, Aguila, Glendale, and Tolleson. This supports the theory that sellers receiving offers over asking price in the West Valley and other affordable areas are still open to accepting closing cost assistance if a contract meets their most important needs.