Here are the basics - the ARMLS numbers for April 1, 2021 compared with April 1, 2020 for all areas & types:
Active Listings (excluding UCB & CCBS): 4,088 versus 13,211 last year - down 69.1% - and down 9.0% from 4,491 last month
Active Listings (including UCB & CCBS): 8,699 versus 17,238 last year - down 49.5% - and down 4.3% compared with 9,094 last month
Pending Listings: 7,964 versus 6,125 last year - up 30.0% - but down 0.8% from 8,027 last month
Under Contract Listings (including Pending, CCBS & UCB): 10,152 versus 11,988 last year - up 23.9% - but down 0.4% from 12,630 last month
Monthly Sales: 10,385 versus 8,076 last year - up 28.6% - and up 29.2% from 8,039 last month
Monthly Average Sales Price per Sq. Ft.: $231.61 versus $186.61 last year - up 24.1% - and up 1.7% from $227.68 last month
Monthly Median Sales Price: $358,250 versus $301,000 last year - up 19.0% - and up 2.7% from $349,000 last month
The active listing counts are now so small that it makes a huge difference which day of the week you measure. Over the last week the maximum count (on Saturday) is 16% higher than the minimum (on Wednesday). In some locations there can be twice as many homes listed on Saturday as the following Wednesday. This means that comparisons of April 1 with March 1 can be misleading because it depends on the day of the week they happen to fall on.
What we can tell you for certain is that the active listing count was painfully small last month and this month it is no better. We would need to add about 24,000 active listings to get back to a normal level. Many of the younger agents working in Phoenix have never experienced a normal level of supply.
The monthly sales count for March 2020 was strong but the annual comparison with March 2020 is affected by the COVID-19 measures that started to bite in March last year. Between March and June last year the pending listing counts and under contract counts were dramatically lower than normal, which tends to obscure the fact that these counts in 2021 are also somewhat lower than we would normally expect. This is one of several signs that demand is starting to fall from the heights achieved in 4Q 2020.
Once borrowers start emerging from forbearance, we may see some degree of improvement to the abysmal supply shortage. However, indications from the lending industry suggest that any increase in supply will be tiny compared with the flood of distressed homes that hit the market between 2007 and 2013. We expect to see price rises slowing a little after June 2021, but there are currently no indications that a change in the direction of those prices is likely.
For Buyers: 44% of sales through the Arizona Regional MLS have closed over asking price in the last 30 days. The median amount over asking price for all price ranges combined is $10,000 with a range between $1 to $310,000. (I know what you’re thinking, “$1 over? What is this, ‘The Price is Right’?” In some cases, yes.) While 56% of all homes still sell for at or below list price, if you have a budget between $250K-$400K, the percentage selling over list is highest at 52% with the median amount over asking at $10,000. However even if your budget is over $400K, a significant percentage is closing over asking price. Up to $800K, 42% have sold over list with a median escalation of $12,000-$15,000. From $800K-$1M, 30% sold over list with a median escalation of $17,000-$20,000. From $1M-$2.5M, 20% sold over list with a median escalation of $30,000-$50,000. Over $2.5M, only 2 sold over asking price with a median escalation of $150,000. Over the past 6 weeks, REALTORS® have added an average of 2,059 new listings per week to the Arizona Regional MLS. During the same time period, an average of 2,312 contracts were accepted per week. This is what has caused the overall supply of homes to consistently drop and competition between buyers to escalate. While just over 2,000 new listings per week may seem like a lot, it’s actually the lowest rate for this time of year in at least 20 years. A normal level would be considered around 2,500 new listings.
For Sellers: While supply is still 77% below normal for this time of year and demand is 17% above normal, demand has been dropping faster than supply over the last 30 days. It’s not noticeable when one is in the midst of a contract negotiation today because sellers rarely notice when they’re getting, for example, only 15 offers instead of 25. But consider last December demand was 35% above normal; at this rate, demand could be at a normal level in a couple months and below normal by June. This will not cause prices to decline because there are still a miniscule number of competing listings in the MLS, but it could mean that the second half of 2021 could look different from the first, especially if there’s a temporary boost in new listings after the forbearance period ends and the foreclosure moratorium is lifted. The average mortgage rate rose to 3.02% this month according to Freddie Mac. Even though this is still considered an excellent rate, it understandably weakens the purchasing power for some buyers and reduces the affordability measure for Greater Phoenix overall. When a family making the median income can afford less than 60% of what’s selling, demand is typically expected to suffer. However, buyers with median incomes coming from Los Angeles and San Francisco are used to only affording 9-11% of what’s selling in their home towns, so Greater Phoenix prices look amazing by comparison. In fact, for some the idea of being able to own a home at all is amazing.
Here are the basics - the ARMLS numbers for March 1, 2021 compared with March 1, 2020 for all areas & types:
Active Listings (excluding UCB & CCBS): 4,491 versus 11,003 last year - down 59.2% - and down 13.3% from 5,180 last month
Active Listings (including UCB & CCBS): 9,094 versus 15,776 last year - down 42.4% - and down 6.5% compared with 9,727 last month
Pending Listings: 8,027 versus 7,215 last year - up 11.3% - and up 13.5% from 7,070 last month
Under Contract Listings (including Pending, CCBS & UCB): 12,630 versus 11,988 last year - up 5.4% - and up 8.7% from 11,617 last month
Monthly Sales: 8,020 versus 7,470 last year - up 7.4% - and up 9.1% from 7,354 last month
Monthly Average Sales Price per Sq. Ft.: $227.89 versus $185.09 last year - up 23.1% - and up 4.8% from $217.47 last month
Monthly Median Sales Price: $349,000 versus $295,000 last year - up 18.3% - and up 2.9% from $339,000 last month
In March 2020 we wrote that the lack of supply was making life extremely difficult for buyers. It is now down almost 60% since then. What phrase can we use to describe this - scorched earth?
The monthly sales count, pending listing counts and under contract counts are all higher than last year, but not by as much as last month. This confirms the downward trend in demand. Lower demand really does not make much difference when supply is this scarce. Even if demand dropped well below normal we would still have multiple offers for most listings.
Multiple offers are the mechanism that drives prices up. One offer per listing represents stability. No offers tends to drive prices down. We would need about 7 times the current supply to get back somewhere close to normality.
The full impact of the housing shortage is not being properly recognized, because many people incorrectly think the end of forbearance will bring a flood of distressed homes onto the market. We think this is very unlikely. While we can imagine a noticeable increase in supply taking place, it is very unlikely to reach the levels that would dramatically change the balance in the Greater Phoenix market. It is somewhat reminiscent of the "shadow inventory" theory of 2011 through 2013 which turned out to be a mirage, invented by a data analysis company that did not understand how to measure the foreclosure process properly. Their erroneous calculations were re-broadcast by the media and spread as if they were true. But it was all imaginary. There was no significant shadow inventory then and there is no huge wave of distressed homes waiting to hit the market now. Do not be taken in by these myths just because other people chose to believe them. Over the centuries many people have believed things that are now known to be false. It is still just as common today. In fact the internet and social media makes it even easier for falsehoods to become accepted as facts.
Many people also seem to have forgotten what really happened during the bursting of the housing bubble: The sequence is important.
The active listing supply increased dramatically between April 2005 and December 2006 due to over-building of new homes and the frantic speculative wave of 2004 quickly losing momentum
Prices started to fall from July 2006 onward due to supply becoming much stronger than demand
The fall in prices meant recent buyers had zero or negative equity from 2007 onwards, loosening their motivation to keep up their mortgage payments
Foreclosures started to be filed starting in 2007 against homes that were quickly abandoned due to the lack of equity
A huge wave of bank owned properties hit the market in 2008 and 2009, adding to the supply problem
The lack of equity meant many homes listed in 2008 through 2011 were short sales.
Investors pounced on the bank-owned homes and short sales from 2009 onwards, bringing the drop in prices to a complete halt by 2011
This is unlike the current situation. We have far too little supply, not far too much. Note that the excess supply in 2006 was the primary problem that burst the bubble. The foreclosures came later and were an effect, not a cause, of the bubble bursting.
This bears repeating - FORECLOSURES DID NOT CAUSE THE HOUSING CRASH - they were a consequence of the excess supply of 2006. Falling prices caused the foreclosures, not the other way round. It then became a negative feedback loop until prices fell low enough to attract speculators and investors back into the market in 2009. The housing crash was visible and inevitable by the fourth quarter of 2005, while foreclosure were still at normal levels.
In 2021, we are entering a period of extreme appreciation. We are measuring 23.1% using the monthly $/SF figure and this is quite mild compared with what we expect to see in 2 or 3 months time. The average price per square foot for closed listings rose almost 5% in just 4 weeks during February.
Dollar volume is at very high levels for the time of year, thanks to unit sales up 7.4% and pricing up 23.1% compared to a year ago, when the market was already at full steam ahead.
We expect to see dollar volume hit new records during the second quarter, along with all of the pricing metrics.
Median Sales Price Up 18%, Inventory Down 61% Luxury Sales Over $3M up 140%
For Buyers: Yes, it’s still a good time to buy. Is it fun? No.
Inventory is down 61% from this time last year and competition among buyers is steep. New listings are not keeping up with demand and the purchase experience can be stressful, disappointing and heartbreaking; but it’s a good time to buy.
The median sales price has risen 18% to $339,000 and the median monthly rental rate through the Arizona Regional MLS has also risen 18%. A 1,500-2,000 square foot home is roughly $1,600-$1,700 per month to purchase with 10% down while that same home rents at a median of $1,850 per month, up $250 over last year at this time. For those who would like to reduce and stabilize their monthly housing expense with a historically low 30-year fixed mortgage rate, it’s a good time to buy.
According to the National Association of Home Builders, a family making the median annual income of $72,300 in Greater Phoenix could afford 60.6% of what sold in the 4th Quarter of 2020. That rate has been steadily declining, but it’s still within the normal range of 60-75% for now. In San Francisco, the median sales price is $1,350,000 and a family making the median annual income of $130,900 can only afford 11% of what’s selling there. For those who can work from home and no longer need to live in the same expensive city as their employer, it’s a good time to buy.
Finally, it’s a good time to buy because Greater Phoenix is experiencing a housing shortage. Over the past decade a gap between the total number of housing units built and the total number of people to be housed has been growing wider and developers have not been able to bridge it. This is not something that will be solved this year, and probably not next year either. As affordability wanes, it’s a good time to stake your claim on a home while it’s still an option.
For Sellers: Brace yourself, the showings are coming. It’s not uncommon these days to see a stampede of buyers through a home within the first day or so on the market. It doesn’t matter the price range, all areas and types of homes are flying off the market and so far this month 37% of closings are over asking price.
The most impressive development has been in the luxury market. After California announced it was considering raising income and other taxes last summer, contracts over $1M surged in Greater Phoenix. So far in 2021, sales between $1M-$3M are up 102% and sales over $3M are up 140% over last year and there is little sign of a slow down.
Appreciation rates based on annual sales between $1M-$2M range between 5%-6.5% and 2%-5% over $2M. While the northeast cities of Paradise Valley and Scottsdale have long been associated with luxury real estate, Gilbert has emerged in the top 5 cities for sales over $1M in 2020.
Appreciation rates for homes sold below $600K range from 7%-11% annually and 5%-7% for sales between $600K-$1M.
Here are the basics - the ARMLS numbers for February 1, 2021 compared with February 1, 2020 for all areas & types:
Active Listings (excluding UCB & CCBS): 5,180 versus 11,974 last year - down 56.7% - and down 14.5% from 6,055 last month
Active Listings (including UCB & CCBS): 9,727 versus 16,035 last year - down 39.3% - and down 0.6% compared with 9,788 last month
Pending Listings: 7,070 versus 5,969 last year - up 18.4% - and up 15.2% from 6,135 last month
Under Contract Listings (including Pending, CCBS & UCB): 11,617 versus 10,030 last year - up 15.8% - and up 17.7% from 9,868 last month
Monthly Sales: 7,330 versus 6,464 last year - up 13.4% - but down 26.8% from 10,015 last month
Monthly Average Sales Price per Sq. Ft.: $217.59 versus $182.18 last year - up 19.4% - and up 2.9% from $211.50 last month
Monthly Median Sales Price: $339,000 versus $289,900 last year - up 16.9% - and up 2.1% from $332,000 last month
January is usually a very good month for new listings and overall supply tends to be stronger at the beginning of February than it was at the turn of the year. However 2021 has been completely different. New listings arrived in the weakest flow we have ever recorded and although demand subsided a bit, it was more than strong enough to soak up almost everything sellers could offer. Instead of rising, supply collapsed another 14.5% during January. This does not show up if we look at active listings including UCB and CCBS, because so many agents place listings into these statuses when a contract is signed, rather than the more traditional pending status. The vast majority of these "active" listings are not really being marketed and the signed contract will quickly proceed to closure. Having a listing subject to the buyer's property selling is not so much of an issue when selling that property is easier than falling off a log.
The supply situation is the worst we have ever recorded, lower than the first quarter of 2005, which used to hold the record. When supply is this low, it starts to drag demand numbers down with it. Sales volumes are limited by the number of homes for sale. Although they are still much higher than January 2020, sales counts and under contract counts are not growing as fast as normal. This is probably due to a combination of factors: higher interest rates, lack of supply and affordability concerns. Prices rose by almost 3% over the last month, so in theory demand should decline as prices increase. We will see how true that turns out to be as prices are set for extremely high rises over the next several months. The annual appreciation rate has already surpassed 19% and could easily reach 30% by the time we are well into the second quarter.
New home builders are trying as hard as they can to create more supply, but there are many physical, financial and legal limits to how quickly they can do this. These additional homes are sure to be priced well above the current level. In times like this the MLS data paints an incomplete picture because a much larger percentage of transactions never touch the MLS:
homes sold privately (usually to investors for flipping or conversion to rental)
new homes (only a small percentage of these get listed on the MLS)
We can use the county records to track total sales and pricing but this takes much longer to collate than using data from the MLS. You can see this more complete and accurate, but far less timely, data in the Cromford® Public section of this web site. It is now complete to the end of 2020. but it will be the end of February before January's data is fully checked and processed.
There is currently no indication that supply trends will improve and at the moment it looks like supply will drop further over the next 2 months. We would not be surprised to see demand continue to trend lower, but this will have little effect on prices. We already have far more buyers than the market can support. Our best guess is that the average price per sq. ft. will continue to rise at about 2% to 3% per month for the next several months.
2020 Broke the Record for Luxury Sales Supply Down 51%, Slim Pickings in 2021
For Buyers: There were 111,036 new listings added to the Arizona Regional MLS (ARMLS) in 2020, only 38 more than 2019, while 100,650 sold. As of January 10th, 2021 there were only 6,162 listings still active in the MLS, which is the lowest supply count recorded in at least 20 years. To make matters worse, 10% of those properties are outside of the Greater Phoenix boundary.
While the number of new listings barely changed last year, demand for homes accelerated between June and December to 35% above normal. Luxury sales over $1M soared after the pandemic restrictions were lifted. While they were already up 7.7% over 2019 at the end of June, by the end of December annual luxury sales were up 48.7%, securing an enormous record for 2020 at 2,575 sales over $1M.
Outside of the MLS, new home developers have been struggling to meet demand as well. Despite the road blocks in production due the pandemic, forest fires and supply line disruptions, as of November builders still managed to sell 14% more homes and obtain 28,204 more single family permits for future supply, up 24% over 2019. The median price of a new single family home only rose 6% from $333K to $353K and considering the median price of a resale home is $335K, that’s extremely competitive.
As supply began to drop last month, December saw 33% of sales closed over asking price and only 10% involved seller-paid closing costs in the 4th Quarter. Bottom line for buyers starting their search in 2021, be on top of your loan and be ready to pounce on every new listing that fits your needs. Many new listings will be on the market for less than a week prior to accepting a contract.
For Sellers: The state of Arizona ranked 3rd in the nation for population growth behind Texas and Florida in the latest 2020 Census release. When the full report comes out later this year, we expect to see California as the #1 source of inbound migration for Greater Phoenix. Moving companies such as Atlas, United Van Lines and North American have released their annual migration reports and 2 out of the 3 list Arizona in their Top 5 states for inbound moves. United Van Lines specifically cites “retirement” as the primary reason for 37% of inbound moves, 70% were over 55 years old and 63% made incomes over $100,000 per year.
While median home prices have risen 15.5% year-over-year, the median rental rates through ARMLS have also risen 12.9% from $1,550 to $1,750/month. This increase, combined with historically low mortgage rates, has fueled more demand to purchase.
As the population continues to grow, the housing gap is becoming harder to close. After a decade of underbuilding, this will take more than a few months or a year to correct. However as prices rise and affordability quickly drops, it’s reasonable to expect some demand to drop with it. With that expectation, home prices are still projected to rise throughout 2021 but possibly at a slower rate in the latter half of the year. It will be another great year for sellers.
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