Market Summary for the Beginning of March
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.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2020 Cromford Associates LLC and Tamboer Consulting LLC
If you, or anyone you know, is looking to buy or sell, Please let me know!
Troy Holland
Cell: 480-773-5792
Email: Troy@Sell4Free-AZ.com
Web: www.FlatFee-NoFee.com
Raving Fans: Client Reviews Here
