1/11 AZ Market Update
“Buy land, they’re not making it anymore.” ~Mark Twain
“Econ 101 taught us about supply and demand. To measure the health of the real estate market we look at new listings AKA supply, and new pendings AKA demand. When demand out paces supply, prices go up. This has been good news for a lot of sellers over the past several weeks. However, we are moving closer and closer to running out of houses to sell.”-
Last week there were fewer than 5300 active listings. That is a 40% decline in 18 months. We haven’t run out yet, but this is the closest we have gotten.
Despite many real estate experts believing that things will normalize in 2022, the numbers are telling a very different story. Demand continues to outpace supply.
National Real Estate:
Inventory: 2022 started with record-low supply. There are only 294,000 available single family homes in the country, which is a 10% drop in the last week and a 33% drop from this year’s peak in early September.
If demand drops off, we are still at a record low supply. Forbearance will/did not bring any inventory relief. That was a very successful program that kept many people in their homes when they may have otherwise had to sell. There is no foreclosure wave coming and the new builds are being absorbed as quickly as they are being released.
Typically, inventory grows early in the year. In January and February, 2020 supply started increasing before it started falling and we didn’t see any increase in supply until May 2021. Homes were coming to market and selling immediately so supply could not increase.
We do not know if supply will hit the normal low in January (essentially now) or if demand will keep things moving until April or May again. Does the hot market entice sellers to take advantage of their equity? Will the assumption of mortgage rates increasing drive owners to sell sooner? The question is, will inventory bottom out at 300,000 in January or decline to 200,000 in April? We will know the answer soon.
Inventory has been falling for a decade and mortgage rates are low. It has been a really good time to be a homeowner. And with rates this low, many sellers are keeping their previous home as a rental. This is a big reason for the continuously falling inventory levels.
“Investors accounted for more than 18% of U.S. home purchases, a record. Low interest rates and a persistent shortage of affordable properties have pushed investors to stomach higher prices as they bank on rent growth and price appreciation.”
-PATRICK CLARK, BLOOMBERG
In an inflationary economy, assets are more valuable than cash due to an asset's ability to appreciate while cash depreciates. Inflation of this magnitude hasn’t been seen in 40 years. This implies 2022 will face new lows in available inventory.
The best way to track the level of demand is with immediate sales. Since June about 25% of new listings sold within the first 24 hours of going active. Two weeks ago, it actually increased to 33%. About 60,000 new listings hit the market two weeks ago and over 18,000 went pending in less than 24 hours. The data is not showing any signals of slowing.
Experts are still hoping for a calmer, slower 2022 but there are no indications of that at this point.
- Buyer demand increased in December and was 84% higher than normal pre-pandemic December demand, nationally and locally in Phoenix.
- A recent headline reads, “Home Inventory Hits All Time Low: Fewer homes were available in November than in any period on record, driving prices 15% higher than last year, Redfin reports”.
- In November inventory was down 13.3% year over year and 9.8% month over month!
- There were about 15 million refinances closed in 2020 and 2021. Low rates often keep owners in homes.
Yet despite the evidence, forecasted home price appreciation for 2022 is oddly low. We expect these numbers to be revised up:
The AZ Market:
The median sales price in December reached $425,000. Resale homes appreciated 28% in 2021 and 297% in ten years.
New homes appreciated 26% in 2021.
About 30,000 single family permits were issued in 2021. In 2005 there were about 60,000 issued.
With the 90,000 new jobs created in 2021 and the 120,000 expected in 2022 further growth is anticipated along with consistent demand.
Luxury Real Estate:
Real Estate News:
Greater Phoenix had more resale closings in 2021 than in any other year, beating out 2005. Nationally, it was the biggest selling year since 2006. That happened despite a still raging pandemic, iBuyer sloppiness, political unrest, supply and labor shortages, massive inflation, high (but dropping) unemployment, and virtual learning. That is very impressive and also explains why 2022 will be anything but normal (no matter how desirable that sounds).
DIRECTOR OF SALES