2/2 Market Update
The frequency in which we are asked, “Is real estate headed for a crash?” seems to be increasing. Given the enormity of uncertainty we have lived with for nearly a year, the question isn’t surprising. Things are going well in real estate and with the limited good news, it is easy to wonder when the other shoe will drop.
Research professor, Dr. Brene Brown, calls this forboding joy and defines it as “we are terrified that joy (or a strong housing market) will be taken away from us so we push it away. We beat the pain to the punch. As a result, we don’t fully experience joy and all that it has to offer. We limit our joy.” The pain of the 2008 market crash is still very raw for real estate professionals and consumers alike.
The headlines and talking heads do not help our human tendencies towards negativity bias and conformation bias. Consumer sentiment drives our decisions which are then reflected in everything we buy from toothpaste to houses.
National Real Estate:
- Inventory dropped to the lowest level since NAR began tracking in 1982.
- Demand continues to outpace supply. We are now down to about 380,000 single family active listings nationwide, a drop of about 9,000 listings. Despite the drop in active listings, about 48,000 new listings hit the market last week, down from a year ago, but up from a week ago. This shows how quickly things are selling.
- The current market data is somewhat distorted because so many listings are going from coming soon status, which is not trackable, to pending status completely skipping active status altogether. This means there are actually more listings than the data shows. This is true on the national and local levels.
- It is official, 2020 had 5.54 million existing home sales, exceeding 2019 by 5.9%! That is more sales than we have had since 2006.
- If we had more inventory, economists believe we could have had upwards of 7 million sales.
- December’s resale closings were up 0.7% from November and up 22.2% from December 2019.
- Median sales price increased by about 13% in 2020.
- December marked the 106th straight month of annual price increases.
“Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic. What’s even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market.”
-Dr. Lawrence Yun, Chief Economist for NAR
- Patrick Kearns of Inman wrote, “The inventory and affordability challenges have led to disproportionate growth in higher-priced tiers, according to Joel Kan, the associate vice president of economics and industry forecasting at the Mortgage Bankers Association. December average loan sizes were the highest ever recorded in the company’s weekly market survey.”
- The appreciation is putting pressure on affordability, significantly impacting first time home buyers, who make up one-third of all sales.
- Listing price increases used to be unusual but look at this. Often a sign of fix and flippers; increases usually have a normal seasonal cycle. Demand increases then prices increase. It is usually only a few percentage points but now we are at a much higher level.
- February and March sales prices will be way up due to today’s increased listing prices.
- Also illustrates how sensitive the market is to interest rates.
Builder confidence did drop slightly in January to 83, its highest point in 14 years. Anything above 50 means favorable market conditions. Builders are faced with increased lumber costs, labor shortages, upward price pressures, and COVID. In the face of so many obstacles, the fact that confidence is so high is incredible.
The AZ Market:
In Greater Phoenix, there are fewer than 3,200 single family active listings and only 4,500 total active listings. That is down about 300 from last week and down 42% year over year.
Listings are down while pending sales are up 13% year over year and closings are up 28% year over year. This translates to inventory being 76% below normal while demand is 28% above normal. A true supply and demand imbalance benefiting home sellers over homebuyers.
Elliott Pollack wrote, “Greater Phoenix saw increases for permits and new home sales while resales held their own with small contraction according to RL Brown. For the year, new home sales were up 21.3%, permits 13%, and resales were down 0.2%. Looking at the December data, the median sales price for resales and new home sales increased 18.4% and 2.0%, respectively. Again the lack of resale supply continued to push prices higher in the metro.”
CBRE’s US Development Opportunity Index evaluates the top 50 largest cities by population based on four metrics: 1. Construction costs, 2. Fundamental strength of existing supply, 3. Prior cycle performance, and 4. Property forecast. Phoenix ranked second for office and multifamily development opportunities, third for industrial, and 15th for retail.
Ivy Zelman of Zelman & Associates, discussed the Great American Shuffle when she said, “From 2010 to 2020, the top ten states have grown substantially faster than the United States as a whole and, frankly, builders have been a big beneficiary of this because there is actually space and ability to develop land in these markets.”
Arizona saw an 18% increase in household growth from 2010-2020.
Delinquencies, Forbearance, and Foreclosures:
The forbearance numbers remain relatively flat with about 2.7 million borrowers in a plan. About 44% of borrowers who exited their forbearance plan are either caught up or never missed a payment. 13.4% of borrowers exiting their forbearance plan do so without a loss mitigation plan in place.
Keep in mind not everyone who is delinquent on their payments are in forbearance. According to Black Knight, after seven straight months of declines, at the end of December, there were about 3.4 million loans in delinquency or 6.08%, the lowest level since April. Loans that are seriously delinquent declined from 2.19 million to 2.15 million.
The biggest unknown we are facing is the impact of the eviction and foreclosure moratoriums. They are set to expire on March 31st. The proposed $1.9 trillion stimulus includes extending both through September 30th. While it provides relief to those who need it now; it also kicks the can down the road and doesn’t provide a real solution.
- It is completely normal to have weekly ups and downs when tracking mortgage applications, the year over year data is what shows overall trends. One week to the next is too volatile.
- Despite the headlines, demand remains strong. Purchase loan applications are up 16% year over year.
- Refinance applications are up 83% year over year.
“Although mortgage rates are projected to increase, they will continue to hover near record lows at around 3 percent. Moreover, expect economic conditions to improve with additional stimulus forthcoming and vaccine distribution already underway.”
-Dr. Lawrence Yun
Ivy Zelman also discussed the biggest challenge facing today’s market, the low inventory. There are not enough homes available to satisfy the demand in the market. Based on history, the imbalance protects the housing market from dips during tough economic times.
After the 5.3% increase in sales from 2019 to 2020; Zillow predicts that 2021 will see an increase of 21.1% in sales over 2020. Zillow predicts 6.82 million existing-home sales in 2021, roughly the same number of sales as 2005.
Based on today’s data; there is no indication of a crash or even a fender bender.
“When I think about the 2020 housing market, the big take-home is not the V-shape recovery in many of the housing metrics or even the hotter-than-expected price growth. The big take-home is that 2020, despite the COVID crisis, began a period in our country (the years 2020-2024) when we have both the best housing demographics ever combined with mortgage rates low enough to keep housing stable for years to come.”
-Logan Mohtashami, Lead Economic Analyst for HousingWire
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