6/15 Market Update
While today’s residential real estate market remains unhealthy (remember when 10% appreciation was a lot?), initial progress has been made. Prices are leveling off, supply is increasing, and immediate sales are declining. This is good for buyers, especially first-time homebuyers, who are the key to the real estate market. Without them, the machine stops.
National Real Estate:
Pending home sales declined by 4.4% in April from March but were up 51.7% year over year (keep in mind April of 2020 was not a big month for contract signings). Low supply and fast-rising prices are blamed for the decline.
“Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes. The upper-end market is still moving sharply as inventory is more plentiful there.”
-DR. LAWRENCE YUN, NAR’S CHIEF ECONOMIST
Another potential correlation is the decline in personal savings rates, which dropped from 27.7% in March to 14.9% in April. People are spending more on services and entertainment as the economy reopens. Last year’s closures allowed people to accrue a down payment much more quickly than in the past.
While pending sales do not tell the whole story, they are a leading indicator and help us gauge where the market is going.
51% of homes sold above asking price in May. Last May it was only 26%. As more inventory comes on the market, these numbers will fall and appreciation will slow, which is good for the overall health of the market.
In a balanced market, about 30% of listings take a price cut before they sell. In hot markets, it is about 25%. Today, we are at 17.1%. This number is ticking up each week from a low of about 8%. The insanity of the pandemic market is calming down and starting to normalize showing we are not in a bubble market.
According to a recent report from Black Knight, the annual rate of home price growth hit 14.8%. The top five markets with the biggest growth are (1) Austin at 24.9%, (2) Phoenix at 24.4%, (3) Riverside at 22.3%, (4) Seattle at 20.8%, and (5) Sacramento at 20.8%. These levels of appreciation are not sustainable and are nearing the tipping point where affordability issues will slow the appreciation.
Active single-family listings increased again by about 2,500 to nearly 330,000. Inventory is up 7% from the April 30 bottom but remains 53% lower than this time last year. There still are more buyers than sellers.
Three weeks ago, just over 29,500 listings sold in less than 24 hours. This week it was just over 23,000. Homes are staying active slightly longer than before.
The AZ Market:
For a deep dive into the Greater Phoenix market, join us on June 22 for a Cromford Market Update with Tina Tamboer. https://zoom.us/meeting/register/tJUvdOmorzkrE9FhcCsztqz-BJkIUEHSqhHc
58% of homes sold above asking price in May in Greater Phoenix, so far in June that number is 62%. In the past 30 days pending sales have declined by 5%, inventory is up 6%, and price reductions are up 23%. On Monday, Elliott Pollack & Company wrote a great explanation about what this means.
He wrote: “For about 22 consecutive months, Maricopa County has led the nation in housing price appreciation. In the last year, prices are up somewhere around 20% according to several sources. The Information Market suggests that prices for May 2021 are up 43% since May 2019. And in May of this year, the median sale price of a resale home surpassed the median price of a new home, something that is rarely seen. Prices are rising due to (1) limited for-sale inventory and (2) demand as Greater Phoenix continues to see in-migration.
So are we in a bubble? A bubble is typically driven by a surge in asset prices that is fueled by irrational behavior and disconnected from fundamentals. By that measure, what is happening in housing today is the opposite of a bubble and should help drive the economy. While the impact of the Great Recession and the collapse of the housing market is still a fresh memory, the damage to the economy was from the subprime mortgage fiasco. There is little evidence today that lending standards are anywhere near those of 2004 through 2007.
Some observers believe that it will be quite a while before supply overwhelms demand. The demographics of the population provide a huge tailwind for housing. The key is Millennials and those behind them. They make up the bulk of first-time homebuyers and their numbers will keep growing over the next decade.
The hot housing market will eventually cool as supply catches up to demand. But in no way does this runup in the market suggest that a bubble has formed similar to what we saw 15 years ago. The age of high-risk derivatives is gone as financial regulations have prevented a repeat performance. Rather this market is built on a solid foundation of a homeowner’s ability to pay a mortgage. We just need more housing.”
According to economist, Elliot Eisenberg there are two types of inflation currently impacting the US economy. Base-effect inflation measures declining prices which we had a year ago so the year-over-year numbers are large. This inflation should settle down by the end of 2021. Bottleneck inflation is based on current shortages both in supply chain and labor and shows up as month-over-month inflation. This is the inflation to watch today.
After two months of missing the expected job numbers, the data suggests that the supercharged economic recovery may be a little bumpier than initially anticipated.
“This is also a great time to remember that it is much easier to shut down an economy than it is to open one back up and we are still experiencing the pain and effects from government actions over a year ago.”
Only 559,000 jobs were added in May, 671,000 were expected, bringing the unemployment rate down to 5.8%, a year ago it was 14.8%. There are currently 8 million job openings and 9.3 million people unemployed in all categories.
The lackluster job reports reduced pressure on the Federal Reserve to taper its $40 billion monthly mortgage-backed securities buying program. When to begin the tapering will likely be discussed at the upcoming Federal Open Market Committee meeting on June 15-16. Experts believe it will be late this year or early next year and when the tapering begins mortgage interest rates will rise.
“The decrease in initial claims for unemployment insurance in recent weeks, the continued robust demand for workers as shown by the high level of job openings, and other data showing increasing economic activity, point to more hiring over the summer. MBA is sticking with our forecast of a 4.5% unemployment rate by the end of the year.”
– MIKE FRATANTONI, SENIOR VICE PRESIDENT AND CHIEF ECONOMIST FOR THE MBA
Real Estate News:
- Offerpad may be the first major iBuyer to become profitable. In Q1 2021 Opendoor’s net loss was $270 million or nearly $13,000 per home, Zillow Offers’ net loss was $58 million or about $30,000 per home, while Offerpad’s net loss was only $233,000 or $229 per home.
- Earlier this week the DOJ announced that it had tracked down 63.7 of the 75 Bitcoins Colonial Pipeline paid ransomware hackers, illustrating that cryptocurrency is trackable. Could this lead to an increase in legitimate, large-scale transactions – like buying real estate – using cryptocurrency? Potentially.
- President Biden recently announced the Neighborhood Homes Tax Credit which would incentivize the rehabbing of outdated homes.
- Zillow found that properties listed on Thursdays (already the biggest listing day of the week) usually sell for more and spend less time on the market.
- Early this week, construction startup Katerra filed for bankruptcy. It is the second Softbank-backed company to shut down this year.
- In Q1 2021, new home sales made up about 25% of all single family home sales, a record high.
- Local builder, Blanford Homes beat out Pulte, DR Horton, and First American Trust for 373 acres of State Trust Land in Ahwatukee.
- The Taiwan Semiconductor Manufacturing Company broke ground on its $12 billion manufacturing complex and is on track for production to start in 2024.
Sam Khater, Freddie Mac’s chief economist said, “The economy is recovering remarkably fast as pandemic restrictions continue to lift, economic growth will remain strong over the coming months. Despite the stronger economy, the housing market is experiencing a slowdown in purchase application activity due to modestly higher mortgage rates. However, it has yet to translate into a weaker home price trajectory because the shortage of inventory continues to cause pricing to remain elevated.”
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