6/17 Market Update
Cromford Market Index (CMI): The CMI is the best leading indicator available (balance is 100, above 100 is a seller’s market and below 100 is a buyer’s market. Prices rise at 110 and drop at 90). On March 20, the CMI peaked at 241, and yesterday it was at 176.7, up from the bottom of 145.2 we hit on May 15 and up nearly 14 points in the past seven days. I see a U-shaped recovery here:
Supply: Our local inventory started dropping on May 12 and has continued to decrease every day since. As of last week, our inventory is 49.5% below normal. In the past seven days, we have dropped just over 2%. At the rate we are going it will be very difficult to keep price appreciation under control.
Our new listings are dropping, demand is increasing, and prices are rising. Remember real estate trends in the Phoenix metro area are usually magnified. For example, during the 2008 market crash, nationally prices dropped about 20%, here they dropped 50-60%. While the rest of the country faces tightening inventory, we are facing something bigger. In March we had a 1.9% year over year drop in new listings, in April it was an 18.3% year over year drop, in May it was a 22.1% drop and June is on pace to be a 33% year over year drop. The market’s increasing demand and decreasing inventory are unsustainable.
Demand: Showing Time shares its physical showing request data. The requests peaked on February 22 and then immediately dropped by 63% through mid-April. As of Wednesday, we are 4.6% above February’s peak and only 0.9% below where we were last year. Our demand is running just under 11% below normal and increased by 4% in the past seven days. In April pending listings had a year over year decrease of 24.6% and in May it dropped to 18.4% year over year.
Mike Miedler, CEO of Century 21 explains why agents are in huge demand, he said, “Our value is as high as it’s ever been, and our communities need us more than ever.” Remember consumers have no idea what is happening in real estate. And they certainly do not realize the significant implications of our decreasing inventory.
Appreciation: Prices did not drop. There is no indication that they will, quite the opposite in fact. In the first nine days of June, 23% of all closings closed over asking price. For properties between $200,000-$250,000; 38% closed over asking. For properties between $250,000-$300,000; 27% closed over asking.
Fun fact, since 1945 home values have dropped only two times. One was a slight dip of 1% during the summer of 1992 and the other was 2008-2011.
Other Arizona News:
Another data center is coming to Phoenix. Stack Infrastructure purchased 79 acres and plans to develop a group of data centers with up to one million square feet. They selected Arizona due to our lower cost of power (well below the national average), are business-friendly, and have the vacant land available. Jessica Morin, director of market analytics for CoStar in Phoenix, wrote, “Phoenix has become one of the most active data center markets in the country, not only because of the vast consumer base but also due to Arizona's tax incentive for data center development, a robust and growing power grid, and limited occurrence of natural disasters.”
Unemployment & Spending:
The trend of declining new unemployment filings continued this week with (only) 1.5 million, bringing the total to roughly 44 million. Only 21.9 million are receiving benefits. Additionally, the Census Bureau disclosed that last week’s data had classification errors. After fixing the errors the actual unemployment rate in April was 19.7%, in May it dropped to 16.3%.
According to economist Elliot Eisenberg, “Hotel occupancy is up for the seventh straight week, albeit from a staggeringly depressed level. For the week ending 5/30/20, US hotels enjoyed (if you can call it that) an occupancy rate of 36.6%, pushing weekly demand to about 11 million room nights.”
Coresight Research, a global advisory and research firm specializing in retail and technology, estimates that more than 25,000 stores with a national footprint will close by the end of 2020. According to a monthly survey done by Alignable of over 400,000 small businesses nearly 3% report, they have permanently closed and 41% temporarily closed due to the pandemic.
- According to the National Multifamily Housing Council, apartment rent collections are reporting a 93% in tenant rent payment for May; far better than the roughly 50% of retail businesses making their rent payments.
- Demand for existing suburban commercial space is increasing as social distancing is easier to follow at arrival, departure, lines, and walking around inside the space.
- According to a study by LendingTree, 53% of future homebuyers have moved up their timelines and plan on purchasing in the next 12 months. For first time home buyers, it is 73% in the next 12 months.
- Homesnap does a monthly confidence metric. According to CEO, John Mazur, “We poll about 40,000 agents every month about the market,” he said. “In March we saw the biggest drop off we’ve ever seen, where only 18 percent said they were optimistic about the market. But in April, it went up to 25 percent, in May, up to 45 percent.”
- In 2019 Zillow purchased about 2.5% or 6,500 properties of the 264,000 instant offer requests received. Of the 257,000 that did not sell to Zillow, roughly 40% eventually sold through a Realtor.
- Like Opendoor and Offerpad, Zillow is returning to markets all over the country. Traffic to Zillow’s listings is up 51% year over year and their pending sales are up 24.5% month over month.
- According to Adam Weiner, Redfin’s chief growth officer, “Rising prices and the freedom to work from home are causing buyers to reconsider their options. Pageviews on Redfin.com for cities under 50,000 people and rural areas are growing 5x faster than pageviews for cities with more than one million people.”
Other Real Estate News:
- According to Matterport CEO, Robin Daniels, iBuyers hardly ever ask for a virtual tour, however including one often results in listings selling 20% faster and for 9% more, on average. Additionally, having these reduces the number of potential buyers physically in a property as the buyers are better equipped to make decisions based on information provided online.
- Real estate experts are encouraging listing agents to use floorplans. Check out BoxBrownie or the Magic Plan App for options.
- Venture capital money is still flowing into real estate tech. In 2016 about $2 billion was invested. In 2019 it was $32 billion. Despite real estate making up 17% of the GDP (it went up) real estate tech accounts for only 4% of venture capital investments.
- Wire fraud is on the rise again with many more attempts. Stay focused this is still a major threat to buyers and sellers.
- At the end of last week, Realogy announced it was looking to raise $400 million, the exact amount of the recently canceled Cartus sale. Cartus is Realogy’s relocation company. On Tuesday, in a filing with the SEC, they announced that due to greater demand than anticipated they actually raised $550 million.
- As of the week ending on June 2, we saw the first decline in new forbearance requests since the CARES Act went into effect. Roughly 8.9% of mortgage loans are currently in forbearance.
- The Fed announced that they are keeping rates as-is for the foreseeable future, up to 3 years. Dr. Lawrence Yun, Chief Economist for NAR said, “It is also very likely that the Fed will be aggressively purchasing mortgage-backed securities behind the scenes. That (also) means mortgage rates will be at or near 3 percent and near record lows for an extended time.”
- This week the nation’s largest co-living community opened in Fort Lauderdale with 639 units, definitely less than optimal timing.
- Q1 2020 home flipping hit a 14 year high, up 7.3% year over year, while returns bottomed at a 9 year low.
- In July 2019 Realogy filed a lawsuit against Compass for illegal recruiting and unfair business practices. Compass’s motion to settle through arbitration was denied earlier this week.
- Among the most expensive real estate markets in the country, the Bay Area is already realizing the impact of the new, more permanent work from home options. The managing partner of a company that owns several large multi-family communities said, "We’re seeing an uptick in tenants who are paying the breakage to get out of leases and relocate. There's a lot of them moving out of state."
- Team-based real estate has been gaining speed over the past several years. Today, as the concept of home is more important than ever, it is about the human element and connecting with people where they are. It is very difficult for individual agents to compete with teams who are better able to keep up with consumer demand. The trends are showing the team model, meaning 2+ agents, are gaining market share and connecting with clients in a more significant way.
This is the time to work hard, communicate with your clients, let them know what is really happening, listen to their needs, and respond accordingly.
225 E. Germann Rd #130
Gilbert, AZ 85297
Million Dollar Club Member
2017 Arizona Journal of Real Estate & Business Title Representative of the Year