9/30 Market Update
As we approach the 4th quarter new and/or updated projections for the coming year are emerging. Politics aside, nothing about 2020 has been predictable; economists and analysts struggle to make sense of it all.
“The US economy and labor market are recovering from the coronavirus-related downturn more quickly than previously expected, economists said in a monthly survey. Business and academic economists polled by the Wall Street Journal expect gross domestic product to increase an annualized rate of 23.9% in the third quarter. That is up sharply from an expectation of an 18.3% growth rate in the previous survey.”
-Harriet Tory, Wall Street Journal
National Real Estate:
- In August resale home sales increased 10.5% year over year with the most sales since 2006. It was the 102nd straight month of annual gains. (NAR)
- New homes crossed the one million sales threshold in August, the first time since 2006. (US Census Bureau)
“Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market. Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3 percent and with continued job recovery.”
-Dr. Lawrence Yun, NAR Chief Economist
- Lumber shortages due to mill closures and massive wildfires have driven up prices 170%, adding, on average, $16,000 to the cost of a single-family new build. (NAHB)
- Given the unexpected, continued demand, despite high unemployment rates, major real estate companies adjusted their future price projections significantly. Zillow initially predicted a 3% decrease in home prices and now is predicting a 3.6% increase. Corelogic the outlier from the start went from a 6.6% decrease to a 0.6% increase. (They must have missed the 17% appreciation in greater Phoenix!)
The AZ Market:
Cromford Market Index (CMI): Is the best leading indicator available (balance is 100, above 100 is a seller’s market, below 100 is a buyer’s market, prices rise at 110, and drop at 90). Last week it was 347.6, way above the pre-COVID peak of 241 and over 200 points above the 145.2 we hit on May 15. The past 7 days saw a 2.5 point increase, a far cry from the 20 point increases we saw in June.
Supply: Inventory has actually, slightly, increased, but it is easy to miss since it is absorbed so quickly. As of last week, our inventory is 64.0% below normal which is actually up 0.1%! Active listings excluding under contract accepting backups (UCB) remain around 8,100 (we should have 25,000) down 42% year over year and down over 2.5% month over month. This is the time of year when we typically see inventory increases.
New build permits were up 25.3% in August, year over year and up 11.9% year to date. (RL Brown)
Demand: Pending sales up 23% year over year, huge despite our low inventory and time of year. Our demand is over 25% above normal. After demand increases began to slow, it has started increasing a little faster again.
Sales & Prices: In August, 35% of homes closed over asking price. Phoenix metro area closed sales are up nearly 19% year over year. The median sales price is $325,000, up 16% year over year. Healthy appreciation is 3% annually.
Commercial Real Estate:
- With an affordable home shortage of 7 million, mobile home parks continue to be one of the best performing real estate investments and are often considered recession-proof. There are roughly 45,000 parks nationwide. On average they bring a 4% annual rate of return and have low vacancy rates of 4%-6%. (Inman)
- Startup, Civvl, is a new company created to “connect landlords with gig workers to help with evictions.” The legality is questionable particularly given the CDC’s eviction moratorium. Several tenants’ rights groups have raised concerns as well. (Bisnow)
- There are roughly 48 million rental units nationwide and The Urban Institute estimates it would cost about $16 billion a month to directly support tenants, which by default would support their landlords.
- New lawsuits have been filed against the CDC stating that the federal government has overstepped its authority with the nationwide eviction moratorium. (Rose Law Group)
Zillow announced on Wednesday that it is changing the structure of its’ iBuyer, Zillow Offers. Soon its’ iBuyer purchases and sales will be handled by a licensed, salaried, Zillow employee.
This change will take effect in January 2021 in Atlanta, Phoenix, and Tucson with other markets to follow. All properties for sale will be listed on the local MLS which means that Zillow Homes, the brokerage, and its agents are members of NAR. Zillow Offers currently operates in 25 markets nationwide.
Combined with Zillow’s mortgage company, Zillow Home Loans, and title company, Zillow Closing Services, Zillow can now offer a complete end to end transaction.
Zillow maintains its stance that it does not want to represent buyers and sellers outside of properties it does not own or purchase directly. Although many believe this is Zillow’s soft launch into traditional real estate.
Unlike Opendoor and Offerpad who both now offer listing services, Zillow will continue working with its partner Realtors, non Zillow agent-employees, in referring the sellers of properties not purchased by the iBuyer. Zillow Offers currently purchases about 2% of all seller inquiries.
Given Zillow Homes’ local MLS membership, Zillow will be adjusting its previous data feeds, which currently come from around 10,000 agreements, to come through a direct IDX feed. This will allow it complete access of current listing information and roughly 600 data feeds to manage. This is a game-changer for Zillow. Not only does this reduce data costs, it will improve accuracy, timeliness, and provides the ability for far more detailed data aggregation. It will have the ability to have the accuracy of Redfin for its 200 million monthly unique visitors. Web traffic and effective data aggregation are what built giants like Facebook, Amazon, and Google.
The IDX feed may impact the brokerages who currently do not syndicate to Zillow.
The appearance of listings on Zillow will be subject to the local MLS regulations. Buyer’s agents contact information will now be shown separately from the listing agent’s information. Premier Agents will see some changes in customer-facing advertising but not in lead flow.
Zillow and Trulia will be discontinuing their “featured listings” option.
Deutsche Bank, one of the world’s leading financial services providers and international investment banks, for the second month in a row upgraded Zillow’s stock price, this time due to Opendoor’s recent announcement of going public. The bank believes that Opendoor’s movement will draw further attention to iBuying thus driving more business to Opendoor and its biggest competitor in the iBuying space, Zillow Offers, meaning more business for Zillow Homes and its agents. As they say, “a rising tide lifts all boats.”
The research analysts said, “We see Zillow’s conversion to a more formal brokerage model as it relates to sales of Zillow Offers (ZO) homes in several markets as a natural evolution to improve unit economics in ZO and vertically integrate to better control the user experience and cross sell other Zillow products.”
The bank sees this as a positive financial move for Zillow, furthering the separation from being a media company to becoming a portal with significantly greater earning potential.
Real Estate News:
- United Wholesale Mortgage (UWM) plans to go public in Q42020 via a special purpose acquisition company (SPAC) or blank check company. Gores Holdings IV is already publicly traded and will merge with UWM. The valuation is estimated to reach $16.1 billion, which makes this the largest SPAC deal ever. (Wall Street Journal)
- LoanDepot is considering an IPO with a potential valuation of $12-$15 billion, which could happen as early as Q42020. (Bloomberg)
- 28.7% of Redfin’s users looked to move to another area, up from 27.4%, and is the highest percentage yet. Sacramento, Austin, and Phoenix topped the charts for destination cities; affordability being one the biggest drivers.
Mortgage & Forbearance:
- Mortgage applications increased last week by 6.8% from the previous week. 64.3% of those applications were for refinances, up from 62.8% last week. (MBA)
- Total loans in forbearance dropped to 6.93%, down from 7.01% last week, continuing the 5 month decline. Roughly 3.5 million loans are in forbearance programs. (MBA)
- Roughly 680,000 homeowners are late on their mortgage and are eligible for a forbearance plan but are not in a forbearance plan. A recent survey shows the lack of participation is due to confusion, fear, and lack of awareness of such options. (Wall Street Journal)
- The CFPB, FHFA, HUD, VA and USDA created a joint effort mortgage and rental assistance platform, for more information visit https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/
You may hear about 25-30 million unemployed Americans. There is a variety of unemployment categories; these are the biggest ones from yesterday’s report. Despite the slowing of these drops, most of these are going in the right direction. (US Department of Labor)
- Initial unemployment claims
-National: 870,000 an increase of 4,000 from the previous week.
-Arizona: 10,015 a decrease of 1,328 from the previous week.
- Continuing unemployment claims
-National: 12,580,000 a decrease of 167,000 from previous week.
-Arizona: 194,479 a decrease of 5,705 from the previous week.
- There were 630,080 initial claims for Pandemic Unemployment Assistance which provides unemployment benefits to independent contractors who otherwise are not eligible for regular benefits. A decrease of 45,074 from the previous week.
- There were 11,510,888 continuing claims for Pandemic Unemployment Assistance. A decrease of nearly 3 million from the previous week.
Greater Phoenix continues to be the best performing job market in the country for 2020. Arizona is #3 for best-performing state job market, behind Utah and Idaho. (Elliott Pollack)
An unemployment rate of 4.1%-4.7% is considered full employment. The US Bureau of Labor Statistics and Wall Street Journal survey of economists projects 2023 to be the year we get back to being, at least close to full employment. (KCM)
Big money keeps getting bigger with sky-high valuations and it is coming after real estate, that isn’t new, but the volume of capital is. Expect demand to continue to be strong, as long as rates stay low. And hopefullly in the not too distant future, more homeowners will realize how much equity they are sitting on and will be inspired to list bringing up inventory levels and providing buyers more options.
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