14 minute read
Real Estate
Left: This 3,879-square-foot house on S. Oregon Court in Sun Lakes recently sold for $1.12 million. Built in 2007, the two-story home has fi ve bedrooms and three baths and boasts of a number of features including a loft with a balcony, swimming pool and gourmet kitchen. The sale price was about $50,000 over the listing price. Right: This home on S. Welch Place in Chandler’s Arden Park neighborhood recently sold for $1 million. The 4,765-square-foot, two-story home was built in 2002 and has fi ve bedrooms and three baths.
(Special to SanTan Sun News)
Valley analyst sees ‘precarious’ times for home buyers, sellers
BY PAUL MARYNIAK
Executive Editor
Driven by iBuyers and investors that are gobbling up substantial numbers of houses, Valley home buyers and sellers may be entering a disquieting and even “precarious” period while renters are facing a continuing rise in rents, judging by the latest observations by a leading analyst of the Phoenix Metro market.
The Cromford Report outlined a series of trends from August sales and listings that likely won’t bring many smiles to anyone but landlords.
“Many surprising changes have occurred in the market over the past month,” Cromford said as it reported that the average sale price per square foot soared by 27.9 percent between August 2019 and last month, up from $194.97 to $249.31.
That’s pushed up the monthly median sales price in the same time period by 23.4 percent, from $325 to $401,000.
Several developments in August caught the Cromford Report’s eye, particularly a decline in new listings that appears to have been driven by a spending spree by large investors and iBuyers. “Ordinary home buyers are losing some of their motivation, thanks to prices that are vastly higher than last year,” Cromford said. “Despite low interest rates, aff ordability has slipped below the normal range for Greater Phoenix.”
The report stated, “If it were not for the activity of investors and iBuyers – and particularly the latter – the market would have cooled during August. This
would have been following the trend established since April.
“However, iBuyers have purchased so many homes over the last month that they are signifi cantly distorting the market dynamics. These homes are mostly going to be re-marketed shortly, so they will almost certainly increase supply over the coming weeks.”
However, it also predicted, “Prices have been pretty fl at for the past 3 months, but are likely to rise once more during the fourth quarter.”
Cromford noted, “iBuyers have made off ers well in excess of the pricing that we saw from them” in the fi rst half of 2021. He said it is unclear how iBuyers will price their homes once they return
them to the market because “normal buyers no longer have the appetite” they showed through June 2021.
“Achieving sale prices well over cost could prove quite tricky” for the iBuyers, it suggested.
Cromford noted that iBuyers purchased about 2,850 homes over the last three months, which “represents almost 9 percent of resale purchases.”
The iBuyer and investor buying spree has sharply impacted the availability of resale homes, it said.
“We can see that the iBuyers (particularly Opendoor and Zillow) have increased their inventory massively,” the Cromford Report said. “If iBuyers had not done this, we estimate that supply would al-ready be higher by some 1,800 listings…We conclude that pricing would also be weaker without their intervention. This begs the question: what happens if they stop buying on this massive scale?”
“Investors, too, can decide to stop their buying spree at a moment’s notice. The market is therefore more precarious than if demand were primarily growing through owner-occupiers.”
Investors dominated the Valley housing market in August, the Cromford report as “demand has shifted away from owner-occupiers of primary residences towards landlords, investors, fi x-and-fl ips and second homes.” It cited data showing:
Sales of homes intended to be primary residences are down 14 percent;
Sales of homes intended to be rented are up 97 percent;
Sales of home intended to be secondary residences are up 98 percent.
The news is a lot happier for investors that rent out – and not so hot for their tenants, judging by the Cromford Report’s fi ndings.
“Investors intending to rent out their properties are a diff erent matter and the rapid rise in rents over the past year has justifi ed them splashing out,” it said. “Indeed, far more homes are going from iBuyers straight to the rental operators than we saw prior to July 2021. This takes homes off the re-sale market for a long time and reduces supply.”
It also noted “large scale investors with deep pockets are crowding out smaller investors.”
“We have seen larger buying sprees from investors before, notably between 2011 and 2013,” it continued. “However we have never seen iBuyers so determined to increase their top line.”
The average rental price per square foot has increased from $1 per square foot to $1.36 in the past two years, Cromford said.
“That is a 36 percent increase in just two years and must be a budget problem for tens of thousands of tenants,” it said, noting rents increased by 28 percent in the previous 18-year period.
“The cost of renting has escalated over a very short period,” Cromford said. “The housing bubble of 2004-2008 saw little to no rise in rents and in fact the low point was 64 cents in February 2005, just as the for-sale market was reaching its highest frenzy. This time is very diff erent, showing that the rapid appreciation in home values is due to real shortage of housing rather than speculative activity based on easy money.”
However, Cromford also noted that all housing costs are soaring in the Valley.
“Although the cost of renting has jumped 36 percent over two years, the average home price per square foot has increased by far more – from $169.26 to $262.21, a jump of 55 percent,” it said.
– The Cromford Report
TAKE YOUR HOME FROM Drab TO Fab!
Joel Terrill
NMLS #255385 602.430.0835 joelterrill.com
Hyper-local info on homes requires an expert
BY SARA GOLDEN
Guest Writer
With the advent of commercial flights to outer space, what we have viewed as rapid travel will change exponentially. The term need for speed will take on new meaning. Our definition of normal will be recalibrated. This is in essence what is happening to our housing market. Our previous definition of hot market has gain warp factor speed. Enough about space adventures.
The #1 question we are asked is should I wait to buy a home until prices drop. The term “buyers’ market” seems like a more comfortable place to purchase. While contrary to popular wisdom, purchasing in a sellers’ market is the correct answer.
Purchasing while homes are continuing to increase in value means your new asset will be worth more the day after you close. Purchasing in a buyers’ market of course means the opposite, your home is worth less.
We continue to be in a wildly healthy sellers’ marketplace. As I like to say, ignore the man behind the curtain, or the national news about housing. We must always focus on hyper-local information.
Chandler and the East Valley have been in a robust sellers’ market. Average values have increase in since 2011 roughly 64 percent while in the past 12 months values have increase 30 percent, according to the Cromford Report. Chandler owners have a huge opportunity to capitalize on the growth both short and long term.
So that begs the next question: Do I stay in my home and renovate? Do I sell and make the move that I have always wanted to do? A personal decision.
We expect another 20 percent increase in values overall in the next 12 months. While a broad statement, it is important to have an analysis of your specific neighborhood.
Some areas will have had a very rapid increase in value on the front end, or at the beginning of the market boom, but may slow considerably due to factors that cap value. A few examples are floor plan obsolescence, surroundings such as powerlines, major roads or commercial areas in close proximity.
Hyper-local information takes a trusted advisor to find and disseminate. While we all love the Zestimate, it misses the boat on the details.
Realtor Sara Golden is part of Long Realty Luxury Platinum Premier and Jay Jasper Associates. Reacher her at sara@jayjasper.us, 480-625-7829 or saragolden.longrealty.com.
Out-of-whack home market could last years
SANTAN SUN NEWS STAFF
There’s never been a housing market quite like this before.
Today’s real estate agents are pulling double duty as therapists, consoling heartbroken homebuyers. First-time homebuyers around the country are being outbid by investors willing to pay more than $100,000 over asking price. Wealthy buyers are offering all cash for second homes, sending prices ever higher and pushing the dream of homeownership out of reach for many folks.
Meanwhile home sellers are enjoying the benefits of life in the fast lane: the ultimate seller’s market. Can all this last? Is this really going to become the new normal?
Well, no. In this pandemic-fueled era, it’s easy to forget that the extremes of today’s real estate market – like, say, having to put in an offer well over asking price and agreeing to waive all contingencies, before an open house is even over – are simply not normal. That’s why the data team at Realtor. com wanted to look at what a typical, classically healthy housing market looks like, back when homes sold for a few percentage points less than what the sellers were asking.
While the market has begun to cool off just a little, it’s still a highly challenging time to be looking to buy given the severe housing shortage.
“The pandemic certainly made things significantly worse, but the lack of inventory has been a long-standing challenge in the housing market,” said Ali Wolf, chief economist at building consultancy Zonda.
While home price growth has slowed, percentage increases are rising at elevated levels
In a perfect real estate world, home prices would need to rise at the same pace as people’s wages in order for regular folks to become homeowners. Yet over the past decade, Americans’ average wages have increased by about 2-3 percent a year, according to the U.S. Labor Department. Home prices have risen at a rate of about 7% each year over the same time.
By the end of the year, Realtor.com economists project home price growth may calm down a bit – but not enough to have buyers cheering. “Slower growth isn’t going to quickly make homebuying affordable for those who have been priced out recently,” said Nancy Vanden Houten, the lead economist at Oxford Economics, a forecasting company. “It’s hard to imagine a precipitous drop like we saw 10, 12 years ago.”
National median home prices have ballooned from about $260,000 in 2016 to more than $380,000 today, according to Realtor.com listing data. That’s a huge difference for the average homebuyer, and rising prices are hurting many buyers’ bottom lines. With fewer homes available and high demand for those that remained, many sellers began seeing multiple offers that, in turn, drove up prices.
That’s great for sellers, but buyers needed to find ways to stand out, and that often means by offering more money, creating rapid price growth over the past year or so. And of course, many sellers are also buyers themselves, on the prowl for their next properties. People who want to sell their homes can’t find a home to move into – a vicious circle where people want to move, but can’t because of the lack of inventory.
“Home prices have grown notably this year, and that’s making homes less affordable,” said Danielle Hale, Realtor. com chief economist. At some point, prices won’t be able to continue rising by so much, because there won’t be enough buyers who can afford to become homeowners.
“It’s not a problem yet because mortgage rates have been so low, but we’re approaching a point where lack of affordability could cause home price growth to slow,” adds Hale. “That’s especially true if mortgage rates also start to rise.”
Overall, mortgage rates have been steadily dropping since the 1980s, when the Federal Reserve hiked interest rates to combat inflation. They hit a now-remarkable high of 18.63 percent in the week ending Oct. 4, 1981, according to Freddie Mac data.
Most economists expect rates to start moving higher over the next 10 years. That could keep prices in check as most buyers have a limit on how much they can spend each month on housing.
In the short term, Freddie Mac projects rates will go back to 3 percent by the end of this year. Barring any economic disasters, Kiefer says, rates probably won’t start moving closer to 4 percent until 2023 or beyond.
The lack of homes for sale is the main culprit behind the previously unthinkable high prices. Even though more homes have been listed in recent months, there are still about half as many homes for sale as there were at the start of 2020, according to Realtor.com.
Normally, the number of homes available rises and falls with the seasons. In a typical market, sellers begin listing their homes in the early spring, and buyers wind down in the fall ahead of the back-to-school season.
But last year, the number of homes on the market began a steady and steep drop.
Even before the coronavirus upended the world, the nation already had an inventory problem. Homes were getting too old, battered by natural disasters and everyday wear and tear and being bought up by investors, many of them turned into rentals. And builders of new homes weren’t making up the difference.
“Economist Vanden Houten said that even though more people are expected to list their homes over the next year, the market is so out of whack, that the total number of homes for sale will remain low.
“We’ve had good gains in housing construction, but we’ve still accumulated a pretty big shortage,” Vanden Houten says.
Homebuilders have ramped up construction of new homes but not enough to offset the deficit that already existed before COVID-19.
Instead, homebuilding actually slowed in July, according to the latest U.S. Census data.
Skyrocketing lumber and materials prices sent building costs soaring at the start of the pandemic. While prices have cooled since peaking in May, those savings aren’t yet being passed on to consumers.
Land and labor shortages have also continued to drive up prices. Rising costs have started to put off buyers, and that has caused homebuilders to hit a ceiling, at least temporarily.
“Builders in some cases were throttling demand, or having a quota on sales to manage and maintain their production pipelines,” said Robert Dietz, chief economist of the National Association of Home Builders. That means even though people wanted the homes, builders couldn’t keep up with the demand without significantly upping their prices.
After a massive plunge in construction during the Great Recession, homebuilders have yet to make up for the lost time as many of them went out of business after the bust and never returned. Dietz estimates the current housing deficit stands at about a million housing units. To get back to normal, he says, builders would need to put up about 1.4 million single-family homes a year.
That “would require hundreds of thousands of additional construction workers,” Dietz said.
Not only are buyers dealing with prices at all-time highs and insane competition, they also don’t have much time to make up their mind. In some cases, they don’t even have the opportunity to sleep on it before making what could be the biggest purchase of their lives.
Depending on the season, the typical home usually spends between 55 and 80 days on listing sites, according to Realtor.com data. However, it was just 39 days in August. Homes are now selling in roughly two-thirds the time they sold last year, and less than half the time they did four years ago. “With homes turning over so quickly, you’re going to see fewer [active listings] because they’re just not sitting active for very long,” Hale predicted. To fix the problem, housing experts say there is really only one solution: time.
“We have to realize that the market is a bit broken,” Zonda’s Wolf said. “Time will help get more inventory to the market. But [that] doesn’t mean a year. This means over the next three to five years we’re going to see things get back to normal.”
Realtor.com provided this report.
