Gilbert Sun News Real Estate 0417

REAL ESTATE

GILBERT SUN NEWS | APRIL 17, 2022

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The reality of the housing market in Gilbert

BY MINDY JONES GSN Columnist

W

e’re in that beautiful part of the year where the kids are starting to swim on the weekends and we get the occasional windy day reminding us that the seasons are changing.

Transitioning from Spring to Summer means that we’ve got a couple more months before monsoon season takes over the weather reports and people start to move entertainment indoors.

For now, festivals are in full swing, patios are packed for brunch and we’re hold-

ing our breath for when it gets just a little too warm for exploring outdoors. Much like the real estate market, we know that change is coming and are taking advantage of every last opportunity before it does.

While supply remains top of mind for Valley buyers, we are starting to see a very slight increase in the number of available homes with fewer coming from new construction in the East Valley than our West Valley counterparts.

To put the numbers into perspective, Gilbert has 118 single family homes available for sale. While this number is trending up from the number we had available this time last year, it is nowhere near what we need to satisfy current demand.

Keep in mind, the Women and Children’s Pavilion known to many as the Mercy Gilbert Hospital expansion project will support 1,000 new jobs when fully operational – nearly 10 times the current availability of single-family homes in its home town, and that’s only ONE of the major Gilbert employers projecting employment needs in 2022 and beyond.

Despite the continued hope by buyers that home prices will fall in the near future, simple supply and demand would indicate that until there are more houses than people who want to buy them, we

will continue to see price increases above and beyond our current average Gilbert home price which has crossed the $600K threshold beating the valley average by just over 5%.

While demand has fallen nearly 15% in the last 60 days due to rising interest rates and rapidly increasing home prices, we are still sitt ing at just above normal demand with 76% lower inventory than is normal for this time of year. Doing the math, that

see MINDY page RE3

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REAL ESTATE

GILBERT SUN NEWS | APRIL 17, 2022

HOAs may lose control over short-term rentals BEN GOTTLIEB GSN Guest Writer

M

ost homeowner associations are governed by what is called the covenants, conditions, and restrictions (CC&Rs), which govern the rights and obligations of the properties encumbered by it.

Most CC&Rs have general-amendment provisions that allow for amendment of the declaration if a sufficient number of votes from the community are garnered – usually a majority, two-thirds, or threefourths vote is required.

For the past several years, this procedure has been used by HOAs to pass amendments that prohibit short-term rentals. In doing so, HOAs have been able to – without much difficultly or legal challenge – exploit the law in Arizona that prevents towns and cities from passing

local laws to prohibit short-term rentals.

All of that could potentially change going forward.

In March 2022, the Arizona Supreme Court issued an opinion, Kalway v. Calabria Ranch HOA, LLC, which decided the validity of a legal amendment to the CC&Rs that encumbered properties within an HOA in Pinal County.

The Kalway Court ultimately found several provisions of the amended CC&Rs invalid as a matter of law. Although not a short-term rental case, Kalway is likely to be used as legal precedent supporting future challenges to the validity of amendments by those who oppose short-term rentals.

The Kalway Court held that an HOA cannot create new affirmative obligations where the original declaration did not provide notice to the homeowners that they might be subject to such obligations. Kalway reinforced that a court should construe the notice requirement narrowly.

The key takeaway: the opinion lends support to more successful challenges in the future by homeowners who opposed a passed amendment because there was not specific enough notice in the original declaration. And that includes a challenge to a passed amendment prohibiting short-term rentals.

But how does one determine if the original declaration provided adequate notice of a future amendment? Kalway provides guidance.

While the original declaration need not anticipate or state the precise future amendment, Kalway states that an objective inquiry must be applied to determine whether a restriction gave notice of the amendments at issue.

In other words, the original declaration must give notice that a covenant can be amended to refine it, correct an error, fill in a gap, or change it in a particular way.

Future amendments cannot be entire new and different.

This new legal precedent might leave

real estate investors scratching their heads. Should investors move forward with purchasing rental real estate with the intent to operate it as a short-term rental?

Or should investors back out for fear of a future amendment that would render their short-term rental inoperable, denting the extra rental income that justified paying a premium for the home?

Before purchasing a rental property in an HOA, a careful reading of the CC&Rs is a must.

If the original declaration regulates rentals in the community, including the permitted timeframes of rentals, then it is probable a court will uphold an amendment prohibiting short-term rentals.

An objective inquiry would likely show that the original declaration provided notice to the homeowners of a future amendment prohibiting short-term rentals.

see RENTALS page RE4

GILBERT SUN NEWS | APRIL 17, 2022

Top seller

This home on E. Portola Valley Drive in Gilbert recently sold for just over $1.3 million.The Blandform Homes new-build has 4,187 square feet, five bedrooms and 5 ½ baths and is located in the gated community of Belmont At Somerset and is still about nine months from being move-in ready. (Special to GSN)

REAL ESTATE

MINDY from page re1

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would mean our demand would have to fall well below normal before it could start to have an impact on available supply which in turn would have to increase nearly five times in order to bring our market into balance.

For most, the impetus of moving is to leverage the equity in their primary home or to get into a home that better suits their needs and every day after today will put us closer to that balanced market with slower appreciation expected from your purchase.

Being the slow-moving train that real estate is, we’ll have to shore up that gap between supply and demand before we’ll start to see the price of homes impacted which means if you want to build up the nest egg that you have in your current home in your next, the sooner you trade up (or down!) the sooner you start building that bank account.

Again, looking in the rearview mirror for where we could be headed in the future, Gilbert’s annual $/sf appreciation

see MINDY page RE4

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REAL ESTATE

GILBERT SUN NEWS | APRIL 17, 2022

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MINDY from page re3

is nearing 33% as compared to just 6.8% two years ago. While we all love what five times the appreciation has done to our equity, it isn’t real until you put it to work for you.

Median average days on market is still just a couple of weeks in Gilbert and homes are selling on average 2.67% higher than list price so while we know it can’t stay this way forever, it’s still just the occasional windy day that reminds us change is coming.

For a long time, Arizona flew under the radar with home prices reflecting the way that we felt about our scorching summer and lack of beaches rather than our 9 months of perfect weather, massive employment opportunities, exceptional outdoor recreation facilities, and designer clubs and spas for vacationing but we’ve started to catch up.

For native Arizonans, this can be a hard pill to swallow but not many thriving towns like ours are seeing declining home values – and that’s not really what we want either, is it?

Affordability is and will continue to be

an issue, but plummeting home prices?

Probably not.

Mindy Jones, a Gilbert Realtor and owner of the Amy Jones Group at Keller Williams Integrity First, can be reached at 480-250-3857. Mindy@AmyJonesGroup. com or AmyJonesGroup.com.

RENTALS from page re2

To the extent the original declaration does not regulate rentals or has minimal regulations, future homeowners are likely to lodge challenges to the validity of the amendment prohibiting short-term rentals.

Of course, Kalway is not limited to just short-term rentals.

Ben Gottlieb and Patrick MacQueen are founders and partners of MacQueen & Gottlieb PLC, one of Arizona’s most honored real estate law firms. You can contact Ben Gottlieb at ben@mandglawgroup. com or 602-533-2840 with any questions regarding real estate legal concerns.

REAL ESTATE

GILBERT SUN NEWS | APRIL 17, 2022

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Risky ARMs returning amid mortgage rate hikes GSN NEWS SERVICES

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s home prices rise to new record heights and mortgage rates surge, homebuyers this spring are desperate to get their dream homes before they become even more out of reach. To do so, more are turning to a riskier type of home financing that was one of the causes of the Great Recession.

Adjustable-rate mortgages, commonly known as ARMs, entice borrowers with lower initial rates compared with traditional fixed-rate mortgages.

At a time when home prices are quickly rising, this can help some buyers become homeowners, which is why they’re becoming more popular with borrowers.

But unlike traditional mortgages, which have a fixed interest rate for the life of the loan, ARMs can grow more or less expensive over time. That’s because the rates reset after a previously agreed upon period of time to more closely reflect the current market – and this can result in

much higher or lower housing payments.

So are ARMs worth the potential risk?

For starters, they’re cheaper. Last week, the average contract interest rate for a five-year ARM was 3.9%, compared with 4.66% for a 30-year fixed-rate mortgage, according to the Mortgage Bankers Association. (A five-year ARM means that the rate will readjust after five years.)

ARMs are just a drop in the bucket of the overall mortgage market. They made up just 1% of all mortgage purchase applications for the month of February, according to MBA data. But out of all the people taking out mortgages last month, the share of people taking out ARMs was up a staggering 70% from a year ago, according to the MBA. “Adjustable-rate mortgages are seeing a surge in popularity because they provide buyers with much-needed flexibility when they need it,” said Tim Schroeder, a Realtor® and owner of Agent Marketing Essentials, a group that helps agents market listings.

“One of the biggest advantages of an ARM is that it’s considerably cheaper for the first three to seven years than its fixed-rate counterpart,” Schroeder said.

But buyers beware: Taking out a loan could cost them down the line if rates continue to climb. The rates reset every few months or years depending on the terms based on the most recent rates.

That number is capped between 2% and 5% depending on the lender and the terms agreed to.

That means the interest rate can never be that many percentage points higher than the initial rate agreed to.

“When ARMs first came out, one of the huge advantages of getting one was that your rate could go down,” said Rocke Andrews, a mortgage broker in Tucson.

But mortgage rates are largely forecast to keep rising, so that will likely be seen in their monthly payments down the line.

The good news is that even though most of these buyers will see rates on their ARMs increase, the uptick in these

loans isn’t expected to trigger another foreclosure crisis. Buyers who want an ARM need to go through the same strict lending standards that are required for traditional loans.

There are also limits to how much the interest rate can rise over the lifetime of the loan, and there are no longer prepayment penalties.

Lenders have smartened up and are being more cautious about whom they give loans to. That’s a big difference from the 2000s when homebuyers were talked into loans that they couldn’t afford—then defaulted en masse when their initially low mortgage payments ballooned.

“Statistically, homeowners refinance or sell every five to seven years, so why not take advantage of a seven-year ARM?” asked Ricky Pok, president of a real estate solutions and investment firm based in Houston, TX, and a former mortgage lender. But, he warns, borrowers should go in with open eyes and a clear plan.

Realtor.com provided this report.

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