GSN Real Estate 112022

REAL ESTATE

GILBERT SUN NEWS | NOVEMBER 20, 2022

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Gilbert enters buyers market territory – for now

BY MINDY JONES GSN Columnist

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ig news this week as the Valley shifts into a buyers market after almost exactly three months in a balanced one following an extreme inventory shortage that elevated home prices to their peak in May. Buyers have reaped the benefits of this rapidly shifting market with nearly 45% of all recent sales involving concessions for mortgage rate buy downs, closing costs, and other seller-paid contributions.

But sellers are grappling with the reality that home prices have fallen almost 10% in that same time period and the impact of not being market-ready has risen to two to three times the opportunity cost that it carried in the 2021 market.

While downward pressure on pricing will continue to exist as long as demand is anemic, the housing market is behaving normally with only minimal inventory changes week over week as the new listing count slows to a modest trickle.

Annual appreciation is still more than 30% for homeowners who have been in their home for at least two years and

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This 5,350-square-foot house on E. Sanoque Court, Gilbert, recently sold for $2.1 million.

Built in 2006, the seven-bedroom, five-bath house underwent a complete interior and exterior renovation and sports a family room with fireplace, high-end gourmet kitchen, a new casita and even a full-swing golf simulator. (Special to GSN) their purchase price has almost doubled if they’ve been in their home for the last five, making the short-term loss more impactful for pandemic buyers, sellers and investors looking to turn their inventory quickly.

New construction has returned to the Valley as a viable solution for buyers after two years of inaccessible inventory and inflexible pricing. That is peaking the interest of many who are finding resale inventory to be outdated and priced similarly.

Gilbert finds itself in an interesting housing market. Restaurants are packed and growth abundant. The inventory and demand numbers continue to reflect the hesitation and fear that consumers feel over inflation and interest rates as well as some uncertainty and speculation about housing prices that are expected to rebound once interest rates fall.

While still historically low, the coupling of the increase in interest rates with the rapid escalation of home prices in a short period of time has caused some to ques-

tion the value of their purchase and challenged the affordability of their purchase in the current market.

While short-term memory would say that selling prior to the peak of pricing would have been a better solution, the higher sales price would have come with less usable proceeds if purchasing in Gilbert. The average sale-to-list price ratio was 104%, which meant that much of a seller’s bottom line went to the opportunity cost of buying the house and not the down payment, closing costs, or even the principal loan amount.

The active listing count is now just slightly higher than it was last quarter while both pending and under-contract listings having risen over the last month, bringing the Gilbert housing market to a similar position as we were in in 2015 but with nearly double the average price point.

With rental prices higher in Gilbert this month than they were in August – and 75% higher than in 2015 – the case for home ownership is still strong.

Appreciation is on the rise and supply has remained flat as demand has waned.

So while Gilbert is firmly seated in a buyers market, a housing shortage is on

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REAL ESTATE

GILBERT SUN NEWS | NOVEMBER 20, 2022

Why housing market today differs from crash era GSN NEWS SERVICES

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new report from Realtor.com shows home listings increased 33% in October over October 2021. The increase in inventory is not because more people are selling but because fewer are buying.

The housing market has come to a near standstill in the last few months, leading

some to speculate it could be headed for a “crash,” an undefined state in which home values fall.

It’s happened before, as recently as 2009. Then, thousands of homes went into foreclosure and millions of homeowners found themselves owing more than their homes were worth.

Could it happen again? Most housing experts point out that today’s market

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woes are very different from 13 years ago.

Today, the market has stalled for one big reason – rising mortgage rates. During the COVID-19 pandemic, the housing market exploded. Prices surged because demand far outweighed supply.

Low interest rates fueled record home prices People with good jobs could afford to pay record-high prices for a home because the interest rate was 3% or less, providing an affordable monthly payment. But when the average 30-year fixed-rate mortgage rate surpassed 7%, as it did last month, then the monthly payment was hundreds of dollars higher, meaning many people who would like to buy a home can no longer afford to.

As a result, home prices have already fallen from their record highs reached in June. But Alex Platt, principal agent with the Platt Group, part of Compass Real Estate in Boca Raton, Fla., says that is far from a “crash.”

Buying or Selling a Home?

“Look, no one knows what’s going to happen,” Platt recently told us. “But I don’t think there’s going to be a big ‘crash’ coming. Could there be a correction, sure? But prices nearly doubled in the last two years. So even if prices come down 10 or 15%, the market is still up.”

But what about people who purchased homes last year, at the very top of the market? Could they trigger a crash, much like they did in 2009? Not really, experts say.

Most people who purchased homes in 2021 got a mortgage rate of 3% or less. As long as they stay employed they should be able to easily swing the monthly mortgage payment.

What’s different this time?

So how was 2009 different? At that time, the mortgage industry was approving loans to just about anyone, whether they could afford the home or not. The lender sold the mortgage to Wall Street

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REAL ESTATE

GILBERT SUN NEWS | NOVEMBER 20, 2022

Buyers backing out latest trend in real estate

BY SAMUEL DONCASTER GSN Guest Writer

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hit the bottom until you are on your way back up.

Mindy Jones, a Gilbert Realtor and owner of the Amy Jones Group brokered by EXP Realty, can be reached at 480-250-3857, Mindy@AmyJonesGroup.com or AmyJonesGroup.com.

10624 E Sheffield Dr, EASTMARK

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buyers made significant down payments – of up to 20% – and still have some equity even if prices go down.

People who bought homes at the top of the market may feel like there’s a housing market crash, at least for a while. But most real estate economists predict the market will quickly right itself if prices fall too low.

Realtor.com notes that, unlike in 2009, the U.S. still has a severe housing shortage. Even with rising interest rates, demand is expected to exceed – or at least keep up with – the supply of homes.

Realtor.com provided this report

the horizon once demand picks back up.

The million-dollar question is how far away is that horizon and what impact will we see on housing prices in the meantime and mortgage rates in the interim.

The risk of timing the market is always the same, you don’t know when you’ve

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investment banks within days so lenders didn’t care.

Many of these buyers put no money down and took out subprime mortgages, which had a low “teaser” interest rate for the first year or two before the rate jumped to double-digits. When that happened, millions of those homes went into foreclosure, dragging home values down with them. It was the wave of foreclosures that triggered the crash, flooding the market with repossessed homes.

Today, very few homes are in danger of default, even those whose values are now lower than the purchase price. Unlike more than a decade ago, most of today’s

that transaction could entitle the seller to substantial lost profits.

Sellers can protect themselves by proactively monitoring the loan. The standard contract requires that buyers and lenders provide updates on loan status “upon request.”

In addition, sellers shouldn’t be shy about soliciting backup offers. Finally, when a buyer backs out, they should talk to a lawyer early to understand their options.

Samuel Doncaster is owner and lead attorney at Fraud Fighters Law Firm here in Phoenix.

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pensated for all their losses resulting from the buyer’s decision to back out. Often, this starts with whatever additional price reduction the seller must make to complete the transaction with a new buyer.

In addition, buyers will have carrying costs for the property, including interest on their own mortgage, utilities and maintenance. Some sellers will also be harmed in connection with other transactions.

For example, if the seller was planning to buy another property and depending on his own sale proceeds to make the payment, a lost opportunity to complete

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f you’re worried about what to do if a buyer backs out of a deal, you’re not alone.

Between the rise in interest rates and deprecation in the real estate market, buyers are currently backing out of real estate deals at an alarming rate.

When they do, it can leave sellers worrying about the financial hit they’ll take – whether they can sell into to complete another transaction, or even whether they’ll be able to move out of state on time.

Fortunately, sellers have protection once the relevant contingencies are completed.

For transactions under the standard Arizona Association of Realtors form, the most common way to get out of a contract is to cancel during the inspection period.

During this time, buyers can cancel the sale with no penalty.

This is their chance to vet the house, get it inspected and make sure it’s up to their standards. Prior to the end of the inspection period, the buyer may cancel for any reason.

When the inspection period ends, the loan contingency often becomes the focus for buyers looking to renege. However, that’s a more limited source of relief.

The standard Arizona Association of Realtors contract explicitly states that failure to lock an interest rate is not an

unfulfilled contingency. That means if the buyer signs a contract with rates at 5% and then the lender offers a 7% loan to close, the buyer cannot back out because of that.

In other words, the loan contingency is a contingency of whether a loan is made, not whether it’s at an acceptable interest rate.

This particular contingency often spawns disputes when buyers attempt to manipulate it to avoid the binding effect of their contracts. The language of the loan contingency requires that a buyer make a “diligent and good faith effort” to obtain loan approval.

It imposes a deadline to submit a loan application and requires the buyer to promptly supply the lender with the documents it requests for underwriting.

Therefore, buyers cannot get away with simply dragging their feet on the loan process until closing day.

After buyers wrongfully renege on their commitment, sellers may accept the earnest money as their damages, but it isn’t required.

The standard Arizona Association of Realtors form contract makes it very clear that doing so is the “seller’s option.” The other option is to bring a claim for damages. In an environment of rising interest rates and declining real estate prices, the suit for damages will often be the better option.

In a damages claim, sellers can be com-

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