As each week has gone by since I started these blogs (April 2020), we keep thinking that the market index will start tapering off ... at some point. Not yet. Not even close. Whoa.
Affordability and declining consumer sentiment may slow things down a bit but it's like trying to fill up a bucket of water when the bucket has a bunch of holes in it. Let's be thankful buyer demand isn't going up, I am always the optimist. LOL
There are still a lot of nay-sayers out there, mostly they are just in denial. They tend to reference someone on YouTube, a friend that 'knows what he is talking about', a keyboard warrior on a Facebook group or even the local news that is actually reporting the national news. The Overall Mortgage Forbearance Volume Increases does show significant concerns in many cities/states but for the first time in my real estate career, I am happy to say Arizona is not mentioned in these reports at all. Great for current homeowners, not so great for those that are not and were hoping for doomsday second round.
We all know that there is not enough inventory in any of the large U.S. metro areas. Supply is a real number. You have housing or you do not. Demand is what is driving the market, especially for Arizona.
What Affects Demand?
1) Interest rates. As the market reacts to a new administration in Washington and COVID-19 driven economic malaise, mortgage rates continued to decrease this week, just slightly. Even
as house prices increase at the fastest rate we've seen in years, competition to buy is strong given the low inventory that exists across the country. The fact that there are not enough homes to meet demand is going to be an ongoing issue for the foreseeable future. [source: FreddieMac]
2) Appreciation. People are motivated by money. If you are not in the 'homeownership game' than you have missed out on a lot of appreciation. If you do own a home and are thinking of moving up (family grew, need more work space, need more outdoor space, etc.) then you too have missed out on money as gaining an average of 12% appreciation on a home of $400,000 value is $44,000 yet on a
$600,000 home (your move-up home) now costs $66,000 more. Despite earned or kissed appreciation, every homeowner that has owned their home for over 2 years is equity rich. This is also why we have so few foreclosures even with the looming forbearances and/or tenants not paying their rents.
3) Relocation (Inbound). When looking at the 3 major moving companies that each report their own data (not comprehensive), we can see where the heavy traffic for outbound is coming from (California, Illinois, New York and New Jersey) and the top states that they are going to. In every report, Arizona is reported within the top 5 states for inbound traffic.
4) Employment/Income. Phoenix is slated to be the nation's leader in job growth over the next 10 years. Everything from manufacturing to high-tech to healthcare, Arizona is on the map! Chandler specifically is a mega hub for technology companies. Rinchem that serves pharmaceutical, biotech, semiconductor and aerospace industries just announced their $10M expansion of their Chandler facility. Laser Components Detector Group just moved in to their new 29,000sf building. Even more across the valley, we see headlines every week announcing more and more high-paying jobs coming to the Phoenix metro.
5) Loose/Tight Lending Practices. Today we have pretty loose lending requirements and with this, more people are now 'qualified' for a loan. This is primarily what is creating such havoc for many first time home buyers. Once upon a time a buyer could ask for closing cost assistance and with FHA only requiring a 3.5% down payment, anyone that was gainfully employed with good credit could get into a $350,000 home with $12,000-$15,000 saved. Yes these buyers are 'qualified' but the market dictates what is needed for the buyer to
compete. Not only are FHA buyers very frequently overlooked due to conservative appraisals but they need to come in with the 3.5% down payment, their own closing costs (another 2.5%-3%) and another $5,000-$8,000 to cover any gap between the appraisal amount and the purchase, totaling more than $30,000. Most first time homebuyers do not have this much saved.
6) Population Growth. More people moving here, more people need a home. It's that simple.
7) Household Formation (growing). What the heck is this?! LOL Examples would be more households that include mother/in-laws, more people getting married, having kids, etc.
8) Consumer Sentiment. Although this is currently high right now, as interest rates and/or affordability rise we will start to see this decline albeit slowly. Q4 numbers have not yet been reported but the Phoenix Metro is still within range and below the national average.
With more than 39% of the inbound residents earning more than $150,000 per individual, we actually may see a decline if the median income is adjusted as well.
NOW is a great time to buy if you can and are willing to compete. The days of haggling are a thing of the past at almost every price point. Luxury homes are flying off the market too and many of these buyers are cash buyers. And with the US dollar weakening, that means a better exchange rate for our international buyers which may mean we will see more of them (again) in the coming months.
Go Arizona Real Estate covers the entire greater Phoenix area with our team of specialized agents in specific areas and price points. For a more in-depth and personal Zoom consultation, call me today!
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