🏡 Phoenix Real Estate Update – June 2020

🏡 Phoenix Real Estate Update – June 2020

Much of the dust has settled from the effects of the coronavirus, and although the country is dealing with another human rights crisis, much the real estate market has found footing and is regaining ground, more rapidly in some areas than others. Mortgage rates are still low, but rising, lending and credit standards have tightened, but the low supply of listings remains the driving force.
One of the broad gauges a market supply and demand reading is the Cromford Market Index. We don’t normally share it, because it is less useful than measuring data for each area, but this chart was too powerful not to share, and paints a good picture of current market sentiment.
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When looking at new contract data in early May, we began to see an increase in listings going under contract, a sign buyer activity was coming back. Those contracts are now translating into stronger monthly sales counts. After a short-lived rush to market, the number of Active Listings has fallen significantly in just two weeks. In the same amount of time, Pending/Under Contract listings are up significantly, more than 12%. Upward pricing pressure has increased for most of the market due to the low supply of homes for sale; a mere 11,078 in the entire Phoenix Valley.
Local & National Headlines
  • Arizona: 81,000 New Unemployment Claims – total applications now total more than 824,000. In newly released U.S. Unemployment Claims data, figures came in slightly worse than expectations, with nearly 2 million new applicants and continuing claims totaling 21.5 million; down from the peak but up from last week. Back in the sunshine state, roughly $1.9 billion has been provided in assistance through Arizona’s Dept. of Economic Security since the beginning of the pandemic. more from azcentral.com
  • Lending Standards, Rates Rise – Treasury yields are higher two days in a row, dragging mortgage rates along with them. The rise is noticeable, but not disastrous; the average 30-year fixed mortgage saw a rise of 0.125%. Rates have been hovering at the bottom of their recent range, most borrowers will still see rates below 3.5%, with prime borrowers still seeing rates closer to 3.25%. In addition, many lenders, particularly large banks, have raised their lending standards for all borrowers; Chase now requires a 700 credit score and 20% down payment, Wells Fargo now requires a 670 credit score. Available credit has been slashed, for reference, the Mortgage & Credit Availability Index fell 12.2% during the month of April, after falling 16.1% in March more from mba.org
  • Jumbo Loans Return – Jumbo mortgages, or mortgages in Arizona for more than $485,000, carry a higher risk for lenders as they are unable to be sold on the Secondary Mortgage Market (to government institutions such as Fannie Mae and Freddie Mac). As a result, lenders who make jumbo loans must keep them on their books, increasing credit risk and locking up much-needed cash for other mortgages. Until a few days ago, jumbo loan availability had all but dried up, with Chase and Wells Fargo pulling out of the jumbo market, and Chase also has stopped making home equity loans.
  • Homebuilders Sales Uptick – Arizona homebuilders reported a 9% uptick in new home sales during May 2020 vs April 2020, and up 1% from April 2019. Looking at new home closing data from Jan 2020 to May 2020, Maricopa County saw an 11% increase over the same period in 2019 more from bizjournals.com
Local Market Data
Stats for June 1, 2020, compared with May 17, 2020:
  • Active Listings: 11,078 vs. 13,650 – down 18.84%
  • Pending/Under Contract: 7,224 vs. 6,447- up 12.05%
  • Monthly Sales: 6,986 vs. 6,710- up 4.11%
  • Monthly Avg. Sales $/Ft.: $179.69 vs. $180.55/ft – down 0.48%
  • Monthly Median Sales Price: $293,000 vs. $293,900 – down 0.10%
  • Days on Market: 49 days vs. 68 days – down 27.94%
$/Square Foot for Major Cities in Phoenix, June 1 compared with May 17, 2020:
  • Avondale – $134.66/ft vs. $139.51/ft on 5/17 – down 3.48%
  • Buckeye – $139.73/ft vs. $136.99/ft on 5/17 – up 2.00%
  • Chandler – $187.77/ft vs. $193.28/ft on 5/17 – down 2.85%
  • Fountain Hills – $240.24/ft vs. $235.05/ft on 5/17 –  up 2.21%
  • Gilbert – $179.36/ft vs. $180.90/ft on 5/17 – down 0.85%
  • Glendale – $160.62/ft vs. $163.17/ft on 5/17 – down 1.56%
  • Goodyear – $148.63/ft vs. $150.06/ft on 5/17 – down 0.95%
  • Mesa – $174.94/ft vs. $172.38/ft on 5/17 – down up 1.49%
  • Paradise Valley – $389.87/ft vs. $438.38/ft on 5/17 – down 11.07%
  • Peoria – $173.90/ft vs. $171.55/ft on 5/17 up 1.37%
  • Phoenix – $195.85/ft vs. $195.57/ft on 5/17 – up 0.14%
  • Queen Creek – $152.50/ft vs. $147.72/ft on 5/17 up 3.24%
  • Scottsdale – $286.01/ft vs. $287.35/ft on 5/17 – down 0.47%
  • Surprise – $144.42/ft vs. $150.88/ft on 5/17  down 4.28%
  • Tempe – $203.38/ft vs. $204.09/ft on 5/17 – down 0.35%
  • OVERALL MARKET: $194.13/ft vs. $197.79/ft on 5/17 – down 1.85%
Breaking Down the Local Data
Active Listings
Sellers are coming back to the market much slower than buyers, driving the supply of homes for sale back down. Buyers will be further pressured with competition until August when we typically see listings start to rise once again. We would not be surprised to see new lows in listing counts, potentially as low as 10,000 listings which seems hard to believe at the moment.
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Contract Ratio
The contract ratio represents the number of under contract listings vs. active listings; For instance, in a “balanced” market, which Phoenix has not seen for quite a while, there will be 60 listings under contract for every 100 active listings, a contract ratio of 60. As you can see in the graphic below, in March the contract ratio had blown through any high after the recovery from the financial crisis, all the way to 118 under contract listings for every 100 active.
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As a result of the coronavirus related lockdown in April and May, large parts of the market essentially froze. If you needed more evidence that buyers are back in full force, the running contract rate for June now nearly rivals march, just as we are headed into summer, our slow season for new listings.
The Rental Market
If you think renting is more in Phoenix expensive than ever before, I hate to say it but you’re right. The average lease $/ft reached a new all-time high of $1.04/ft in May. The size of available rentals is also falling, while relative rental prices are rising. Competition for rental housing in Phoenix is higher than ever, and conditions are likely the become even tougher for those looking for rentals.
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The supply of available rentals has fallen 12% in recent weeks. This is a change from the rapid increase seen thus far during 2020. The rush of new listings was driven by things like AirBnB owners choosing to find longer-term tenants rather than face vacancy and potential insolvency. We also know that there are new entrants to the rental market: a number of homeowners who sold their homes and opted to rent rather than repurchase.
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Higher rents bode well for home prices, too; the single-family rental business is still quite profitable in the Phoenix area. Higher rents garner high investment returns, and higher investment returns enable investors to pay more for properties while still hitting their investment return goals.
New Construction
Builders continue to work rapidly to meet the growing demand in the Phoenix Valley, though permit data shows slowing both the single-family (SFR) and multi-family (duplexes to apartment or condo buildings) markets. We receive data for permitting of new construction a month late, so these are April’s figures, however, construction permits are one of the best leading indicatorswe have for housing health in the Phoenix Valley. New permits are a measure of homebuilders putting their money where their mouth is, and builders pulling back on is typically a sign of slowing housing conditions.
But real estate is incredibly local, and with more people moving to Arizona than ever before (83,000 in 2019, 465,000 since 2010), additional housing stock will be needed to house them; only 193,000 homes have been built since 2010.
Migration trends don’t change on a whim, and we expect the current trends (SALT tax, urban density, cost of living) to continue until at least the end of 2021. Homebuilders were burned by the housing crisis ten years ago, primarily due to over-supplying the market with new construction, and will likely be wary of repeating their mistake. If builders manage to restrain themselves, this bodes well for continued home price gains.
Stats for New Construction Permits for April 2020 vs. March 2020 
  • Single-Family Permits: 1,832 vs. 2,500 – down 28.16%
  • Multifamily Permits: 606 vs. 1,155 – down 47.53%
If you or someone you know is moving soon, we want to help!
If you know someone who we can help, please forward them one of our monthly reports or tell them to give us a call! We hope you’ve found this market update useful, and look forward to the opportunity to work with you in the future. If you have any questions or concerns about the current state of the housing market, or if you would like to discuss the situation presented by the coronavirus. please don’t hesitate to give me a call directly.
Look for our report next month!
About the Author
I've learned through experience that informed buyers and sellers make the best real estate decisions. My top priority is keeping you updated and educated throughout the buying and selling process to ensure you won't be left wondering if you made the best decision.

My fiduciary responsibility to you is to not only be informed on the latest real estate trends in Arizona, but to be available from Day 1 for any questions or concerns you may have whether you're just starting your search or you closed escrow last year. My 100% commitment is a custom-tailored solution for your next purchase or sale, from consultation to close.

I've been helping families move in the Greater Phoenix Area since 2016, but have called "The Valley" home since 2011 and hope I never have to leave. I'm originally from the San Francisco Bay Area, but now live in Optimist Park, Tempe with my dog Katie. When I'm not assisting my clients with their homes, I love to golf, making it to last-minute Diamondbacks games, and breaking away from the city during our many months of great weather.

If you or someone you know is getting ready to buy or sell a home in the Greater Phoenix Area, it would be an honor and privilege to help them. Should you have any questions about the buying or selling process, please don't hesitate to call me at (480) 712-8722.