PHOENIX MARKET UPDATE – Mid-March 2020
Hi there, we’re almost through March, and considering the current times, we want to keep you continually updated on what is going on in both the Phoenix real estate market. I tried to keep this update brief, but the situation is rapidly evolving and there are lots of moving parts. If you would like to discuss the situation the coronavirus presents for the AZ housing market, please don’t hesitate to give me a call directly.
The effects of COVID-19 (coronavirus) continue to shock Wall St. and we are now seeing the effects start to take hold on Main St. and seeing signs of its impact and some stress creeping into the real estate market.
- Reduced Hours & Layoffs – employees at many businesses, particularly in the hospitality and entertainment industries, are seeing their hours drastically reduced as the businesses that employ them are forced to close their doors to combat the spread of COVID-19. We expect the employment situation to get worse before it gets better; there have been projections as high as 8-10% unemployment as a result of the coronavirus containment.
- Open House Cancellations – don’t expect to see many open house signs this weekend or in those to come over the next few weeks. The governors of California and Illinois have ordered, and many major metro areas, have ordered all non-essential businesses closed. Virtual showings and open houses are still very much an option
- Impact on Current Escrows – as a result of these reduced hours and layoffs, we are starting to see escrows for purchases running into issues. In the days before closing a transaction, lenders check with buyers employers to confirm their employment status. With layoffs and shift squeezing, employers won’t be able to confirm the employment of buyers, which will render buyers unable to perform on their loan. We are starting to see a rise in Back on Market listings.
- Rental & TOM Listings Rise – counts of active rental listings have risen 12% since the beginning of March. This is an indication of the number of homes purchased for the purpose of rental properties, but it also could be an indication of tenants not being able to renew their lease due to job loss or reduced hours. We will need to wait for a clearer picture of the rental market. Temporarily Off-Market Listing counts have risen by 15% in the last week as sellers temporarily take their homes off the market due to fears of the coronavirus. We expect both of these trends to continue and expect it to impact the monthly sales rate before reversing course.
- Lenders Tighten Liquidity – despite what you may have heard, mortgage rates are not going to 0% (sorry). Mortgage rates have popped back up to around 4% from lows around 3.2% last week as lenders are forced to tighten credit due to lack of liquidity (money flowing into) the Mortgage-Backed Bond market. The MB-Bond market provides funding for lenders looking to sell their loans on the secondary market and recoup cash, allowing them to make more loans. Fear in the financial markets has led investors to stop putting money into the MB-Bond market, forcing lenders to raise rates to offset the additional risk taken on by not being able to sell their existing loans. The Federal Reserve has stepped in to provide additional liquidity in order to stabilize the MB-Bond market. http://www.mortgagenewsdaily.com/
Like many of us, the US Government has realized that this is not just another flu, and that the economic impacts of the containment will be severe. They seem to be ready to respond in incredible fashion with a playbook that still has dust on it from the financial crisis.
- Trillions in Stimulus (with a T) – American wage earners, as well as small and medium-sized businesses, are going to be getting a helping hand from the US Govt. Legislators are debating over a rumored $2 Trillion stimulus package that would inject thousands of dollars into the bank accounts of Americans based on income. The media has done a great job of covering this we won’t go into specifics until more is known. Another part of the same bill is aimed at small & medium-sized businesses, with a tentative plan to offer loans that will be forgiven to businesses that don’t lay off employees. More from Yahoo News
- Foreclosure & Eviction Halting – AZ Attorney General has sent a letter to more than 1,000 financial institutions doing business in Arizona asking them to take a steps to protect borrowers and consumers. These measures include delating loan payments, evictions, foreclosure, repossessions and late fees for 90 days. More from US News
- Tax Filing Delay, Payment Deferments – the 2020 Tax Deadline has been moved back 3 months to July 15. The IRS is still accepting filings, and Americans have been urged to file now in order to get their returns faster. Additionally, individuals can defer up to $1 million in income tax payments, and corporations up to $10 million, until July 15 without penalties or interest. More from IRS.gov
- Federal Student Loans Paused – federal student loan borrowers can now pause their monthly payments without penalty for the next two months. Federal lenders will also automatically reduce all borrowers’ interest rates to 0%. More from Business Insider
Our Outlook: A number of people are assuming a recession is on the horizon, if not already here, and are expecting home prices to fall. While the first assumption regarding a recession is quickly looking more and more likely, expecting a 2008-style fall in home prices is based mostly on fear.
In 2005, housing began to struggle due to investors using them as speculative instruments rather than as housing; not even renting them, just banking on rapid short term appreciation thanks to 100% loans from unscrupulous lenders (most of whom went bust). In 2005 housing was being built for demand that was “coming” and largely imaginary, in 2020 builders are racing to meet a high level of demand
The real estate market in 2020 is a very different story from 15 years ago. Housing is still in extremely short supply going into this pandemic due to many builders sitting on the sidelines for years after the Great Financial Crisis. Demand for housing was well above normal, with record-low unemployment and increasing wages. While builders may not be able to build as many homes as they would like this year due to a shortage in labor and materials, we are unlikely to see a glut of homes on the market for quite some time. A surplus of home would likely take around 8-12 months to occur, a time frame in which a vaccine or treatment for the coronavirus will more than likely be discovered. There have been promising results from the use of hydroxychloroquine, an anti-malaria drug in patients sickened with COVID-19 that appears to block the coronavirus from entering cells and is efficient in clearing upper airways in “most patients”. I know that we are all crossing our fingers for a swift and positive outcome on this regard. More from Vox.com
Here are the current market stats for March 20, 2020 compared with March 1, 2020 for the entire Phoenix Metropolitan Area:
- Active Listings: 11,168 vs. 11,003 last month – up 1.01%
- Pending/Under Contract: 7,403 vs. 7,215 last month – up 2.7%
- Monthly Sales: 8,629 vs. 7,450 last month – up 13.6%
- Monthly Avg. Sales $ per Sq. Ft.: $185.85 vs. $185.11 last month – up 0.3%
- Monthly Median Sales Price: $300,000 vs. $295,000 last month – up 1.6%
- Days on Market: 60 days vs. 66 days last month – down 10%
$/Square Foot for Major Cities in Phoenix:
- Avondale – $135.62 vs. $133.60/ft last month – up 1.5%
- Buckeye – $140.54 vs. $139.22/ft last month – up 0.9%
- Chandler – $185.75 vs. $185.46/ft last month – up 0.15%
- Fountain Hills – $239.79 vs. $230.53/ft last month – up 3.8%
- Gilbert – $177.66 vs. $176.05/ft last month – up 0.9%
- Glendale – $157.29 vs. $156.08/ft last month – up 0.7%
- Goodyear – $153.20 vs. $145.61/ft last month – up 4.9%
- Mesa – $172.71 vs. $171.77/ft last month – up 0.5%
- Paradise Valley – $450.38 vs. $471.12/ft last month – down 4.4%
- Peoria – $169.28 vs. $163.60/ft last month – up 3.4%
- Phoenix – $191.54 vs. $182.97/ft last month – up 4.4%
- Queen Creek – $145.58 vs. $146.95/ft last month – down 0.9%
- Scottsdale – $291.07 vs. $291.65/ft last month – down 0.1%
- Surprise – $146.94 vs. $147.35/ft last month – down 0.2%
- Tempe – $196.48 vs. $197.14/ft last month – down 0.3%
We are constantly looking for new trends and data to give our clients an edge when it comes to buying or selling their next home.
If you or someone you know is thinking about making a move and would like help navigating this market, we would like to extend the invitation to talk to our team.
We hope you’ve found this market update useful, and look forward to the opportunity to work with you in the future.