Ron Brown
While the city of Mesa is in a balanced market, many consumers and professionals have never shopped or operated in a balanced market.
Since 2004, we have only seen an insane two-year seller’s market during the bubble, followed by an equally insane three-year buyer’s market during the crash. The buyer’s market was then followed by a four-year frenzy of investors exuberantly picking up the pieces.
The past year is the closest Mesa has been to normalcy in the real estate market. This year will be another period of change for the better. However, experiences will differ depending on the price range for the consumer.
Will Interest Rates Rise?
There is a common fear that rising interest rates will decrease demand and cause strife in the real estate market. The fact is the interest rate does not directly affect demand. Lending practices affect demand. In other words, if interest rates rise and lenders continue to say no more than yes, then demand will decline. However, when lenders say yes more than no to applications, demand goes up because the pool of approved buyers increases. That has a lot to do with how much risk lenders are willing to take, and with interest rates below 4 percent, they are not willing to take on much. When the interest rate rises, lenders can afford to take on more risk. Demand then improves, despite the interest rate.
Effects of 3 percent Down Conventional Financing (loans under $417,000)
Last December, a new conventional financing product was announced, lowering the required down payment to 3 percent of purchase price. Conventional lenders will lend up to $417,000, so this is positive news for those buyers looking between $280,000 and $430,000. For a consumer still working on a $15,000 down payment for a $300,000 move-up home, the minimum requirement has just been lowered to $9,000. This may allow some buyers to move earlier than anticipated. However, they still need to qualify with decent credit, and meet required monthly debt-to-income ratios. So, while this is a positive development, it has not yet resulted in more buyers in this price range, since it does not affect the resulting monthly payment. Nationally, purchases using conventional financing have declined despite the change.
Effects of Lower Monthly Mortgage Insurance on FHA Loans (loans under $271,050)
FHA financing has lowered their monthly mortgage insurance premiums, effective Jan. 26. FHA will only lend up to $271,050, so this change will affect buyers looking under $280,000. It is already having a positive impact on both purchases and refinances nationally, up 12.4 percent and 76.5 percent respectively. The main reason is monthly savings on the mortgage payment can be as high as $100 per month. That is enough of a difference to help some consumers achieve the required debt-to-income ratios to qualify under FHA, thus increasing the buyer pool under $280,000.
Availability of Active Listings
While both of these announcements are good news for buyers, the availability of inventory can be scarce, depending on the price range. As the FHA program increases demand under $280,000, those consumers looking under $200,000 specifically will find themselves with very few options across the Valley, as inventory has declined 19 percent overall and 21 percent in Mesa alone. Within Maricopa County, most of the remaining active inventory in this price range lies in the West Valley, South Phoenix and Mesa. Consumers who prefer more recently built homes under $200,000 will need to consider Pinal County, such as the San Tan Valley area of Queen Creek, Florence and the town of Maricopa.
Inventory between $200,000 and $280,000 is stable, having only declined 2 to 3 percent since last year at this time. FHA buyers will have more selection in more areas at this price point. For those buyers looking between $300,000 and $400,000, and planning to take advantage of the 3 percent down conventional financing products, inventory has actually increased 9.5 percent Valley wide and declined in Mesa by 5.7 percent. Therefore, these buyers will have more options for location and more flexibility in negotiations.
Mesa Real Estate Trends January 2015*
Supply is 24.2 percent below normal. However, demand is 27.2 percent below normal, as well. The two combined cancel each other out, and place the Mesa market in a balanced state of supply and demand, but with low transaction counts. Annual price appreciation in Mesa was 5.7 percent comparing January 2014 to January 2015. The average sale price was $232,151, and sellers typically received 97 percent of their final list price after an average of 82 days on market. Of the Mesa homes that came off active status, 74 percent successfully sold, and 26 percent canceled or expired. This places Mesa much higher than the historical listing success rate of 64 percent.
For more information, call the office at (480) 355-4776, or send an email to ron.brown@trailsandpaths.com. Coldwell Banker Trails and Paths is located at 2913 N. Power Road.