As I’m sure you already know, our housing inventory is at record lows, but do you know just how low the inventory is and what that means for buyers and sellers? I think the numbers are going to surprise you.
SUPPLY
We have been in a sellers’ market for quite some time with inventory continuing to decrease year over year. 2020 saw a significant drop and 2021 is seeing yet another significant drop in supply. The inventory for February 2021 was down 61 percent from this time last year for the Phoenix Metro Area.
There are only 3,893 active listings in Maricopa County and just 365 in Mesa. If you take out condos and mobile/manufactured homes, there are only 191 single family homes currently listed in all of Mesa. For Mesa single family homes, we are down 63 percent from this time last year and a staggering 81 percent from this time in 2019.
The supply situation is the worst we have ever recorded, lower than the first quarter of 2005 (which used to hold the record) while demand is continuing to grow. There is currently no indication that supply trends will improve, and we would not be surprised to see demand continue to trend lower, but this will have little effect on prices. We already have far more buyers than the market can support.
DEMAND
The City of Phoenix gained more than 80,000 residents in 2020. That’s the biggest net inflow of metro areas across the country, according to Redfin.com. When the 2020 Census full report comes out later this year, we expect to see California as the No. 1 source of inbound migration for Greater Phoenix.
NEW HOME BUILDERS
New home builders have been struggling to meet demand as well. “One of the biggest issues home builders are having is the price of lumber, which hit a record high this week and is up more than 170 percent over the past 10 months,” said NAHB Chairman Chuck Fowke. With such high demand along with the increased cost to build, these additional homes are sure to be priced well above the current level.
MORTGAGE FORBEARANCE
Those who think the increase in mortgage delinquency is going to help supply and cause prices to drop are wishful thinking. The level of delinquency is nothing like it was during the 2006 to 2008 crisis and the level of delinquency has improved for the last six consecutive months. Any extra supply coming onto the market, due to homeowner financial distress, is likely to be snatched up quickly by desperate buyers. Few of the homes with delinquent loans are likely to make it to foreclosure. These properties can be quickly sold prior to foreclosure to pay off any loans, and the record levels of home equity will leave the vast majority of sellers in the black even if they can no longer afford their mortgage payment.
BUYERS
Is it a Good Time to Buy?
The Greater Phoenix Area is experiencing a record housing shortage with no end in sight, demand continues to increase, and rates are still at record lows. As home prices continue to increase and affordability wanes, it is a good time to stake your claim on a home while it’s still an option.
Renting versus Buying
The median sales price has risen 18 percent to $339,000 and the median monthly rental rate through the Arizona Regional MLS has also risen 18 percent. A 1,500 to 2,000 square-foot home is roughly $1,600 to $1,700 per month to purchase with 10 percent down, while that same home rents at a median of $1,850 per month, up $250 over last year at this time.
Competing with Multiple Offers
With such little supply, when you do finally find a home you love, you can’t just write an offer then go back and forth negotiating with the seller like you used to be able to. The chances are you will be competing with multiple offers sometimes 10, 20 or even 30 offers at a time. Be ready to jump the second you see a home you like, see it the first day it is on the market, and be ready to write up the offer. Make sure you have all your documents updated and ready. If you are financing a loan, have the pre-qualification from your lender ready. If you are buying with cash, have your proof of funds available.
Talk with your Realtor ahead of time. They should discuss what options are available to you, and what you can add to your offer to try and make it stand out against the others. It’s not always the highest price that gets the accepted contract, it’s the highest and best. Having a Realtor who knows how to be creative, to think outside the box, and be aggressive is a must in this highly competitive market.
SELLERS
Brace yourself, the showings are coming. It is not uncommon these days to have a non-stop stream of buyers coming through your home back-to-back within the first day or so on the market. It doesn’t matter the price range; all areas and types of homes are flying off the market, and so far, this month (February), 37 percent of closings are over asking price.
The most impressive development has been in the luxury market. After California announced it was considering raising income and other taxes last summer, contracts over $1 million surged in Greater Phoenix. So far in 2021, sales between $1 million – $3 million are up 102 percent and sales over $3 million are up 140 percent over last year, and there is little sign of a slowdown.
I recommend to my clients that they take a little break and leave for the first weekend or at least plan to be gone all day. Chances are their home will be sold the first day or two it is on the market and then the showings will stop.
Multiple Offers
While the buyers have the task of how to make their offer stand out, the seller (with the help and guidance of their Realtor) have the task of deciphering all the offers to determine which one is the best to accept. It is not just the highest price or the cash over the financed offer. In today’s market you will have a lot more incentives to choose from and you need to be sure the offer you accept is not just the highest but the highest and best offer for you.
You also want to ensure the buyer will be able to fulfill everything that has been offered in the contract. Accepting the right offer, having language in the contract that benefits and protects you, and the negotiations of your Realtor are going to be key when dealing with multiple offers. You would be amazed how much some sellers are leaving on the table by not having a top local Realtor representing them.
For more information on the current market conditions, or how to buy or sell in today’s market, please contact me directly.
Lorraine is a Multi-Million Dollar producing agent, has been a full-time Realtor for over 13 years, is an Associate Broker of KOR Properties, a Certified Negotiation Specialist, and is on the Professional Standards Board. You can reach Lorraine at (602) 571-6799.