November 2020 Market Update

Demand for Homes Up 36%
Rents Up 17% Since April

2020-11 Infographic

For Buyers:

The Rent vs. Buy scenario has become heavily in favor of buying over the last 5 months. Eviction moratoriums due to the pandemic have greatly reduced turnover rates in a rental market that is already short of supply. Lease rates on listings through the Arizona Regional MLS have increased 17% since April overall; and for a home between 1,500-2,000sf the median lease price in the 4th Quarter is $1,850 a month, up a whopping $255 from the 4th Quarter last year.  While leases have been rising, home values have also risen 16%; however declining interest rates have kept the monthly payments level. The median sales price for a 1,500-2,000sf home is currently $316,000, up $27,000 since April. Despite this 9% increase (assuming a $15,000-$30,000 investment and interest rate under 3%), purchasing a home could possibly save a renter hundreds of dollars on their monthly budget while simultaneously building equity and ensuring a level of stability in their housing cost.

For Sellers:

While many people are waiting for the final results of the 2020 election, at least one thing is for certain in Greater Phoenix. The housing market will not crash in 2021 regardless of the outcome. It may be hard to believe, but the new and resale housing markets don’t move quickly. Unlike the stock market where it takes a push of a button to sell a stock and record the price, it takes longer to sell a home between the marketing time and escrow process. In today’s market, it may take up to a week to negotiate an offer and another 30-45 days for the price to be publicly recorded. When a market weakens, it takes longer.

Supply in Greater Phoenix has been gradually shrinking for 6 years and was the driver behind price appreciation until the pandemic. To put things in perspective, the Arizona Regional MLS should seasonally have between 25,000-30,000 listings active at this time of year; as of November 9th there are under 8,600. That type of shortage doesn’t happen overnight and new construction will not be able to fill the gap quickly.  Listings Under Contract should seasonally have between 9,000-10,000 in escrow at this time of year; as of November 9th there are over 13,000. This level was reached in June and has stayed consistent for nearly 5 months. Even if demand were to scale back in 2021 and return to a normal level, the market would not see a massive drop in prices; just a slowing in appreciation.

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Contact the real estate experts at NextHome Valleywide in Chandler, AZ at 480-621-6828 for more information.  If you are currently looking to Buy or Sell a home in the Phoenix metro , Scottsdale or East Valley area and are not sure where to turn we can help! Search for homes at Valleywide.realestate where you can find single family homes, golf and lakefront properties, 55+ communities, townhomes and much more. Visit our blog at NextHome Valleywide for a monthly Phoenix Market Update.

October 2020 Market Update

Homes Under Contract Up 36%
Median Sale Price Up 18%

2020-10 Infographic

For Buyers:

A common complaint in the resale market is “there’s nothing for sale”. However from July through September, the Realtor® community added 30,340 brand new listings to the Arizona Regional MLS and sold 27,746, leaving just 8,203 remaining listings for sale. That makes this 3rd Quarter the 2nd best in Greater Phoenix history for closings, falling just 436 sales short of 2005. If that’s not impressive enough, there are another 13,502 properties currently under contract and scheduled to close in the next 30-45 days; up 36% from this time last year. With this information we can conclude that there is plenty for sale, but many listings are simply not in Active status longer than 24 hours in order to be counted. Getting the supply count to rise right now is like trying to fill a bathtub when the drain is wide open.

Over half of all listings that went under contract in the 3rd Quarter were Active for only 9 days or less prior to contract. To quote the movie “Spaceballs”, that’s ludicrous speed! As exhausting and stressful as it is for buyers and their agents, supply and demand measures indicate prices in Greater Phoenix will continue to rise well into 2021. Hopefully the short-term pain will lead to long-term gain for those who ultimately win a successful contract.

For Sellers:

Appreciation has accelerated significantly since June of this year. The median sale price is up 18% since last October, but the current measure of $329,900 is up 12% from where it was just 4 months ago at $295,000.  While that’s exciting for sellers, the speed at which homes are selling is causing some to worry they will not find somewhere to go after their home closes. As a result, Realtors® are dusting off rarely used seller contingency addendums stating that any accepted contract will be contingent on the seller finding a home them-
selves prior to close.

Compared to last year, sellers are asking 15-20% more for their homes in all price ranges between $150K-$500K. Between $500K-$1M, list prices are up 9-13% and 3-8% for price ranges over $1M. The highest percentage of sales over asking price in the last 30 days are occurring between $200K-$400K with a measure of 34-45%. While that’s a high percentage, it’s not the majority of sales. Most properties are still closing at or below asking price. However for those who did go over asking price under $400K, most winning bids were within $7,000 of list.

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Contact the real estate experts at NextHome Valleywide in Chandler, AZ at 480-621-6828 for more information.  If you are currently looking to Buy or Sell a home in the Phoenix metro , Scottsdale or East Valley area and are not sure where to turn we can help! Search for homes at Valleywide.realestate where you can find single family homes, golf and lakefront properties, 55+ communities, townhomes and much more. Visit our blog at NextHome Valleywide for a monthly Phoenix Market Update.

April 2020 Market Update

Corona Aftermath:  Good News for Buyers
Sellers Not Pushing Market Values

2020-04 Infographic

For Buyers:

The kickoff of 2020 was developing into a nightmare for normal buyers who just wanted to find a place to live. Extreme competition for homes between wholesalers, cash buyers, vacation rental investors and traditional buyers depleted supply and created an environment consisting of multiple offers, appraisal waivers and an increasing number of sales over asking price. The Greater Phoenix housing market was on the precipice of seeing price appreciation accelerate at an alarming rate and had analysts wondering what could possibly slow it down. Well, they have their answer; an act of nature.

The COVID-19 pandemic came in like a wrecking ball in March shutting down tourism and crashing the stock market single-handedly over the course of a few weeks. Hedge funds and iBuyers (funded by Wall Street) bowed out of purchases and vacation rental buyers put their plans on hold. This is providing much needed relief to normal homebuyers, if only they could leave their house.  Stay-at-home orders to stem the impact of the pandemic has “pinched the hose” on what is arguably one of the hottest housing markets in the country. This is causing a build-up of pent up demand that will undoubtedly return with some gusto when travel restrictions are lifted and a level of stability returns.

Don’t expect prices in Greater Phoenix to drop like they did in 2008, however. Back then when investors pulled out of the market, prices were so high that families making the median income could only afford 27% of what was selling. This time around as investors once again pull out of the marketplace, families making the median income can afford 68% of what’s selling with today’s incomes and interest rates. This is well within normal range and puts regular homebuyers in a better position to pick up the pieces left by Wall Street and vacation rental investors.

For Sellers:

Lock downs and travel restrictions across the country are causing buyers who need to relocate to Arizona, either for a job or to retire, to put those plans on hold for now. The effects of COVID-19 span the job market, stock market, corporate profits, and exchange rates. This has had the highest impact on high-end luxury market buyers. Not only are these buyers restricted from leaving their home cities at the moment, they have instability in their portfolios as well. Under these circumstances it should not come as a surprise to see that weekly contract activity over $500K has slowed down by 64% since their peak on February 24th while price points under $500K have only seen a 30-40% slow down.
Sale prices are not declining at the moment, but seller expectations are adjusting. Upticks in weekly price reductions tell us that sellers are beginning to ease up on pushing market value. Sellers are also beginning to realize that it will take longer to sell their home under these conditions. Weeks ago, some listings were receiving multiple offers within a matter of hours, but that’s not a reasonable expectation now. Active listings that would’ve flown off the market 4 weeks ago could be on the market for weeks at this rate.
Information, communication and strategy will be important during the course of the pandemic response. It’s situations like these where professional Realtors get to show the value of their experience and service.

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Contact the real estate experts at NextHome Valleywide in Chandler, AZ at 480-621-6828 for more information.  If you are currently looking to Buy or Sell a home in the Phoenix metro , Scottsdale or East Valley area and are not sure where to turn we can help! Search for homes at Valleywide.realestate where you can find single family homes, golf and lakefront properties, 55+ communities, townhomes and much more. Visit our blog at NextHome Valleywide for a monthly Phoenix Market Update.

Homeowner’s Guide to Home Equity

February 2020 - MVP - Social Media Image

Homeownership offers many advantages over renting, including a stable living environment, predictable monthly payments, and the freedom to make modifications. Neighborhoods with high rates of homeownership have less crime and more civic engagement. Additionally, studies show that homeowners are happier and healthier than renters, and their children do better in school.1 

But one of the biggest perks of homeownership is the opportunity to build wealth over time. Researchers at the Urban Institute found that homeownership is financially beneficial for most families,2 and a recent study showed that the median net worth of homeowners can be up to 80 times greater than that of renters in some areas.3

So how does purchasing a home help you build wealth? And what steps should you take to maximize the potential of your investment? Find out how to harness the power of home equity for a secure financial future.

WHAT IS HOME EQUITY?

Home equity is the difference between what your home is worth and the amount you owe on your mortgage. So, for example, if your home would currently sell for $250,000, and the remaining balance on your mortgage is $200,000, then you have $50,000 in home equity.

$250,000 (Home’s Market Value)

$200,000 (Mortgage Balance)

______________________________

$50,000 (Home Equity)

The equity in your home is considered a non-liquid asset. It’s your money; but rather than sitting in a bank account, it’s providing you with a place to live. And when you factor in the potential of appreciation, an investment in real estate will likely offer a better return than any savings account available today.

HOW DOES HOME EQUITY BUILD WEALTH?

A mortgage payment is a type of “forced savings” for home buyers. When you make a mortgage payment each month, a portion of the money goes towards interest on your loan, and the remaining part goes towards paying off your principal, or loan balance. That means the amount of money you owe the bank is reduced every month. As your loan balance goes down, your home equity goes up.

Additionally, unlike other assets that you borrow money to purchase, the value of your home generally increases, or appreciates, over time. For example, when you pay off your car loan after five or seven years, you will own it outright. But if you try to sell it, the car will be worth much less than when you bought it. However, when you purchase a home, its value typically rises over time. So when you sell it, not only will you have grown your equity through your monthly mortgage payments, but in most cases, your home’s market value will be higher than what you originally paid. And even if you only put down 10% at the time of purchase—or pay off just a small portion of your mortgage—you get to keep 100% of the property’s appreciated value. That’s the wealth-building power of real estate.

WHAT CAN I DO TO GROW MY HOME’S EQUITY FASTER?

Now that you understand the benefits of building equity, you may wonder how you can speed up your rate of growth. There are two basic ways to increase the equity in your home:

  • Pay down your mortgage.

We shared earlier that your home’s equity goes up as your mortgage balance goes down. So paying down your mortgage is one way to increase the equity in your home.

Some homeowners do this by adding a little extra to their payment each month, making one additional mortgage payment per year, or making a lump-sum payment when extra money becomes available—like an annual bonus, gift, or inheritance.

Before making any extra payments, however, be sure to check with your mortgage lender about the specific terms of your loan. Some mortgages have prepayment penalties. And it’s important to ensure that if you do make additional payments, the money will be applied to your loan principal.

Another option to pay off your mortgage faster is to decrease your amortization period. For example, if you can afford the larger monthly payments, you might consider refinancing from a 30-year or 25-year mortgage to a 15-year mortgage. Not only will you grow your home equity faster, but you could also save a bundle in interest over the life of your loan.

  • Raise your home’s market value.

Boosting the market value of your property is another way to grow your home equity. While many factors that contribute to your property’s appreciation are out of your control (e.g. demographic trends or the strength of the economy) there are things you can do to increase what it’s worth.

For example, many homeowners enjoy do-it-yourself projects that can add value at a relatively low cost. Others choose to invest in larger, strategic upgrades. Keep in mind, you won’t necessarily get back every dollar you invest in your home. In fact, according to Remodeling Magazine’s latest Cost vs. Value Report, the remodeling project with the highest return on investment is a garage door replacement, which costs about $3600 and is expected to recoup 97.5% at resale. In contrast, an upscale kitchen remodel—which can cost around $130,000—averages less than a 60% return on investment.4

Of course, keeping up with routine maintenance is the most important thing you can do to protect your property’s value. Neglecting to maintain your home’s structure and systems could have a negative impact on its value—therefore reducing your home equity. So be sure to stay on top of recommended maintenance and repairs.

HOW DO I ACCESS MY HOME EQUITY IF I NEED IT?

When you put your money into a checking or savings account, it’s easy to make a withdrawal when needed. However, tapping into your home equity is a little more complicated.

The primary way homeowners access their equity is by selling their home. Many sellers will use their equity as a downpayment on a new home. Or some homeowners may choose to downsize and use the equity to supplement their income or retirement savings.

But what if you want to access the equity in your home while you’re still living in it? Maybe you want to finance a home renovation, consolidate debt, or pay for college. To do that, you will need to take out a loan using your home equity as collateral. 

There are several ways to borrow against your home equity, depending on your needs and qualifications:5

  • Second MortgageA second mortgage, also known as a home equity loan, is structured similar to a primary mortgage. You borrow a lump-sum amount, which you are responsible for paying back—with interest—over a set period of time. Most second mortgages have a fixed interest rate and provide the borrower with a predictable monthly payment. Keep in mind, if you take out a home equity loan, you will be making monthly payments on both your primary and secondary mortgages, so budget accordingly.
  • Cash-Out RefinanceWith a cash-out refinance, you refinance your primary mortgage for a higher amount than you currently owe. Then you pay off your original mortgage and keep the difference as cash. This option may be preferable to a second mortgage if you have a high interest rate on your current mortgage or prefer to make just one payment per month.
  • Home Equity Line of Credit (HELOC) A home equity line of credit, or HELOC, is a revolving line of credit, similar to a credit card. It allows you to draw out money as you need it instead of taking out a lump sum all at once. A HELOC may come with a checkbook or debit card to enable easy access to funds. You will only need to make payments on the amount of money that has been drawn. Similar to a credit card, the interest rate on a HELOC is variable, so your payment each month could change depending on how much you borrow and how interest rates fluctuate.
  • Reverse MortgageA reverse mortgage enables qualifying seniors to borrow against the equity in their home to supplement their retirement funds. In most cases, the loan (plus interest) doesn’t need to be repaid until the homeowners sell, move, or are deceased.6

Tapping into your home equity may be a good option for some homeowners, but it’s important to do your research first. In some cases, another type of loan or financing method may offer a lower interest rate or better terms to fit your needs. And it’s important to remember that defaulting on a home equity loan could result in foreclosure. Ask us for a referral to a lender or financial adviser to find out if a home equity loan is right for you.

WE’RE HERE TO HELP YOU

Wherever you are in the equity-growing process, we can help. We work with buyers to find the perfect home to begin their wealth-building journey. We also offer free assistance to existing homeowners who want to know their home’s current market value to refinance or secure a home equity loan. And when you’re ready to sell, we can help you get top dollar to maximize your equity stake. Contact us today to schedule a complimentary consultation!

Sources:

  1. National Association of Realtors – https://www.nar.realtor/blogs/economists-outlook/highlights-from-social-benefits-of-homeownership-and-stable-housing
  2. Urban Institute –  https://www.urban.org/urban-wire/homeownership-still-financially-better-renting
  3. Census Bureau – https://www.census.gov/library/stories/2019/08/gaps-in-wealth-americans-by-household-type.html
  4. Remodeling Magazine – https://www.remodeling.hw.net/cost-vs-value/2019/
  5. Investopedia – https://www.investopedia.com/mortgage/heloc/home-equity/
  6. Bankrate – https://www.bankrate.com/mortgage/reverse-mortgage-guide/

2020 Real Estate Market Forecast

January 2020 - MVP - Social Media Image

We’re in the midst of the longest economic expansion in U.S. history, and economists think there’s still room to grow. A recent survey by the National Association for Business Economics found that experts believe the U.S. economy will remain positive throughout 2020.1

Still, given that recessions are a natural (and necessary) part of a business cycle, we know this period of growth will inevitably end. So you may be wondering … how will an eventual recession impact the real estate market?

Many Americans assume a recession would lead to a decline in housing prices like we saw during the Great Recession of 2008. But the real estate market crash we experienced wasn’t typical. In fact, the last recession wasn’t typical at all. It was the worst economic downturn since the Great Depression of the 1930s.

ATTOM Data Solutions analyzed real estate prices during the last five recessions and found that, in the majority of cases, home prices actually went up. Only twice (in 1990 and 2008) did prices decline, and in 1990 it was by less than one percent.2

So what can historical precedent—combined with today’s data—tell us about the future of real estate? Here’s where experts predict the housing market is headed in 2020 and beyond.

HOME PRICES WILL KEEP RISING

Economists predict U.S. housing prices will continue to rise, regardless of a recession. In fact, property data firm CoreLogic forecasts a faster rate of growth for home prices in 2020 than we saw in 2019, with the biggest gains at the lower end of the market.3

Arch MI Chief Economist Ralph DeFranco expects entry-level home prices to increase faster than incomes this year, making it even more difficult for many first-time buyers to afford to enter the market.4

“Low interest rates and a shortage of starter homes will continue to push up prices,” predicts DeFranco. “This is especially the case for lower price points, since builders have tended to focus on more expensive, higher-profit houses and less on replenishing low inventories of entry-level homes.”4

“Real estate is on firm ground with little chance of price declines,” said National Association of Realtors Chief Economist Lawrence Yun. “However, in order for the market to be healthier, more supply is needed to assure home prices as well as rents do not consistently outgrow income gains.”5

What does it mean for you? If you have the ability and desire to buy a home now, don’t let a fear of recession or falling prices hold you in limbo. Economists expect home values, as well as rent prices, to continue rising. So you’ll likely pay more the longer you wait.

INVENTORY CONSTRAINTS WILL CONTINUE

According to Redfin, Americans are staying in their homes longer. In 2019, the average homeowner had resided in their home for 13 years, up from just eight years in 2010. That means there are fewer homes available today for those who want to buy.6

It’s possible that an increase in new construction could offer some relief. The National Association of Realtors (NAR) expects single-family housing starts to total one million this year, the highest level since 2007. And NAR Chief Economist Lawrence Yun predicts the average price of new construction will decline slightly as builders shift to building smaller, more affordable homes.7

However, these efforts may not be enough to meet current demand. “Despite improvements to new construction and short waves of sellers, next year will once again fail to bring a solution to the inventory shortage,” predicts Realtor.com Senior Economist George Ratiu. “In 2020, we expect inventory to struggle to grow and could instead reach a historic low level.”8

What does it mean for you? If you’re looking to buy a starter home, be prepared to compete for the best listings. Start your search early, and if you’re up against a deadline (like a new baby), build in plenty of time to find the right home. We can help you assess your options, including new construction and up-and-coming developments.

MORTGAGE RATES WILL REMAIN LOW

Mortgage rates have declined more than a full percentage point since November 2018, when they hit a recent peak of 4.94%.9 The Mortgage Bankers Association predicts rates will remain low, at around 3.7%, through mid-2021.10

While it may not seem significant, on a $200,000 30-year fixed-rate mortgage, that lower rate means buyers could save around $145 on their monthly payment and more than $52,000 over the life of their mortgage. Lower mortgage rates make homeownership more accessible and affordable for buyers.

Although economists expect mortgage rates to stay low, they caution against waiting to act. Economic factors, shifts in supply and demand, or unforeseen impacts of the November election could cause rates to rise unexpectedly. “We recommend borrowers with long-term plans of staying in their homes to lock in a low rate now because there’s no telling how long these low rates will last,” warns Preetam Purohit, a capital markets trader at Embrace Home Loans.11

What does it mean for you? If you’re looking to buy a home, act soon to lock in a historically low mortgage rate. It will minimize your monthly payment and could save you a bundle over the long term. And if you plan to stay in your current home for a while, consider whether it makes sense to refinance your mortgage at today’s lower rates.

MILLENNIALS WILL DRIVE THE MARKET

Millennials are expected to account for more than half of all mortgages this year, outnumbering Generation X and Baby Boomers combined. It’s not surprising, considering their age and stage of life. In 2020, the largest cohort of millennials will turn 30, and the oldest millennials will turn 39.8

“Family changes tend to drive home-buying decisions,” explains Realtor.com Chief Economist Danielle Hale. “Millennials are going to be active in the housing market not just because they’re just at the age when they’re thinking about becoming first-time home buyers, but they’re also in the age range when they’re having kids.”12

Younger millennials flocked to urban centers that offered easy access to work, shopping, and restaurants. But high prices, lack of square footage, and subpar schools are driving millennials out to the suburbs as they begin to marry and expand their families. 

In response, a new model for suburban living has emerged. “Hipsturbias,” or mixed-use communities that bring the live/work/play concept to the suburbs, were recently named one of the top real estate trends for 2020 by the Urban Land Institute.4

What does it mean for you? If you’re a millennial who has been priced out of urban living or is looking for more space for your growing family, a number of suburbs in our area have a lot to offer. We can point you towards the communities that will best meet your needs. And if you’re a homeowner with plans to sell, give us a call. We know how to market your home to millennials … and can help you sell quickly for top dollar by appealing to this leading market segment!

WE’RE HERE TO GUIDE YOU

While national real estate numbers can provide a “big picture” outlook, real estate is local. As local market experts, we can guide you through the ins and outs of our market and the issues most likely to impact sales and home values in your particular neighborhood. 

If you’re considering buying or selling a home in 2020, contact us now to schedule a free consultation. We’ll work with you to develop an action plan to meet your real estate goals this year.

START PREPARING TODAY


If you plan to BUY this year:

  1. Get pre-approved for a mortgage. If you plan to finance part of your home purchase, getting pre-approved for a mortgage will give you a jump-start on the paperwork and provide an advantage over other buyers in a competitive market. The added bonus: you will find out how much you can afford to borrow and budget accordingly.
  2. Create your wish list. How many bedrooms and bathrooms do you need? How far are you willing to commute to work? What’s most important to you in a home? We can set up a customized search that meets your criteria to help you find the perfect home for you.
  3. Come to our office. The buying process can be tricky. We’d love to guide you through it. We can help you find a home that fits your needs and budget, all at no cost to you. Give us a call to schedule an appointment today!

If you plan to SELL this year:

  1. Call us for a FREE Comparative Market Analysis. A CMA not only gives you the current market value of your home, it will also show how your home compares to others in the area. This will help us determine which repairs and upgrades may be required to get top dollar for your property, and it will help us price your home correctly once you’re ready to list.
  2. Prep your home for the market. Most buyers want a home they can move into right away, without having to make extensive repairs and upgrades. We can help you determine which ones are worth the time and expense to deliver maximum results.
  3. Start decluttering. Help your buyers see themselves in your home by packing up personal items and things you don’t use regularly and storing them in an attic or storage locker. This will make your home appear larger, make it easier to stage … and get you one step closer to moving when the time comes!


Sources:

  1. NBC News –  https://www.nbcnews.com/business/economy/what-impending-recession-new-survey-shows-most-people-think-they-n1098511
  2. Curbed –  https://www.curbed.com/2019/1/10/18139601/recession-impact-housing-market-interest-rates
  3. HousingWire  –  https://www.housingwire.com/articles/corelogic-expects-home-prices-to-do-this-in-the-next-12-months/
  4. Forbes –  https://www.forbes.com/sites/alyyale/2019/11/15/2020-housing-outlook-expert-predictions-for-mortgage-rates-home-prices-tech-and-more/#343ea4522935
  5. National Association of Realtors –  https://www.nar.realtor/newsroom/expect-continued-economic-growth-slower-real-estate-price-gains-and-small-chance-for-recession-in
  6. Redfin –  https://www.redfin.com/blog/homeowners-staying-in-their-homes-longer/
  7. HousingWire –  https://www.housingwire.com/articles/builders-are-coming-to-the-housing-markets-rescue/
  8. Realtor.com –  https://www.realtor.com/research/2020-national-housing-forecast/
  9. YCharts –  https://ycharts.com/indicators/30_year_mortgage_rate
  10. MBA Mortgage Market Forecast November 2019  –  https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary
  11. Dallas Morning News –  https://www.dallasnews.com/sponsored/real-estate/2019/11/23/experts-predict-where-mortgage-interest-rates-land-in-2020/
  12. Realtor.com –  https://www.realtor.com/news/trends/biggest-changes-coming-in-2020-real-estate-and-tips-for-buyers-and-sellers/