June 2020 Market Update

Frenzy Is Back–23% of Sales Over Asking
Luxury Market Rebound–Contracts Up 159%

2020-06 Infographic

For Buyers:

Greater Phoenix is officially back to a frenzy market with more properties under contract than what’s available for sale. Over the past 4 weeks the number of contracts accepted weekly has jumped another 20% since last month’s report, bringing the total recovery since April 5th to 68% and 2.5% higher than it was in late February; before the stock market crashed and the stay home orders were imposed due to COVID-19.

The most frenzied areas are those with average sale prices between $200K-$400K. That includes just about all of Southeast Valley and West Valley, North and South Phoenix. At last count, there were 2,061 properties for sale between $200K-$300K and 4,333 under contract already. Between $300K-$400K, there were 2,006 available for sale and 3,017 under contract (24% higher than this time last year).

While all price ranges have rebounded in contract activity, May saw the largest comeback between $500K-$1M where the number of accepted contracts soared 167% from a low of 148 contracts the first week of April to 395 the first week of June. That’s 58% higher than last year’s count in the same week of 250 contracts. Even more dramatic, contracts over $1M are now up 85% compared to this week last year.

The result for buyers is an inventory that’s back to a pre-pandemic low. In our March update, inventory was at a historic low of 11,087 listings before vacation rentals began flooding the market for sale. Inventory rose 35% over the course of 4-5 weeks and peaked in mid-April. Since then, inventory has consistently dropped week over week and now lies at 11,232; just 145 more listings than before this whole situation began.  Low interest rates and positive affordability indicators continue to fuel demand and cause prices to rise. The big question buyers ask, “Is it still a good time to buy?”. The answer is yes, for now. Affordability is still within normal range, which is a good reason as to why there’s so much demand. However if affordability drops below the normal range for those making the median family income, then the market will begin to cool. We are not there yet. It’s best to get in while it’s affordable.

For Sellers:

Not surprisingly, there is an increasing percentage of closings over asking price. 23% of all closings so far in June have recorded over asking price, up from 17% recorded in January and 19% recorded in February. That percentage increases to 38% for closings between $200K-$250K and 27% between $250K-$300K. It’s not uncommon for sellers to experience multiple offers, escalation clauses and appraisal waivers in today’s environment. In fact, there have been reports of 70 competing offers or more on homes under $300K.

Sellers who have been on the fence about listing their home lately should seriously consider it now and take advantage while the market is hot. This spurt in buyer activity may peak very soon and then fall into the typical seasonal decline the Greater Phoenix market experiences every year from July to December. Pent up demand from the pandemic is now being released, but there’s no guarantee that it will continue at this level for long. If you planned to sell your home this year, now is the time to list it.

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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.

May 2020 Market Update

Pandemic Effect:  Closed Sales Down 31%, But . . .
Weekly Contracts Up 40%

2020-05 Infographic

For Buyers:

Greater Phoenix contract activity dropped 39% over the course of 6 weeks between March and mid-April.  The effects of those declines are now being reported over a month later as a 31% decline in closed sales. This isn’t surprising, you can’t close what was never opened. But that’s already old news, what isn’t getting reported yet is the 40% increase in accepted contracts over the past 4 weeks. This is key information for buyers right now, especially if they’re on the fence waiting for the market to “crash”. This 4-week increase in buyer demand will not be widely reported for 6 more weeks because these contracts still need to close.

One mistake approved buyers make is waiting for closing reports before acting. By the time a property closes escrow and a sales price is publicly recorded, the condition that transaction was created under may have passed. The opportunity for buyers lies in knowing how many contracts are being accepted right now in their price point and area. They also need to know the average list price at contract to gauge where they are this week compared to 10 weeks ago. This information can only be obtained through a REALTOR®.

They’ll discover a significant increase in contract activity across all price points in Greater Phoenix, but the average list price per square foot is only down on contracts written over $500K. All other price points below $500K are seeing the average list price per square foot either higher than or equivalent to where it was 10 weeks ago in February. This does not indicate an impending doom for home values.

Buyers hoping for cheap homes should not retreat in despair, however. Mortgage rates have declined to an average of 3.26% according to Freddie Mac; last year at this time mortgage rates were 4.1%. So while the median sales price rose 8.9% over last year, the principal and interest payment on a $300K, 30-year, fixed- rate mortgage went from $1,450/month to $1,307/month. That’s down $143, a 10% decline over the course of a year. The biggest mistake buyers make is sitting around waiting for sale prices to decline while their potential mortgage payment plummets. Low mortgage rates are not something to ignore or take for granted as they can change quickly for better or worse.

For Sellers:

The increase in contract activity is great news for sellers. However, there are fewer cash buyers offering top dollar for homes in “as-is condition” compared to 10 weeks ago; meaning increased pressure on sellers to do repairs and offer concessions to normal buyers in order to sell their home for their desired price. This is reflected in the percentage of homes closing with seller-assisted closing costs, which increased from 18% to 25% over the past 4 weeks.

The market over $500K is recovering slower than the other price ranges after dropping 58% in weekly contracts due to travel restrictions and the stock market crash from late February through March. While contract activity rose 65% over the past 4 weeks, it’s still down 30% from its peak 10 weeks ago. The irony is that one would expect a massive number of price reductions after such a dramatic drop in demand, but that was not the case. Instead, sellers over $500K simply picked up their ball and left the field. The highest percentage of cancelled listings were seen in the luxury market, which reduced supply and mitigated the loss in demand. As a result, sales prices over $500K have remained stable thus far and are up just 0.9% from this time last year.

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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/

February 2020 Market Update

Luxury Sales Up 52% in January
Supply Down 60% Between $200-250K

2020-02 Infographic

For Buyers:

Supply continues to drop as the market heats up with the seasonal rush of Buyers. Typically we would see supply rising at this time of year as January is a strong month for new listings to hit the market. However this year new listings year-to-date are down 17% from last year and January 2020 had the lowest number of new listings recorded going all the way back to 2001. Combine this with a 21% increase in sales volume and the 4th highest January recorded for MLS sales, and it’s no surprise that supply is plummeting.  While supply is down in all price points, it’s felt the most between $200K-$250K. Supply in this price range is nearly 60% lower than this time last year and a quarter of sales in the last 3 months have recorded over asking price.

Seller-paid closing cost concessions are also down. Nearly 22% of all sales in the 1st Quarter to date have included some form of seller-paid or assisted closing costs.  That’s the lowest percentage recorded in nearly 5 years.

For Sellers:

The luxury market continues to go gangbusters in 2020. Sales over $1 Million in 2019 outperformed 2018 by  10%, which makes it the #1 year for in Greater Phoenix in this price range. January closings were up 52% in  this price and listings under contract are up 43%.

With all this demand, one would think price appreciation would be rising significantly however that hasn’t  happened yet. The average sales price per square foot between $1M-$2M has only appreciated 1% while those between $2M-$3M have appreciated 0.2% and those over $3M have increased 6%. The current appreciation rate per square foot is between 8-9% for Greater Phoenix as a whole.

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.

December 2019 Market Update

19% of Homes Sold Over Asking
24% of Sellers Agreed to Closing Cost Assistance

2019-12 Infographic

For Buyers:

Supply shortages created an environment of multiple offers and listings sold over asking price last month.  This is especially evident among listings between $125K-$250K where 26% sold over asking price in November compared to the overall percentage of 19% in Greater Phoenix. In a normal market, we would expect 10-15% of listings to be sold over asking price.

That statistic may sound hopeless to a buyer who may not have the means or stomach to pay over asking  price. However, 24% of sellers agreed to pay some form of closing cost assistance to buyers in November as well. This measure increases to 32.5% on sales between $125K-$250K, the primary price point for first-time home buyers.

The West Valley has the largest share of homes listed between $125K-$250K at 46%. Pinal County has 31%,  the Northeast Valley has 12% and the Southeast Valley has just 10%. Given this information, it ’s not surprising that the West Valley has both a large share of transactions involving seller-paid closing costs combined with a higher-than-average percentage of homes sold over asking price. Pinal County, on the other hand, has a large percentage of seller-paid closing costs, but a lower-than-average percentage of homes sold over list price.

For Sellers:

More expensive areas with average sale prices over $500K have significantly fewer sales involving seller-paid  closing costs (as would be expected) and a much lower-than-average percentage of homes sold over asking price, but things have been exciting for this market so far this year. Sales over $500K are up over 16.5% yearto-date over last year, but most impressive is the 21% increase in sales over $2M!  Typically the second half of the year is flat for luxury sales in this range, but this year contracts in escrow have soared 42% over 2018’s level in the last 3 months.

Also impressive is a 24% gain in sales between $500K-$600K, which was helped by an increase in the FHFA  loan limit to $484,350 last year. In 2020, that limit is set to rise again to $510,400. This means it may get a little easier for buyers to qualify for more expensive homes and that’s good news for sellers.

Sellers in the mid $300K price range are getting a boost too. FHA is raising their loan limit in 2020 from  $314,827 to $331,760. FHA financing is an option for buyers who may have less-than-favorable credit and lower down payments. This is good news for both buyers who can’t move up in price due to the existing limit and sellers who are just out of reach for these buyers.

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.