January 2018 Phoenix Real Estate Update

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Ground Hog predicts six more weeks of winter. Yikes to those residing in the midwest and east coast!  It is a great time to be in Arizona.

The celebration of Groundhog Day began with the Germans, Pennsylvania's earliest settlers. They brought with them the legend of Candlemas Day, which states "For as the sun shines on Candlemas day, so far will the snow swirl in May...". Originally the prognosticator was a badger or sacred bear but the settlers found groundhogs were plentiful (and less likely to kill you) and were selected to carry on the legend of Candlemas Day.  Today the groundhog is named Punxsutawney Phil. He is from the town of Punxsutawney, Pennsylvania.  People from all over the world to see if he sees his shadow.



I hope you enjoy this monthly newsletter.  Are you thinking about selling a property?  Do you want to know the true value of your home, not just Zillow’s opinion? Do you have any questions about your neighborhood’s values? Please call, text or send me an email.


If you are thinking about buying you can search the MLS from my website at greathouseaz.com. 


Are you looking for a rental property manager?  Please call or email Karen at 602-316-7028 or ftr9558@cox.net.

Sincerely,

Pat Hune

Broker

1st Southwest Realty

“Working hard for our clients to keep them in 1st place!"

greathouseaz@gmail.com

480-703-1976

www.greathouseaz.com

Equal Housing Opportunity



Articles

1)  The Greater Phoenix Real Estate - A Look Back At 2017 and What is Ahead in 2018 for Buyers and Sellers?

2)  STAT Newsletter

3)  Aging Baby Boomers Housing Decision - Rent or Own? 

4)  Multifamily Construction Dominates Downtown Phoenix 

5)  Downtown Phoenix goes High Tech 

6) Tales From the Trenches - Do Sellers get fair market value when they sell to As Is Cash Buyers?


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1)  The Greater Phoenix Real Estate - A Look Back At 2017 and What is Ahead in 2018 for Buyers and Sellers?

Tina Tamboer, Broker, Cromford Associates LLC and Tamboer Consulting LLC, January 2018


It is time to look at the annual changes in the real estate market from January 7, 2017 to January 7, 2018. Let’s start with some statistics. All statistics are compared to the market one year ago.

Active listings for sale = 17,431 - Down 13.6% 

Listings under contract =  7,733 -  Down 3.9% 

Monthly Median Sales Price = $245,000 - Up 8.4%

Monthly Closed Sales = 7,061 - Down 0.2%

Listing Success Rate =  Jan 2016 - 77.2%, Jan 2017 - 73.3%, Jan 2018 71.1% (This is the percentage of houses that sold after being listed in the MLS.)

Months of Supply = Jan 2016 - 3.8, Jan 2017 - 3.4, Jan 2018 2.9 (If no new listings were to come on the market, at the current monthly rate of sales inventory would run out in 2.9 months.)


Encompassing the Arizona Regional MLS area which includes Maricopa County, Pina County and a small part of Yavapai county.


For Buyers:

2018 is not going to be any less competitive for buyers in general.  The market is starting out with 14% fewer listings compared to 2017.  However there are 35% fewer listings under $200K, a price range that commands 34% market share of all MLS resales in Greater Phoenix.  51% of MLS sales were between $200K-$400K in 2017, and supply in this range is down just 7%.   14% of sales were between $400-$1M and supply is down nearly 9%.  Only the market over $1M is starting 2018 with 4% more for sale, 2017 sales over $1M were less than 2% of the market.


For Sellers:

Over 51% of newly constructed condominiums, townhomes and single-family residences sold in 2017 were between $275K-$500K as of November and approved single family permits are up nearly 12% going into 2018.  Added inventory from new construction continues to keep mid-range property appreciation at sustainable levels at the current level of demand.  The last wave of boomerang buyers is expected to rejoin the masses in homeownership this year after waiting 7 long years to qualify for conventional financing after foreclosure.  These buyers span all price ranges and their return combined with positive inbound relocation and employment keep Greater Phoenix a positive environment for sellers.


Multifamily

The Phoenix multifamily market was on fire in 2017.  If you bought a multi-family property in the greater Phoenix area during the bottom of the downturn in 2010-2011 you are a very happy camper today.  Anyone watching the multi famiy market for the past three to five years have seen the prices skyrocket. This was especially true for duplexes, triplexes and fourplexes which can be purchased with residential loans. Residential loans are much easier to qualify for and tend to have lower interest rates. After the peak in 2005-2006 some investors started buying when they saw prices dropping by $50-$60K thinking they were getting a bargain.  Prices continued to slide and properties that sold for $380,000 at the top dropped to $100,000 at the bottom.   If the property is located in the Southeast Valley (South Scottsdale, Tempe, Chandler, Gilbert and Mesa) the prices have recovered and in some cases even exceeded the 2005-2006 prices. Some Phoenix multi-family properties have not recovered anywhere close to the top of the market. Areas like Palomino Pointe and Sunny Slope may never recover. Contributing factors to the lack of recovery in these areas include high vacancy rates, condition of the property and extremely high HOA fees.  Today’s multifamily buyers are having a hard time making the numbers work especially if they have to finance their purchase.  But multi-family properties are selling every day despite the high prices, low cap rates and low or negative cash flow.


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2) STAT Newsletter Link - Commentary by Tom Ruff, Founder of the Information Market 

(Note the numbers are reported one month behind.)  STAT is produced monthly by the Arizona Regional Multiple Listing Service.  This is the database realtors use to list homes for sale and the source for historical sales. ©ARMLS 2018


If this months STAT report was limited to the number of characters in a Tweet it would say "2017 was a very good year for housing and 2018 is projected to be even better.” 


My readers who want more detail but don’t have time to read the entire STAT report here are the highlights.


2017 will go down as one of metro Phoenix’s best-ever years for home sales. An early tally shows 93,500 Valley houses changed hands last year. That’s 6 percent higher than home sales in 2016.  “Only 2004, '05 and 2011 were better years for home sales,” said Tina Tamboer, senior housing analyst with the Cromford Report.  And in those years, the Valley's housing market was far from normal. The housing boom, fueled by subprime mortgages and speculators, started in 2004 and was in full swing during 2005.  


Metro Phoenix’s housing market hit bottom in 2011, and investors snatched up a record number of bargain foreclosure homes that year.  So 2017 could be considered the Valley’s best healthy year for home sales, something real-estate analyst Tom Ruff predicted in August.“2005 went down in the history books as the year our housing bubble rapidly inflated,” said Ruff of Arizona Regional Multiple Listing Service’s The Information Market. “2011 was the year housing prices bottomed out after the housing-market collapse.  This leaves 2017 as the very best year for Valley resale homes in our history not influenced by some freakish market outlier,” he said.


Interest Rates Were Low - Thirty year mortgage rates averaged about 4 percent in 2017.  It is expected they will increase to average about 4.5 percent in 2018.


Financing - In 2016, 105,592 homes sold in Maricopa County (as reported by the Information Market based on public record). In 2017 the number of homes sold rose to 113,367. Reviewing the way purchases were financed throughout the year will give us insight into the type and quality of buyers driving our market.   The two most noticeable changes took place with conventional and FHA loans. There were 8,819 more conventional loans and 3,283 fewer FHA loans made in 2017 compared to 2016. Cash buyers accounted for 21.8% of all purchases in 2017 compared to 21.9% in 2016. Translation: the same percentage of buyers are financing their purchases as in 2016. Of those financing their home purchases, a greater percentage of homebuyers chose conventional financing over FHA.  If we look a little deeper and compare our numbers to those of the Ellie Mae Origination Insight Report for December 2017, we see higher quality buyers in 2017. With a higher number of conventional and fewer FHA loans, this shift from FHA financing to conventional tells us conventional buyers had higher FICO scores, better debt to income ratios and put more money down than FHA buyers.  (Editor’s note - Another factor could be lenders being fined for supposed FHA loan violations. Big names like Wells Fargo, US Bank, M&T Bank, Franklin First, US Bank and Bank of America (BoA was fined 16.65M$) among others have developed alternative loan programs so first time homebuyers who would typically get FHA loans have other options.)


Foreclosures and Flips - Foreclosure activity in Maricopa County has been declining since 2009. It is expected 2018 will become the ninth. There were 7,520 notice of trustee sales filed on residential properties in Maricopa and 3,094 residential foreclosures in 2016. This compares to 6,694 notices and 2,302 recorded residential trustee’s deeds in 2017. There were 11.0% fewer notices and 25.6% fewer foreclosures in Maricopa County in 2017. The largest percentage increase occurred with flips (homes purchased and sold again in a six-month window). Flips saw a 20% increase, which can be directly attributed to the two prominent i-Buyers* in our market.  (*See Tales From The Trenches for more info on i-Buyers)


Pricing - When we compare the December 2017 average and median metrics to December 2016, and when we compare the annual price per square foot between January 1, 2018 and January 1, 2017, we come up with the following results:

Price appreciation as measured by the median sales price: 8.5% 

Price appreciation as measured by the average sales price: 9.5% 

Price appreciation as measured by annual price per square foot: 8.2%

This is the one metric that exceeded my expectations, and the one metric I wished hadn’t. Low supply plus steady demand translates into these high percentage gains.


Last month STAT projected a median sales price for December of $243,000. The actual median sales price was $246,225.  The January ARMLS Pending Price Index anticipates the median sales price will be $245,000. It is quite normal for January’s median to drop slightly.  But prices still aren’t back to peak levels of 2006. Tamboer said an early analysis of sales on the MLS shows Phoenix-area home prices climbed 6.5 percent last year.  The Valley’s median sales price climbed 7 percent in 2016.  Metro Phoenix’s median existing-home price is hovering around $250,000 now, after getting an 8 percent boost in December.  That is still $15,000 off the Valley’s peak median home price in 2006.


Sales volume - Sales volume in 2017 was 5.82% higher than 2016, with 93,887 sales in 2017 compared to 88,713 in 2016. We begin January with 4,781 pending contracts; 2,692 UCB listings and 300 CCBS giving us a total of 7,773 residential listings practically under contract. This compares to 7,947 of the same type of listings one year ago. Projecting January’s sales volume is always tricky, this year it is made even harder by the shift in the way pending sales are being or not being reported. We know we have fewer “pending” listings this year compared to last.  I’m not buying this will translate into fewer sales. The higher than expected price gains in the final quarter leads me to believe our market may be a little warmer than the “pending” contracts are indicating. Christmas was on a Monday and the last business day was Friday. With only four business days the last week of the month some closings probably got pushed forward into 2018. ARMLS reported 5,932 sales in January of 2017.  Our first finger in the wind forecast for 2018 calls for a January sales volume of 6,125.


Looking Ahead - In early January of most years, everything is speculation. The one thing almost everyone agrees on is that with even fewer homes for sale this year, prices must go up. As an added note, if we see a 7.6% increase in our reported December median home price of $246,125, we will match our peak median price set in June 2006 at $264,800. I personally hope this doesn’t happen, as a 2019 return to peak pricing would make for a much healthier market. But if it does occur, June is the most likely month.


There are two prevalent notions as to sales volume in 2018.  1) low inventory numbers will lead to higher prices, and 2) the higher prices coupled with rising interest rates will restrict demand leaving 2018’s sales volume comparable or lower than 2017’s. The second line of thinking centers around millennials being one year older and an improving economy in which case the single-family housing market will make further gains this year. I’ve always seen March as a bell weather month meaning we should have some indication of 2018’s trajectory.


Mortgage interest rates are on the rise and probably will continue to inch up in direct response to inflation.  The Federal Government believes the that inflation could reach their 2% target this year.  Supported by a growing economy, inflation pushes interest rates (including mortgage rates) higher.  The Fed is expected to increase short term interest rates when they meet in March.


December Stat


December Rent Check


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3)  Aging Baby Boomers Housing Decision - Rent or Own? 

Orion Real Estate, January 2018


For retirees it seems to make financial sense to rent. They avoid paying the potentially high HOA fees (typically included in the rent and paid by the owner) and don’t have to pay for repairs.  If a retiree has a second home in Italy, renting gives them the flexibility to be gone for months at a time.  They don’t have to worry about maintenance on a home they do not own. Many baby boomers who think they want to downsize into a city condo are surprised that it will cost them as much to buy a condo as they would pay for a house in the suburbs.  Often rents in desirable areas of a city are very high.  People are sometimes disappointed the amount of space they can rent is less than expected, even though they are avoiding condo fees and maintenance costs. Living in an urban environment close to restaurants, entertainment and shopping can be attractive to retirees who don’t want the hassle of driving.


According to a 2016 Freddie Mac survey of boomers, the majority of those 55 and older plan to stay in their homes during retirement. Among those who plan to move, one in five say they will sell their home and buy a new one, while one in 10 say they will sell their home and rent when they move. Data from TenantCloud, a property management software service, shows that nearly one-third of all urban applications are for renters over age 60.


But there is a downside to renting. What happens if the owner wants to sell?  Now the tenants need to pack up and find somewhere else to go. The landlord may keep increasing the rent.  As the economy has rebounded rental rates have increased accordingly.  If the rent gets to be unaffordable then the baby boomer will have to move and may have a hard time finding another place.  The bottomline there are a lot of things to be considered before making a decision to rent.


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4)  Multifamily Construction Dominates Downtown Phoenix 

Phoenix Business Journal, January 2018


Construction cranes are sprouting in downtown Phoenix. That could transform with city’s skyline if a number of proposed high-rise developments come to fruition.  They show what kind of development is — and isn’t — happening within downtown and the rest of the region.  “Over the next 18 months, the Phoenix skyline is going to change significantly with potentially as many as 12 mid- and high-rise buildings going up,” said Christine Mackay, director of Phoenix Community and Economic Development. “I don’t believe there has ever been a time in Phoenix’s history that there will be so many cranes over downtown at one time.”


Most projects under construction and in the pipeline are apartment or hotels and not office developments. Cushman & Wakefield reports there were 2,800 new multifamily units under construction in downtown and central Phoenix, with another 2,700 planned.  That’s good for bringing residents to the region’s urban core. But it shows the office market still has a long way to go to attract new development, and some prime Valley real estate has been gobbled up by multifamily builders.  Multifamily developers have the financing and demand not seen by the office market and retail, which is in retreat in the age of Amazon and e-commerce.


“Any high-rise for now will be residential,” said Andrew Cheney, a commercial real estate broker and principal with Lee & Associates in Phoenix. The long-watched Block 23 parcel at Washington and First streets between CityScape and Collier Center is under construction. It includes a Fry’s Food & Drug Stores location. RED Development also is developing apartments along with high-tech and creative offices at the project. Cheney said commercial real estate developers, investors and brokers are seeing how Block 23’s office components do.  “You won’t see a new office tower for a while until some of the vacancy is eliminated,” Cheney said. “But, you will continue to see new restaurants and music venues pop up, a new hotel at Arizona Center and new action on ASU’s downtown campus.”


A new 15-story AC Hotel by Marriott, which is slated for development at the Arizona Center at Third and Van Buren streets.


The Arizona Center is going through a major renovation, and a 31-story apartment complex is slated there from Parallel Capital Partners


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5)  Downtown Phoenix goes High Tech 

Phoenix Business Journal, January 2018


If you didn’t already know it, downtown Phoenix is hot — not only for its deluge of 4,477 housing units planned, under construction or built, and new restaurants opening almost daily, but the number of tech companies relocating to the central city core.  The downtown area has seen a 318 percent increase in tech companies since 2012, has been ranked third for high-tech job growth and fourth for the best metro area for young professionals, said Shannon Selby, the economic development program manager for the city of Phoenix.While the U.S. economy rose 1.5 percent in 2016, that number was 2.6 percent in Phoenix metro as the city was ninth among the top 25 metro areas, Selby said.  “Companies in greater Phoenix benefit from low business costs, minimal regulation and an advantageous operating environment,” she said. “Phoenix has an extremely competitive workforce in regards to training, quality and availability of workers, while maintaining one of the lowest costs for labor in the nation. The projected employment growth over the next decade is 15.15 percent, compared to the national projected growth of 9.42 percent.”.  Selby moderated a Silicon Desert panel Tuesday at the Phoenix Country Club, discussing how the city led the way for the tech sector for the Arizona Commercial Real Estate Women organization.


Ryan Bartos, executive vice president of JLL, advises high-tech growth companies when looking to move to or within the Valley. Bartos has completed more than 2.6 million square feet of lease transactions, totaling more than $261 million in lease consideration, with many of those transactions in downtown Phoenix.  “When companies look at moving to the Valley, they typically look at downtown Tempe, Old Town Scottsdale and downtown Phoenix,” said Bartos on the panel. “Over the last 12 months, downtown Phoenix has risen above the rest because of its cool, old buildings and talent attraction component.”


Brenda Schmidt, founder and CEO of Solera Health Inc., is one of the newest companies to relocate to downtown Phoenix. Solera Health is moving its 100 employees into the Monroe building at 111 W. Monroe Ave. on Thursday, moving from 11th Avenue and Roosevelt Street. Solera Health, which raised $18.3 million in a Series B round last year, is also opening a London office in April.  “We wanted to be part of the buzz,” said Schmidt while talking on the panel. “Downtown Phoenix is very convenient.


Uber has been downtown since it first moved into the market about five years ago, first renting a desk at the Co-Hoots co-working space and now with 1,000 employees at the Colliers Center. Uber has two empty floors in downtown Phoenix and is looking to bring two business units to the area, said John Hamby, manager of community engagement.


“Arizona is the only place with a Republican governor and a Democratic mayor shaking hands and saying yes,” said Hamby on the panel. “That’s one of the reasons why we’ve brought our driverless cars to the Valley, which have made 30,000 trips and driven over 1 million miles in Tempe and Scottsdale. … We’re adding more cars and vehicle operators in Arizona.”


One thing holding back the continued talent growth in Phoenix is the lack of needed skills and job readiness.  Diana Vowels, general manager of Phoenix Galvanize, said she is “thrilled” to be part of the solution of bringing tech talent to the region and helping companies re-train and scale-up employees with new tech skills. Galvanize opened its Phoenix campus in February 2016. It is the third-largest campus for the Denver-based technology learning space.  “We offer an alternative path to become job ready,” said Vowels on the panel. “We’re offering more education classes in Phoenix because of what’s lacking in the city. Employees need people to hit the ground running.”


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6) Tales From the Trenches - Do Sellers get fair market value when they sell to As Is Cash Buyers?

Pat Hune, Broker, 1st Southwest Realty


Selling a house you are living in can be a hassle.  First the house has to be made sale ready to get the maximum value.  Depending on the condition and amount of deferred maintenance this can cost several thousand dollars.  Then the seller has to keep it clean for showings.  They have to gather up the kids and dogs and leave for showings. The home selling process can take weeks or months depending on the market. Some sellers either don’t have time or money or patience to go through the process. These buyers may contact a cash buyer or i-Buyer company. An i-Buyer is an investor that uses automated valuation models (AVMs) to make quick cash offers on homes.   All these companies buy the houses for cash with no repairs.  The advertisements say sellers will receive fair market value. i-Buyers say instead of buying at a steep discount, like a home flipper, they want to pay as much as they can for the home.  i-Buyers charge the home owner a service fee (i.e. commission) ranging from 6-14%. This supposed to net the homeowner more than selling to a flipper or traditional investor. There is an old saying if it sounds too good to be true it probably is. 


Here is an actual scenario.  The sellers contacted an i-Buyer company. The company made the sellers a cash offer the sellers felt the offer was too low.  Then the sellers contacted their realtor.  The realtor advised them to make some improvements and updates to the house to achieve the maximum sales price.  The cost of the improvements wasn’t cheap at $15,000.  Luckily the sellers had most of the money in cash or were able defer the payment by using credit cards.  It took a couple weeks to complete the work and put the house on the market.  The house was under contract within two weeks.  After deducting for the repairs, closing costs and commissions the sellers walked away with $40,000 more than the cash i-Buyer offer. 


Selling a house to a cash buyer as is and quickly may be attractive.  But as demonstrated in the above example it could cost the home seller thousands of dollars.  It is important to remember these buyers are not looking out for the best interests of the home seller. They only care about their interests - which is to make as much money as possible.  The home seller has zero representation in this transaction.  If you are considering selling to an i-Buyer be sure to get a second opinion from an experienced realtor.  I provide this service for free.  All it takes is a phone call, text or email. And it may save you thousands of dollars.