Richard Bazinet, MBA, CRS, ABR, Realtor at AZuRE Team @ Realty ONE Group. 602-300-7007, firstname.lastname@example.org
In Maricopa County, our biggest real estate challenge remains the low inventory of available homes and the short absorption rate of existing homes despite the growing pace of home construction (aka new builds) in the valley. This shortage of homes means home prices will continue to rise further this year, and likely for another year to 2020. In the micro-economies of many areas and or subdivisions, prices have risen significantly and more so than other areas, while having too few houses listed for sale with a low average listed days on the market. This further has the effect to keep the discount rate between the listed price and the sales contract at about 3%. This hinders affordability, as in many areas, it’s becoming difficult to find properties under the $225,000 market range.
And this despite the normal seasonal fall market real estate activity slowdown.
Nonetheless, it is a seller’s market.
As the American economy is doing absolutely great since the last election, its rock and roll, firing on all cylinders. The market performance is unprecedented in US history, as the economy is experiencing monster numbers. The benchmark 10-year U.S. Treasury yield rose to near 3.2%, continuing to climb after hitting a seven-year high. The economy is booming for at least the next few years.
More Americans are employed than ever before, the lowest in 49 years! ….as the economy continues to improve, more Americans are able to buy homes. 18 % of adults that do not own a home, plan to buy one in the next five years. But only 13% of Americans who own a home plan to sell it in the next five years. This means a shortage as more Americans plan to buy than to sell, thus a seller’s market will remain in the near future.
Based on income, mortgage rate, and home price, the rising cost of rental homes caused by low availability, affordability is at its lowest in the last few years, and I believe it will get worse. There is a significant disparity between earnings and home prices, as income grew about 15% from 2011 to 2017, while home prices increased about 48 percent over that period. The Year Over Year home price increase as of August 2018 was 7.5%. Of course, increasing mortgage rates from the extreme lows we experienced in the last few years will also affect affordability – in other words it will cost more to buy a home than just the increase in home prices.
The other major influencer on the demand for homes is the population growth in the valley pushed by net migration. Arizona, Phoenix Scottsdale remains a destination for many as the net corporate, professional and retirement migration is significantly positive. Fountain Hills, Rio Verde/Verde River, Scottsdale, Queen Creek/San Tan Valley and many areas in the West Valley are net positive destinations.
Silicon Valley has long been considered the tech hub of the U.S., with many of the top companies in the world keeping their headquarters there. However, as housing prices and the overall cost of living have increased in the San Francisco Bay Area, many startups are jumping ship and choosing alternatives, bringing jobs and economic growth to Phoenix.
So, the best way to fix this is by encouraging more home construction and mortgage loan deals as construction loans become retail mortgage loans.
Sources: Gallup Poll, NAR Market Research, Arizona Regional MLS, Federal Reserve, Bloomberg, Residential Real Estate Council, Yahoo Finance.