The Cromford Report: The Effect of COVID19 On AZ Real Estate Market

By
Real Estate Agent with Keller Williams Realty EV (AZ) & Keller Williams SLC (UT) 629265000 & 7238507
https://activerain.com/droplet/5mFk

The Cromford Report: The Effect of COVID19 On The Arizona Real Estate Market

 

Hi Everyone,

We are all interested in exactly what effect COVID19 is having on the Real Estate Market. Here are some observations from the Cromford Report that you might find interesting…

Please let me know if this is helpful.
 
Broker Mike Salyer

 
March 18 - A number of people seem to assume that we are heading for a recession and that home prices will fall. The first assumption is quite reasonable. The second assumption is based on fear and has little analytical data to back it up. Obviously anything can happen in a uncertain and disrupted world, but a fall in home prices is still looking very unlikely from today's numbers.

In 2005 the housing industry started to sicken because homes were being used as speculative commodities not for places to live. In 2005 I met a man in his early 20s who owned 12 homes in the Phoenix area, all with no occupants. How had he been able to buy them? 100% loans from unscrupulous lenders who went bust between 2007 and 2010. The housing industry (and more particularly the lending industry within it) was the cause of the 2008 recession. Phoenix was a hot spot for the cause of the problem, as was Las Vegas.

In 2020, housing is an innocent bystander to a probable recession caused by a pandemic. It has supply at extremely low levels and most homeowners have a large amount of equity. Even if they lost all their income and could no longer pay their mortgage, they could quickly find a buyer to release that equity. There is little likelihood of them facing foreclosure because the lender can be paid off with the sale proceeds. Only when demand collapses do the banks have to foreclose to get their money back. At the moment demand is still well above normal and has only shown very tiny signs of easing. In 2006 demand fell off a cliff yet home builders continued to build even more new homes because lenders continued to write ill-advised loans in huge numbers.

In 2020 builders are probably going to have to build fewer homes than they wish because of shortages of labor and materials. We are unlikely to see a glut of homes on the market for a very long time. A successful vaccine for the novel corona virus is more likely to appear before a surplus of homes could possibly develop.

Because the virus has not been contained yet, except in several parts of Southeast Asia, we are likely to see a lot of people out of work. We do not yet know how long it will take to get control of the pandemic in Arizona, but many people may be out of work for quite some time. These people are more likely to be renters rather than homeowners. Landlords may find it much harder to collect rents and the yields from their portfolios are likely to fall. Some may decide to evict tenants and sell their properties. At the moment the extra supply would be welcomed and receive multiple offers, even in these troubled times. The evicted tenants still exist and therefore still represent demand for shelter of some sort. There will be hardship, but not a flood of homes with no-one to live in them.

Housing demand is created by the existence of people and increases when more people turn up and decreases if they go away. In 2005 the people we were building new homes for were largely imaginary. In 2020 they are very real and migration trends have been very favorable with families and individuals moving to Arizona from other parts of the USA.

All the indicators for the Central Arizona housing market remain very healthy at the moment and we will report any change as soon as we spot one. There is no cause for panic and if you are delaying a purchase because you think the price will come down, you are probably making a poor decision.


March 17 - We said yesterday that we should see some effects of the pandemic very soon and this morning I am seeing the first small signs of a change in the market.

1. Some sellers have started to take their homes off the market to avoid the risk of having potential buyers in their home.

The total number of listings in Temporarily Off Market status (TOM) is 1,127 with 10,992 active with no contract and 5,077 active with UCB or CCBS status. The TOM count was 1,065 a week ago so we have seen an increase of 5.8% over 7 days. Not huge yet but if this trend continues at this pace we will start to see a significant drop in available supply. The ratio of actives (excluding UCB and CCBS) to TOM is 9.75 to 1. This time last year the ratio was 15.7 to 1. However we were at 9.8 to 1 in early January before the pandemic had really registered in the public's mind. This is definitely a new figure to watch. We may also see some unseasonal growth in cancellations.

2. The count of listings under contract shows signs of stabilizing instead of growing fast

Last year the number of homes under contract grew 12.9% between February 16 and March 16. In 2020 the same growth is only 9.7%. This is a subtle change but it is the first sign we have seen of demand starting to wane. This despite mortgage interest rates that make homes more affordable than last year. Most of the slow down happened in the last 7 days. We saw no growth in the number of listings under contract over the past week whereas during the same period last year we saw a growth of 3%.

We have not seen a slow down in closings yet. You would not expect that since the contract would have been signed many weeks ago and the number of people cancelling signed contracts is likely to be small at the moment. It is possible that this could change.

So we have signs of a falling trend in supply and also signs of a falling trend in demand. Which one proves to be stronger in the medium term we do not yet know, but the combination will affect volumes of business negatively. There is no sign as yet that pricing will be affected, but pricing is currently on a strong upward trend and this may falter if demand drops more quickly than supply.

The Cromford® Market Index continues to rise from its already extraordinarily high level, almost at 240. However its momentum is starting to ease a little.

__________________________________________________________________________

 
If you happen to have any questions or have concerns about buying or selling home in the East Valley during this time, feel free to reach out to The Shanna Day Team, The Real Estate Experts at 480-415-7616.

 

Source Article:

www.cromfordreport.com

 

 

 

 

 

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The Cromford Report: The Effect of COVID19 On The Arizona Real Estate Market

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