Why Phoenix Real Estate Growth Outperforms Forecasts
On the one-year anniversary of their home purchase (and for subsequent years), I usually send out a current market analysis to my clients to help assess their market value for a myriad of reasons. Some find this beneficial and, for others, life-altering. Phoenix real estate growth has a way of providing both to property owners.
Shut the Front Door
It’s hard to believe the escalation of property values in such a brief timeframe but there are many reasons that drive the value uptick. In fact, some of the same reasons that have raised the roof on home values are the constants that keep people in Arizona and inspire others to relocate.
Low property taxes
Affordability (compared to other larger cities)
Quality of life
Business-friendly
But when interest rates continue to maintain their level of historic-low rates, sitting on the sidelines and doing nothing with your property is like watching opportunity simply slip through your fingers. And with uncertain times in the midst, having some extra cash on hand is wise; refinances, many with “cash out” closings have been keeping lenders busy in record numbers.
Can You Repeat That Please?
Much like the stock market, increased activity in real estate can be fueled by investors and mainstream consumers. Word on the street (yes, hype/gossip) can create a buzz about what’s hot and what’s not-so-much.
Instead of getting caught up in the chatter, many industry- and lay people refer to the Cromford Report as a gage to what’s truly happening and expectations of the next market trend.
The year-to-year numbers for ARMLS (Arizona Regional Multiple Listing Service), a Realtors’ listing bible and the primary source for other listing search engines, show the reality of what buyers and sellers encompass today regarding the transfer of real estate.
Pricing as well as supply and demand leave Realtors and their clients frustrated and clamoring for more. Here’s why.
From September 2019 to September 2020:
Active listings for sale have dropped 39.6%
(inventory is 8,313 properties)Under contract listings are up 29.6%
(13,502 properties)Median Sales price is up 16.1%
($325,000)
If no new listings came to market, our current supply would dry up in about five weeks. Would-be owner occupants and investors alike are feeling the pinch, which is why more than 34% of home sales in August resulted in over asking price closings.
Forecasters Are a Little Late to the Party
Who knew? Other markets that ran “hot”, such as Seattle, San Francisco, Los Angeles, Boston, Chicago, and more may have run out of steam. Once property values heighten to a level that lowers the playing field for the buyer pool, desirability wanes. Prices begin to fall. People begin to question where they live, why they live there and begin to search for more viable options.
Then again, it’s an election year. And then that other thing… the pandemic.
Talk about a can of whoop-ass!
Not All Stress Is Bad
For most of us, it takes the Universe delivering a personal blow to our lives (wake up call) to make some incremental and long overdue changes to set us back in the right direction.
Shifting our perspective and moving towards action isn’t easy for most people, especially if life was going along without a hiccup. So, how do you stop hiccups?
Hold your breath just long enough to grasp inner calm and refocus.
Where Do You Want to Be Stuck during the Next Pandemic?
As an Arizona Realtor, I ask my clients a lot of questions. It helps me understand them better but also allows them the opportunity to hear their own thoughts and adjust their goals accordingly. Never in my wildest dreams did I ever consider the need to ask where a buyer or seller would like to be ‘stuck’. And so it is with a pandemic.
It isn’t just about the property itself, but with whom you choose to be stuck with. Thus, family dynamics are changing. Multi-generational residences are making a comeback and senior living communities are taking a hit. Relationships too are either solidifying or breaking a part.
Location, Relocation, Location
The term location, location, location may not mean what is used to in years past. Millennials are welcoming the suburbs with a vengeance while baby boomers tinker with urban living as the means to downsize and enjoy local amenities without the drive to get there.
Arizona is one of the top destinations in the country for relocation, especially with the surge (a necessity) of stay-at-home work guidelines.
When considering location, assess the ideal location for today’s life circumstances as well as five years or more down the road. The perfect location, in your mind, will likely change making it ore challenging to decide exactly where relocating (local or beyond) will do.
Remote Work, Here Today Gone Tomorrow?
Due to the pandemic, the allure of open floorplans has given way to requests for multiple rooms. Rooms provide options: home office, mother-in-law suite, children’s playroom, separate media room, meditation room… (we all need that these days).
But be wary of making property choices based on temporary emotional triggers.
Only time will tell how long Covid-19 is here and when we will have the tools to either comingle with it more effectively (vaccine, better health and socialization methods). To date, this has adversely affected our peace of mind and emotional stability.
Think about what living at home requires today, as well as your needs post-pandemic. Are there key differentiators? Mention them to your Realtor when discussing the sale of your property or a purchase.
The perfect house may come with an imperfect commute.
There are new buyers coming into the market, many who are solely price point guided. And with this competitive market, they often hone in on outlying areas as the places to buy. When we drive those areas, especially from more central locations, the traffic is lighter than normal, especially during rush hour.
This may be today’s reality, But what will happen to your commute once more businesses open and employees are required to work from the corporate office? Yeah, that “it’s-not-so-bad” commute will feel like you’re going nowhere fast. And if your drive home takes an hour in stop-and-slow-go traffic—it’s hell.
Don’t Forget the Fundamentals
There is life after the pandemic. What that looks like will differ from person to person.
Remembering the basics when figuring out home-buying or selling needs is crucial to making positive and informed decisions.
School districts bring a value all their own.
Even if you don’t have children, don’t plan on having children, or your kids are attending private schools or university, the school district you live in will play a vital role in a buyer’s home search and giving a greenlight to write up an offer.
Community amenities affect lifestyle and convenience.
Are you a recluse (pandemic or by choice)? Do you enjoy hiding out in your own castle or would you rather be close to hiking, restaurants or the local aquatic center? In essence, how far do you want to drive for social entertainment, shopping and other conveniences?
Local infrastructure determines the cost for continued development.
New communities sound great. But they often come with high property taxes. Someone has to pay for the new streets, lights, and other infrastructure. However, if you follow roadway development, properties located near (not on top of) new freeways or new access points can get a boost in property value. (i.e. Loop 202 South)
Plan for the unexpected.
Unless you’re a cash buyer, you will rely on your ability to obtain a mortgage from a lender. Oftentimes, your loan officer will tell you how much home you can afford, and that number can be higher than you anticipated.
Caution: Focus more on the associated monthly payment, the PITI (includes mortgage, interest, property taxes, and insurance). This payment is what you live with each month. While some people believe that stretching to buy more is a good strategy, I advocate for doing what you’re comfortable with.
Because life hands us the unexpected.
About Those Californians
According to bestcompaniesaz.com, there are a handful of obvious reasons why so many Californians are choosing to called Arizona home.
In a recent article, the online resource touts:
Job growth
Less traffic
Near nonexistent natural disasters
Favorable cost of living
Arizona ranks third in the country for job growth. And although Phoenix is number 5 for population (nationally), our traffic stands at 47th in the country. Our natural disasters total 3 since 1953, while California has had more than 50 since then. And the cost of living in Arizona is anywhere from 33%-50% less than our neighbor to the West. That’s a lot of chump change.
Is This Just Another Repeat of 2005–2008
Yes. And no. For those of us living here in the mid-2000s, we vividly recall the Californians moving here in droves and dropping down wads of cash for home purchases, and somewhat artificially inflating home values.
But there were other culprits to the then-market demise. Unscrupulous lenders. Lack of regulation and no best practices in the loan qualifying process. In fact, B and C paper loans were churned like butter.
Today, we have strict regulations in place. Appraisers cannot be persuaded in their home value assessments and work hard at keeping a lid on too-quick escalations. Lenders exercise more scrutiny with buyers monitoring consumers’ debt-to-income ratios and how they manage credit. Stated-income loans? Mostly a thing of the past. Thank heaven for that.
Many builders enforce purchase rules now, as investor-buyers can only own one property within a development at a time. In 2008, investors who purchased multiple homes in communities gravely affected home values as they decided to sell simultaneously, dropping home values and taking their money to Idaho, Texas and other markets.
People who genuinely want to live here are flooding our cities, and that’s a good thing. They bring their talent, hope, vision and votes. Yes, votes.
Arizona is the epitome of a purple state. We can swing either way in the upcoming election.
Landlords, Renters, And Not Enough Property
Not everyone relocating to Arizona is a home buyer. Many will be looking for their next rental. But with our current inventory being far less than what’s needed, where will tenants go? While there are many new multi-family developments in the works, the shortage of rental housing is very real.
Landlords now have the upper hand and can demand stronger income to rent rate ratios, and more favorable credit scores. With this comes an increase in monthly rent, redefining what affordability really means.
Would home ownership be a better option, given today’s uncertainties?
Defer to Logic, I Dare Ya
Map out a two-year plan. Extend it to five years. Throw in some unforeseen circumstances. Add a blessing or two. Now, how does your life look? Is it manageable, will all that thrown into the mix? Is home ownership right for you, where you’re at now or where you’re planning to be?
This isn’t rocket science. It’s just common sense. Only you know what kind of stress you can handle and where you want to handle it. Without a housing plan, how much longer do you want to mask your own truth?
I urge you to live simply. Enjoy more. It’s what Arizonans do best.
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