Besides some recent evidence that Millennial buyers are moving off the buying sidelines onto the real estate playing field, another block of mostly idled buyers, known as MUBs, (Move-Up-Buyers) may now be suiting up to play as well. If so, our market will continue to heat up – even more.
MUBs will be a large number of new buyers that will fill in the buying blanks of higher price ranges above those of the millennials who would typically be buying in the more affordable lower price ranges.
MUBs have been mostly inactive due to a foreclosure or short sale or not having enough equity in their home to close the sale without having to write a check. A rising market and improved credit are enabling this new freedom. As mentioned in past blogs these previous homeowners get released from the “penalty box” starting this year and will continue for an additional 2-3 years following 2015.
Importantly also is the current willingness of sellers to accept offers from buyers “contingent” on the sale of their existing home. You can thank a healthy and normalized market for that.
How do we know this is happening? Take a look at Michael Orr’s (ASU) recent Cromford Report chart comparing normal non-distressed sales under contract today (April 13th) compared with the same date last year in 2014. We can see where demand is highest:
Interesting enough the lower ranges are down, but this is due to lack of inventory. Under contract homes from $150,000 to $600,000 pricing have enormously increased. The $300,000 to $600,000 (move up range) and even the $600,000 to $1,000,000 range all are experiencing double digit increases. And the market with the largest increase? Amazingly it’s over $3 Million.
For sellers, the good news continues. For buyers, the prices you see today, will be soon changing upwards. And if that happens, you’ll have the MUB’s to thank – or curse.
Son and business partner, Jonathan got his first live taste on the state of the buyer’s market out there making an offer on he and Sarah’s first home. He is one of those millennials that will practice what we’ve been preaching which is to get off the sidelines and start looking. You’ll have to tune in later to find the outcome, but suffice to say, the house they made an offer on within two days had two other offers on it. He’s learning first-hand about multiple offers and buying strategy. Oh yea, and home buying emotions.
…regular home buyers are leading the surge rather than investors. This may yet change, but currently it’s a stronger and safer market.
Considering what’s happening in the market-place, it’s no surprise. As we’ve been suggesting for several months and likewise advocating for buyers longer than that, buyer’s need to take action if they want in on the current bottom of the market, for it is moving forward and upward.
Consider These Market Stats:
- Active Listings: 19,835 versus 23,096 last year – down 14.1% – and down 6.0% from 21,103 last month
- Under Contract Listings: 10,039 versus 8,173 last year – up 22.8% – and up 16.4% from 8,628 last month
- Monthly Sales: 7,174 versus 5,825 last year – up 23.2% – and up 38.8% from 5,170 last month
- Monthly Average Sales Price per Sq. Ft.: $134.78 versus $135.18 last year – down 0.3% – but up 0.6% from $134.04 last month (Prospective Buyers, memorize this number)
- Monthly Median Sales Price: $207,000 versus $198,050 last year – up 4.5% – and up 2.0% from $203,000 last month (Prospective Buyers, memorize this number). (Thanks to Michael Orr of ASU and the Cromford Report for these timely numbers)
You’ll note our highlighted instruction above for buyers to memorize the Monthly Average Sales Price per square foot and Monthly Median Sales Price. I think these numbers will be a new price appreciation benchmark, as they will begin to rise considerably shortly due to increasing sales, (demand) and further supply decrease. Another Caveat Emptor (Buyer Beware).
What’s so healthy about this market versus our frenetic market in 2005, is that right now, regular home buyers are leading the surge rather than investors. This may yet change, but currently it’s a stronger and safer market. Amen to that!
Oh and by the way buyers, the standard 30 year fixed rate mortgage, has just dropped to a two year low at 3.71%.
You’ve done your home selling research. You’ve got a fairly good idea about what your home is worth. You’ve even found a neighborhood you’d love to live in, and the numbers work. But, how do you get from here to there? Your Realtor has told you that not all sellers are willing to take a sales contingency – and by the way, your Realtor is right! So where does that leave you? Homeless? Quickly buying a home that you might not be happy with? Renting between your sale and purchase and having to move twice? Or finding the perfect home and closing within your allotted escrow period, needing only one move.
Here are some tips to help put this puzzle together, as you begin down the Sell/Buy road. Our assumption is that you can’t buy the next home until you sell the current one. And remember the goal should be finding the home you want.
Tip #1: Determine your worst case sell/buy scenario and decide if you can live with that. That worst case scenario may be that you close escrow on your home but you haven’t found the right home to buy so you will need to live in rental/apartment/family for a few months, or longer. That’s a double move, but believe it or not it has strong advantages. If you can swallow the worst case, then list your home and get ready for the ride.
Tip #2: When you’re negotiating your current home sale, try for a longer close. If the buyer wants 30-45 days to close, ask for 60. This can provide you a solid month or thereabouts to find the right home. And get yourself pre-approved with a good lender. This will go a long way in your new home negotiations.
Real World: The chances are way stacked against you that you will find a willing seller who will allow a contingency sale without you having your home in escrow. Even then, they will want to know how well seasoned the escrow is, like have the buyer and seller already negotiated inspection repair requests? Has the home been appraised? Other contingencies? (By the way, the caveat to the willing home seller is family, friends, or some new home builders)
Tip #3: Once your current home is in escrow, and you’re through the inspection process, now you can make an offer contingent on the close of escrow of your home. Most sellers will consider this type of contingency. Your Realtor and lender must be ready to make a strong documented case of your ability to close the next home. In other words, they need to “sell” the seller and seller’s agent.
Tip #4: Be willing to rent or move in with family. Renting, although a pain to have to move twice can put you in a strong negotiation position of not having a contingency. If you can find a month to month or short term lease, or a family member to temporarily live with after you close your current home, this will greatly enhance your chances of getting the right house at the right price. If possible avoid a long term lease.
Real World Example: We just closed on this very situation. A family of four had outgrown their home and were looking for a new one in 85254. When we sat down to go over their options, they mentioned that they were prepared to live with relatives nearby if need be. Well we quickly got their home under contract and through the inspection period. Then, an unbelievable home came on the market for a smoking price and they jumped for it. Because they were ready and gave a strong offer to the seller, the deal went together. They did need to move twice, but because the new home needed carpet and paint they had the luxury of being able to wait a few weeks to move in while it is being done. They couldn’t be happier.
And at the end of the day, getting the right home is the final piece of the puzzle.
If you’re reading current local real estate news reports regarding home sales and price increases of those sales, you’ll see it being lackluster at best. As we’ve been reporting recently however, sales are trending upwards based on Pending Sales, which are the most accurate current sales evaluation we can work with. Appraisers only use closed sales for their evaluations. Some Realtors who are using Cromford Report-like data such as we’re using, have the flexibility of real time analysis.
If we compare pending homes in the Greater Phoenix Metro area, (excluding distressed properties) we’re finding significant sales increases compared to the same period of time last year.
With just a few exceptions, most price ranges are showing strong year to date sales increases with the largest percentage increase being in the Luxury Market $3,000,000 plus category.
When homes are trending well for sellers, they’re trending downward for buyers. Sales prices are starting to rise again. Buyers will be getting less house for the money and that seems to be across the price spectrum.
Interestingly enough, two of the lowest sales price ranges are under $125,000. The reason for that is that these price ranges have much fewer homes for sale this year versus last. (See the Cromford generated chart below)
The highest priced sale this year in the Phoenix Metro area is $8,000,000. There are currently 31 homes listed for sale above this amount, the highest being priced at $32,000,000.
So what’s our takeaway? Same-ole that we’ve been saying for quite a while now. When homes are trending well for sellers, they’re trending downward for buyers. Sales prices are starting to rise again. Buyers will be getting less house for the money and that seems to be across the price spectrum. It looks like buyers are catching on and that’s a good thing!
Check out the Chart below to get a good idea as to our changing market:
||Under Contract 3/18/14
||Under Contract 3/18/15
||$3M and over
||$350K to $400K
||$225K to $250K
||$250K to $275K
||$175K to $200K
||$300K to $350K
||$200K to $225K
||$150K to $175K
||$275K to $300K
||$600K to $800K
||$400K to $500K
||$500K to $600K
||$125K to $150K
||$1M to $1.5M
||Up to $100K
||$100K to $125K
||$2M to $3M
||$1.5M to $2M
||$800K to $1M
Thanks again to Michael Orr (Cromford Report) of the ASU School of Business and Real Estate for permission to provide you, our clients, with this excellent information found nowhere else in such clarity and detail.
First things first, we welcome a new team member, Barbara Anderson, to the Bodeen Team and the HomeSmart Elite group. Though new to our group, Barb is not a novice to real estate. She is however getting back into the game after a prolonged absence in the education field. Barb and hubby Bruce just celebrated their 44th wedding anniversary.
Barb joined us yesterday for her first HomeSmart Elite monthly meeting. It was indeed timely as our keynote speaker, Director Michael Orr of ASU’s W.P. Carey School of Business presented the Elite Group with encouraging homeowner data and trends indicating that change is already afoot in our local real estate market. You will be hearing about this starting now in the local news.
The Bodeen Team subscribes to Mr. Orr’s market data which we view in real-time each day. Our subscription grants us permission to reproduce his information to you. I would say that there are few, if any entities in the country that have the amazing statistical data that Orr does. He starts each meeting with the caveat that his background is mathematics, and his passion is real estate trends and numbers.
And I should clarify that the news was positive for homeowners but not so much for buyers who are still on the sidelines, unless they decide to become a homeowner sooner rather than later. That to me was the important take-away from this meeting yesterday.
Michael provided us with a whimsical chart (see below) showing us his “Market Cycles.” As you can see, he believes we are re-entering a period of “Optimism” which last occurred 12 years ago in 2003. This period historically preceded the Three E’s: Enthusiasm, Exhilaration, Euphoria. This is when sales and appreciation happened at dizzying intensity. It was an exciting time, but it wasn’t fun.
Another very interesting chart shows the annual rate for U.S. Household Formation. According to this chart, the number of newly formed households radically spiked in the last quarter of 2014. This, among other issues (see Summary below) could create huge demand.
There are a number of reasons why Orr is so Seller Bullish
- Supply is well below normal (83% of normal)
- Demand is low but growing (95% of normal)
- AZ loan delinquency below normal at 4.5%
- Foreclosures below long term average
- Lending rules starting to loosen
- Entry market heating up
- High end market cooling down
- Economy and jobs continue to improve
- Time to change from relief to optimism
He also didn’t see any slowdown for single family detached rental demand as he points out that we have only a 25 day amount of rental inventory available. And, he adds, is in the higher priced end. The supply for home rentals priced between $900 and $1200 per month is down 50% from a year ago.
So there we have it. In the words first memorialized in song by Bob Dylan, ‘The times they are a changin.’ Hang on.
Last week my dad talked about the upward trends in the rental market. Well since then the numbers have been getting even crazier, almost to the point of jaw-dropping! What is especially interesting is the huge demand for traditional single family homes. Now be forewarned, we only can track rentals that are advertised through the MLS, which here in Maricopa County is probably less than half of all the rentals available. The rest are marketed through places like craigslist or rentals.com. Still, we can get a pretty good idea of what’s going on in the rental market by watching the MLS numbers.
This time last year there were 2,760 listings available. Today there are only 1,988. That’s almost a 30% drop in the available supply. On top of that, Rental prices are surging. The average rental price on MLS this time last year was $1,598. Today it is a whopping $1,971! That’s about a 20% increase in value!
Summary: Landlords be feeling good! Tenants… not so much.
What does this mean for homeowners and potential buyers? A lot. With only a 25 day supply of available rentals in the valley, increasing demand for single family homes to rent, and rental prices surging, it’s not difficult to imagine a whole host of would-be-renters drawn toward becoming a buyer. We have already seen an improvement in the residential for sale market in the last month, but we feel even better times may be ahead.
Sellers: The buyer drought seems to be over for now and it may be time for you to get back in the game.
Buyers. Increase in demand and decrease in supply makes for rising prices. Don’t forget that with an improving economy interest rates rise as well. It seems as though the best days of the buyer’s market may be nearing its’ end. You may want to think about making your move before the sellers’ market is in full swing and you have to start competing with other buyers again.
Thank you to Michael Orr and the Cromford Report for all the statistics used here in.