Active Supply is Down 32%
Median Sale Price up 11% and Expected to Rise
The urgency for buyers cannot be stressed enough; real estate prices are not projected to decline in the Greater Phoenix area in 2020. There isn’t one measure from any angle that supports that theory. Not only will they not decline, they will not stop rising this year at the current levels of supply and demand.
On January 9th, active supply was counted at just over 12,000 listings for all of Greater Phoenix. This is down 32% from this time last year and excruciatingly low. To put it in perspective, a “normal” level of inventory should be at least 28,000 – 30,000 active listings in the MLS for a metropolis the size of Maricopa and Pinal County. The last time inventory was recorded this low was in 2005 at 9,000 listings with a population of 3.8M. Now Greater Phoenix has 4.8M people with less than 1% of existing housing available for sale. With monthly sales up 17% over last year, fueled by population growth, job growth, income growth and low interest rates in the area, sellers have few reasons to sell below market value. It’s not logical to expect prices to soften in this environment.
Buyers who have been waiting for sales prices to decline before they purchase have nearly missed the boat. This is because while they were watching prices rise, the payments for those same homes declined for a year with declining mortgage rates. However, when mortgage rates stabilized 6 months ago, hovering around an average of 3.75%, payments started to creep up again.
In short, if someone wants to purchase a home and they have the means, then they should lock into one. They should expect competing offers, expect to lose some opportunities, and expect to do some upgrades. They should also expect to live in their new home for at least 5 years to build up enough equity to mitigate the risk of ups and downs in the future.
This is an exciting time for those who need to sell. Anyone who owns property has probably been contacted multiple times by multiple means throughout the year by people wanting to buy their home. While sellers are under much less pressure to perform repairs and upgrades in order to sell their home, it doesn’t mean that they will sell it as quickly or for as much as those that are move-in ready. But, it will sell in this market. Those who are considering selling to an internet investor buyer (aka iBuyers who offer some up-front certainty and convenience in the selling process), should know that they still have negotiating power in the transaction and have the option to be represented by a Realtor if they choose.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report ©2020 Cromford Associates LLC and Tamboer Consulting LLC
19% of Homes Sold Over Asking Price Last Month!
24% of Sellers Agreed to Closing Cost Assistance
Supply shortages created an environment of multiple offers and listings sold over asking price last month. This is especially evident among listings between $125K-$250K where 26% sold over asking price in November compared to the overall percentage of 19% in Greater Phoenix. In a normal market, we would expect 10-15% of listings to be sold over asking price. That statistic may sound hopeless to a buyer who may not have the means or stomach to pay over asking price. However, 24% of sellers agreed to pay some form of closing cost assistance to buyers in November as well. This measure increases to 32.5% on sales between $125K-$250K, the primary price point for first-time home buyers. The West Valley has the largest share of homes listed between $125K-$250K at 46%. Pinal County has 31%, the Northeast Valley has 12% and the Southeast Valley has just 10%. Given this information, it’s not surprising that the West Valley has both a large share of transactions involving seller-paid closing costs combined with a higher-than-average percentage of homes sold over asking price. Pinal County, on the other hand, has a large percentage of seller-paid closing costs, but a lower-than-average percentage of homes sold over list price.
More expensive areas with average sale prices over $500K have significantly fewer sales involving seller-paid closing costs (as would be expected) and a much lower-than-average percentage of homes sold over asking price, but things have been exciting for this market so far this year. Sales over $500K are up over 16.5% year-to-date over last year, but most impressive is the 21% increase in sales over $2M! Typically the second half of the year is flat for luxury sales in this range, but this year contracts in escrow have soared 42% over 2018’s level in the last 3 months.Also impressive is a 24% gain in sales between $500K-$600K, which was helped by an increase in the FHFA loan limit to $484,350 last year. In 2020, that limit is set to rise again to $510,400. This means it may get a little easier for buyers to qualify for more expensive homes and that’s good news for sellers. Sellers in the mid $300K price range are getting a boost too. FHA is raising their loan limit in 2020 from $314,827 to $331,760. FHA financing is an option for buyers who may have less-than-favorable credit and lower down payments. This is good news for both buyers who can’t move up in price due to the existing limit and sellers who are just out of reach for these buyers.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report©2019 Cromford Associates LLC and Tamboer Consulting LLC
Contracts In Escrow Up 19% Over Last Year
Despite Rising Prices, Affordability is Good
Buyers waiting for prices to come down have been sorely disappointed so far in 2019. The average sale price per square foot is up 6.7% since last November and the median sales price is now $283,000, up $21,000 from last November’s measure of $262,000. Despite rising prices, affordability has remained normal throughout the year. One relevant factor is Private Sector Earnings in Greater Phoenix has risen 4.5% annually as interest rates have continually declined. The median family income was measured at $72,900 last quarter and families making that income could afford 68% of what sold last quarter (according to the HOI index published by the National Association of Home Builders and Wells Fargo). The historical norm for our market is 60-75%. Clearly not all buyers have parked on the fence, demand has been hovering 6-7% above normal for our area for about 4 months while supply is 44% below normal. The only measurable relief for buyers is last month’s supply level was 47% below normal, so it’s 3% less hard to find something suitable.
The number of listings under contract may have declined 26% from its May seasonal peak, but it’s nearly 19% higher than it was this time last year. This, combined with monthly sales up nearly 15% over last year, is a solid indicator that year-end closings will outperform last year despite a shaky start. Single Family permits (future supply) are up 4.6% year-to-date and multi-family permits are up 6.4%, reaching a level not seen since 2007. Single family home sales are up 5.7%, but new town home and condo sales are down a whopping 30%, which is surprising. Resale condos and townhomes have increased in sales volume this year, so the drop in sales for new construction despite an increase in permits indicates that much of the multi-family units constructed are not for individual sale but are for rent. This is good news if you’re planning to sell your condo because the majority of developments are not competing for buyers. This is not good news if you’re renting your condo nearby because that’s an increase in competing units for renters. “Apartment style” private condo rental rates per square foot have grown less than 1% over the course of 3.5 years according to the Arizona Regional MLS records.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report©2019 Cromford Associates LLC and Tamboer Consulting LLC
Prepossession and Post Possession agreements carry inherent risks and raise a variety of issues. However, there are times that a buyer would like to move into the property before close of escrow (prepossession) or the seller would like to stay in the property following close of escrow (post possession). For instance, the buyer’s lease may be terminating before close of escrow, or the seller may not be able move into their new home until after close of escrow. While these are situations that seemingly warrant prepossession or post possession of a property, both parties should be aware of the many issues that can arise in a prepossession or post possession. For that reason, Commissioner’s Rule R4-28-1101(K) provides that “A salesperson or broker shall recommend to a client that the client seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks of pre-possession or post possession of a property.”
Because of the issues involved with prepossession or post possession of a property, a buyer and seller should enter into a written agreement so as to ensure the parties’ rights and obligations are documented. Numerous times in the past, the Arizona Association of REALTORS® Risk Management Committee has considered requests to develop a “standard” prepossession and post possession agreement. However the committee has never approved the development of such a form due to the inherent risk and liability. Consequently, some brokers have developed prepossession or post possession agreement forms but many advise against the agreements altogether.
Typically, the seller is responsible for any damage to the property prior to close of escrow. However, in the event a buyer prepossesses the property, the buyer is now responsible. More specifically, the Purchase Contract at the “Seller Warranties” and “Risk of Loss” provisions provides that the seller is responsible only until close of escrow or possession, whichever is earlier. Accordingly, once the buyer prepossesses the property, the seller is no longer responsible for seller warranties or damage to the property because those obligations are terminated under the terms of the Purchase Contract.
If the buyer and seller opt to enter into a lease agreement for the prepossession, the parties’ rights and obligations during the tenancy are now governed by the Arizona Residential Landlord and Tenant Act (“ARLTA”). This can be problematic as ARLTA provides that the landlord is responsible for maintaining fit premises. A.R.S. §33-1324. In other words, under ARLTA, the landlord/seller is responsible to ensure that the electrical, plumbing, and heating/cooling are in good and safe working condition during the tenant’s tenancy. Thus, if the parties enter into a lease agreement, the seller is again responsible for the property despite the fact the seller has moved out and the home is now exclusively occupied by the buyer.
Due to the inherent conflict between ARLTA and the Purchase Contract, the buyer and seller should probably opt to enter into a prepossession agreement by way of an addendum rather than a lease. Significantly, if the parties make the prepossession agreement an addendum to the parties’ Purchase Contract, ARLTA should not apply. See A.R.S. § 33-1308.
Items the buyer and seller may want to address in a prepossession agreement are:
- Insurance: Who is responsible in the case of damage to the property? What damage is insured? The seller of the home should review their homeowners policy and confirm with their insurer whether a tenant in the property changes any of the terms of their policy. Additionally, the buyer may want to purchase renter’s insurance until the buyer legally owns the home.
- Walkthrough: Did the parties agree on the condition of the premises prior to the buyer’s prepossession (e.g. walk through inspection)? What if the buyer claims the property is not in substantially the same condition and requests additional items for the seller to correct?
- Repairs and Maintenance: Who is responsible for repairs? The parties should address who is responsible for any repairs and maintenance of the property during the prepossession. The parties may want to consider purchasing a home warranty that will cover the property prior to close of escrow.
- Occupancy Rights: Who will occupy the property? Are animals allowed? Is smoking allowed?
- Rental Payments: How much rent will be charged for the prepossession? Who pays the utility bills during the prepossession?
- Security Deposit: Will there be an additional security deposit in case the sale falls through and the property is damaged?
- Buyer Contingencies: What if there are contingencies that have not been met prior to the buyer’s prepossession? Have the parties decided to waive the contingencies or are they still in place therefore allowing the buyer to cancel the Purchase Contract if a contingency is not met?
- Alterations: What if the buyer moves in and begins to alter the property and later finds out they cannot purchase the property?
- Buyer’s Remorse/Failed Transaction: What happens if the sale is not completed? When does the buyer/tenant have to move out? What happens if the buyer/tenant refuses to move out?
Because the obligations in the Purchase Contract are fulfilled following close of escrow, the parties can choose to either enter into a lease agreement (which would be governed by ARLTA) or a post possession agreement. The decision of which type of agreement is appropriate may include a discussion of whether the post possession is for 3 days or 30 days. Regardless of which avenue the parties decide, the parties should be aware that the obligations to repair and maintain the property are no longer the seller’s responsibility; they are the buyer’s responsibility. Accordingly, at a minimum, the parties should address the following:
- Insurance – homeowners and renters: The buyer will most likely have a homeowners policy. The seller should purchase a renters policy.
- Property Condition: The condition of the property prior to tenancy should be well documented and agreed on by both parties (e.g. move in/move out inspection). The parties may further want to consider purchasing a home warranty.
- Term: The tenancy period should be determined. The parties should further discuss what happens if the seller needs to stay in the property for a longer or shorter period of time than the agreement states.
- Security Deposit: Will there be a security deposit in case the seller damages anything in the property during seller’s tenancy? If using a lease agreement, ARLTA provides that a landlord cannot charge more than 1.5 times the amount of one month’s rent. SeeR.S. §33-1321.
- Rental Payments: How much is rent? Will rent be prorated?
- Occupancy Rights: Who will occupy the property? Are there any animals? Is smoking permitted?
- Utilities: Who pays the utility bills?
Due to the risk and liability involved with prepossession and post possession of a property, the best practice is for the parties to not enter into a prepossession or post possession agreement. However, if the parties insist on entering into such an agreement, the real estate agent should consult with their broker and advise their client to seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks.
About the Authors: Arizona Association of REALTORS® (“AAR”) Chief Executive Officer K. Michelle Lind is an attorney, a State Bar of Arizona board certified real estate specialist, and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice. AAR is the largest professional trade association in the state comprised of 40,000 members involved in the real estate industry, allied industries and firms.
Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.
🌿🌴 INCREDIBLE LUXURY GARDEN 🌴🌿
Listing Courtesy of: Arizona Regional MLS / Russ Lyon Sotheby’s International Realty
🔥 If this property excites you….
📲 Call Eric 602-492-2897 for all the details!
👉 Eric Karlene, Realty ONE Group 602-492-2897
New Listings Up 10% from July to August
Supply is Down 73% in this Area and Price Range
A faint glimmer of good news for buyers, supply finally stopped declining and actually rose a tiny bit in the last week. While active listings are still 16% lower than they were this time last year, they’re 1% higher than 4 weeks ago. This rise can be attributed to a 10% increase in new listings from July to August, which is not uncommon as July is typically a low point in the year for new listings. However this August was 3% below last August in comparison and the lowest August since 2016. One price range that is still declining in supply is $200K-$250K, which has plummeted 51% since February. The Southeast Valley on the Maricopa County side has seen the largest decline of 73% in this price range for single family homes. Gilbert is especially low with only 5 listings in the entire city under $250K as of September 9th, all of them townhomes with an average size of 1,116 square feet.
For some sellers the idea of listing their home is stressful, even if it’s in great condition. The pressure of keeping their home clean for showings and open houses, enduring negative feedback, and the unknowns of the inspection report can send homeowners right into the arms of flip investors who will happily buy their home “as is” with significant fees attached. While there is nothing wrong with doing that (there is value in ease and certainty) sellers should understand that if their home lands within a frenzy price range for their area, where there are literally more homes under contract than there are for sale, they may be pleasantly surprised at how little they have to do to sell it on the MLS. Negotiable listing costs, multiple contracts and buyers willing to buy “as is” make this the perfect market for sellers who know their home is not so perfect. To find out if your property lands in a frenzy zone, contact your local Realtor.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2019 Cromford Associates LLC and Tamboer Consulting LLC