Where is the 2021 Housing Market Headed?
May 2021 stats arrived mid-June. Pending home sales, a measure of signed contracts on existing homes, jumped an unexpectedly high 8% in May compared with April, according to the National Association of Realtors. Analysts expected a 1% drop. This is the highest level of sales activity for May since 2005.
"The housing market is attracting buyers due to the decline in mortgage rates, which fell below 3%, and from an uptick in listings" said Lawrence Yun, the National Association of Realtor (NAR)'s chief economist. Yun indicated that although the housing market has had to overcome obstacles, there appears to be positive market conditions on the horizon through the end of 2021.
"While these hurdles have contributed to pricing out some would-be buyers, the record-high aggregate wealth in the country from the elevated stock market and rising home prices are evidently providing funds for home purchases,” Yun said.
"More market listings will appear in the second half of 2021, in part from the winding down of the federal mortgage forbearance program and from more home building. Home price growth will steadily moderate with increased supply, but a broad and prolonged decline in prices is unlikely," Yun continued. "However, if a reduction occurs in some markets, homebuyers will view the lower home price as a second-chance opportunity to get into the market after being outbid in previous multiple-bid market conditions." (more)
1031 Exchanges Threatened?
According to the Phoenix Business Journal on July 2, President Biden’s American Families Plan will eliminate or cap the 1031 exchange process and may cripple the already deeply hurt commercial real estate sector.
The article presents a study which demonstrates that Section 1031 drives the Arizona real estate economy, involving 15 to 20% of all commercial transactions. And as most replacement properties acquired in a 1031 exchange are ultimately disposed of through a taxable sale, the argument that it provides a loophole to avoid paying taxes is defeated. Further, a Ernst & Young study concluded that if section 1031 were limited or repealed, it would shrink GDP by $9.3 billion per year. Full Article If you do not subscribe to the Business Journal, contact me for more information.
THIS MONTH'S MARKET UPDATE Video Link:
Phoenix ranks 6 of 
the ten largest cities in the nation for housing affordability. Home prices are up 49% from just 3 years ago, but the monthly payment has increased just 25%. So why is it so hard to find a home? Because while the Phoenix population continued to grow despite the recession of 2008, new construction just did not keep pace. Click link to see my most recent Monthly statistics charts & this month's Housing Market Report.
CROMFORD'S MONTHLY VIEW
There’s a misconception that waiting for a Buyer Market to buy a home is a good idea.
Comments For Buyers:
There’s a lot of conflicting advice for buyers online these days, and there’s no shortage of headlines advising them to wait. Many authors cite the unpleasantness of multiple competing offers and rising prices as the reason to wait out the market. This is despite their acknowledgment that home values are not expected to stop rising in the near future and that interest rates are expected to eventually rise.
It’s undeniably more pleasant to purchase a home when there’s a plethora to choose from and you’re the only game in town, however there’s a reason you may be the only buyer in that scenario. That’s the end of a Seller Market, and signifies the top of price.
The top of price is either the beginning of a Balanced Market or a Buyer Market, which either way means the end of exciting annual appreciation rates. There’s a misconception that waiting for a Buyer Market to buy a home is a good idea. This is not true. Home values decline in Buyer Markets because, by definition, there are more homes than buyers to buy them. While that sounds like a magical dream land these days, the reality is that no one likes to purchase a home and watch its value decline or go flat. Ironically, if you want your home to appreciate right after you buy it, then you want to buy in a Seller Market. Perhaps we should rename Seller Markets “Winner Markets”, because both buyers and sellers win in a sense.
Admittedly, the extreme Seller Market Greater Phoenix is experiencing doesn’t feel like “winning”, but there is some relief on the horizon. The market has been losing strength since mid-March, but it’s not plummeting. At it’s current rate of decline, the Greater Phoenix market is still projected to remain in a Seller Market for 16 months. That’s a target of October 2022 before prices stop rising. As the Seller Market weakens, appreciation rates will still be positive moving forward but there will be a little more supply to accommodate demand. My advice to buyers frustrated with the market, don’t wait for the market to balance out. Take a breath, take a vacation, but don’t give up. Change is subtle.
Comments For Sellers:
Typically this time of year we start talking about the imminent “Summer Slowdown” in contract activity as kids are out of school and people take vacations to escape the heat. Last year, the Greater Phoenix market didn’t experience this typical seasonal trend. As trips were cancelled and people stayed home, there was a large surge in purchase contract activity that continued through the end of the year. This year, as people are getting back to some form of normalcy, it looks like we will see a seasonal slowdown in buyer activity once again. If the trend continues and the market follows previous years, we should expect contract activity to slowly decline through the end of the year.The seasonal slowdown is typically nothing to be concerned about, mainly because there tends to be a dip in new listings as well. However this year there’s an event coming up that could alter that scenario, that is the end of forbearance for many homeowners. While the vast majority of forbearances have ended with homeowners staying in their home, anywhere from 16%-20% have resorted to selling their home one way or another according to the Mortgage Bankers Association. This could result in an increase in supply over the next few months, adding extra days of marketing time to your listing and possibly a few price reductions. Stay tuned.
The Cromford Report is based on the campus of Arizona State University. Provided as a proud subscriber. ©2021 Cromford Associates LLC and Tamboer Consulting LLC
LUXURY HOME MARKET INSTITUTE
Link to this month's printable report follows.
Supply isn’t just being reduced by the affluent buying additional properties, it was also highly impacted by the seniors, baby boomers, and empty nesters who decided to stay in place.
Each spring we typically see a vast number of listings entering the market from this demographic as they chose to downsize or relocate. It is predicted that the 2020 and early 2021 “stay in place trend” will start to change and homes will slowly trickle back on to the market, especially if the pandemic continues to remain manageable.”
Full Report from the Luxury Home Marketing Institute just released June 25, 2021 both National and specific to Paradise Valley Arizona. Other market report locations are available, contact me.
Denise van den Bossche (www.DeniseVDB.com) has been a career Real Estate professional in the Scottsdale Valley since 1985, participating in the Phoenix Valley’s growth from a population of 1.5M to the current 4.5 million. She can be reached at 602-980-0737.
