It's hard to believe that there are people, MANY people actually that have absolutely no idea what is going on in the Phoenix Metro real estate market. If you are reading this blog then thankfully you are not one of the poor souls with their head under a rock.
Just like stepping on a skateboard and the darn thing comes straight out from underneath you is the feeling that most Buyers are experiencing today. Oh and yes we really do have a lot of agents that feel just terrible that they can't get their clients into homes. Everyone is running around like a chicken with their head cut off. That's a real thing too, you know?! Just go sit in front of ANY new listing in Chandler or Gilbert under $500,000 on Saturday morning and watch the flood of people lining up to take a peak.
It comes down to 3 types of Buyers at these open houses:
1) Buyers that have agents but the agent isn't with them because they are exhausted trying to get them into homes out of their reach (even though they are pre-qualified for a loan);
2) Buyers that have saved enough money to cover their down payment, pay for their own closing costs, AND has money saved to add in a little extra incentive to the Seller; and the toughest to close...
3) There are the Karen-Buyers, a pejorative term for a buyer seeming to be entitled or demanding beyond the scope of what is normal. Message to these Buyers... Comply or Step Aside. You are muddying up the waters for buyers that really want to get into a home NOW. If you can wait, please wait. Throwing your muscle around instead of your money is a waste of everyone's time including YOURS. As much as we'd love to talk to you for hours about your perspective of what the market is going to do, cash is not king unless it means more money in the Seller's pocket.
Common mistake - I am going to wait for a Buyer's Market. So you want to buy a home for $400,000 and by the end of the year, it is worth $375,000 after you've paid $2,000/month for 12 months???!! Common misunderstanding of when it's a good time to buy.
What is a Buyer's Market?
It's when the RED dots are above the green dots (see 20-year history of the Phoenix Metro Real Estate market below). From where we are today before we can even START to see a Buyer's Market on the horizon, the red and green dots have to start coming towards each other. Not just one, but both of them.
Now, look at 2003-2005 during the BOOM. In April 2005, analysts started to see to the flatline which comes before the drop (See The Big Short Explained). It STILL took over a year before it became a balanced market (where they meet) and almost another 3 years before hitting bottom. Not only is this NOT the same by any means but there is no way we won't see 'the market changing'.
Everyone wants to blame all the Californians coming here that's causing all this chaos. Yes, they are a large pool of the Buyers but that alone is NOT what is causing our current chaos.
What Affects Demand?
1) Interest rates. If you bought a median-priced home in 2018 for $258,995, that same exact home today although it would now cost you $328,000 only costs $23 more a month. If you qualify for $500,000 today with a 3% interest rate, you would only qualify for a $400,000 home if rates rose past 5%.
2) Appreciation. People are motivated by money. Every homeowner that has owned their home for over 2 years has a good chunk of equity today. This is also why we have so few foreclosures even with everyone hoping for people to lose their homes (yup, that's what people are really truly hoping for) with the forbearances or tenants not paying their rent. 95+% of homeowners have plenty of choices to get their home sold before it goes to the courthouse steps.
3) Relocation (Inbound). Again everyone thinks it's Californians paying cash. It's not. More than 39% of the inbound residents make over $150,000/year. In the big California cities, this is not enough to own a home. Homeownership is now possible in Arizona.
4) Employment/Income. Phoenix is slated to be the nation's leader in job growth over the next 10 years. Everything from manufacturing to high-tech to healthcare, Arizona is on the map!
5) Loose/Tight Lending Practices. Today we have pretty loose lending requirements and with this, more people are now 'qualified' for a loan. However, with today's market...is that really all it takes? No! And this is the #1 reason Buyers cannot compete in today's market, not because of all the Californians paying cash for homes.
6) Population Growth. More people moving here, more people need a home. It's that simple.
7) Household Formation (growing). What the heck is this?! LOL Examples would be more households that include mother/in-laws, more people getting married, having kids, etc.
8) Consumer Sentiment. Although this is currently high right now, as interest rates and/or affordability rise we will start to see this decline albeit slowly.
Is there a silver lining somewhere? Yes. But it will take time for single-family home inventory to catch up. As of the end of December, another 31,475 permits were approved. In the meantime, there has been a massive development of luxury apartments over the last 2 years with many more to come. Crane company signs $7.9M lease to keep up with Valley’s construction growth
In closure, here is how you get into a home:
Buyer #1 - Get yourself in an inexpensive rental for 12-24 months and start making $1,000/month payments to yourself in a savings account. Cut out frivolous spending, make a commitment to your financial future.
Buyer #2 - Congratulations, you should be a homeowner sooner rather than later if you are writing strong competitive offers. If you are not in a home within 90 days, start looking at the common denominator. Your Realtor.
Buyer #3 - Stay where you are at, enjoy the appreciation in your current home, and let's hope that by the time you are ready to move down that interest rates haven't changed too much. If you are moving up, well you have lost money in appreciation unless of course, we hit that Buyer Market (at the very least a few years out) before you make the jump.
Go Arizona Real Estate covers the entire greater Phoenix area with our team of specialized agents in specific areas and price points. Give us a call, we will get you in a home.
GOARIZONA REAL ESTATE
Website: Go Arizona Real Estate