Happy 2024!!!! I'm so glad we're in it now!
It's time for real estate to come out of hibernation and start getting some traction.
Are you, or someone you know, considering buying or selling a home this year? Let me know asap so we can begin strategizing to get the best possible outcome!
Just reply to this email. Easy peasy.
TAU Video Here
Let's talk about housing supply for our Metro area population. Oh yeah, and the City of Phoenix.
Long story short, if you hear anyone saying that our housing market is in a bubble, simply show them that site. In the 2010's decade, there were fewer homes built than in the 1970s. WHAT?! If you hear someone say that we overbuilt by about 80-100k homes in the 2000s, I would kinda give them that point. Overbuilding absolutely happened in that decade.
However, in the 2010s, there was underbuilding coupled with oodles of population growth. Heck, I can hear the groaning about California and Chicago folks coming here. It is true that tons of non-AZ people are moving here for work, better winter weather, and because we are amazing folks!!! (FYI: I came from CA 23 years ago, so we're going to pretend I was born here.)
As for the population of Phoenix and even down into the southeast valley, expect more people coming here. The New York Times wrote an article titled "How Arizona is positioning itself for $52 BILLION to the Chips Industry." Even if you don't have an account with that paper, you will get the idea. We have only seen the tip of the iceberg for new business growth when it comes to the full impact of TSMC (Taiwan Semiconductor Manufacturing Company) coming to North Phoenix. More jobs mean more people needing to fill them and increasing housing demand. These are exciting times.
We are poised for a safe and steady real estate market in 2024, unless mortgage interest rates dip into the 5% range and then all bets are off on the number of bidding wars that will come back.
Well the balanced market didn’t last long, 7 weeks to be exact.
Last month the Federal Reserve gave the housing industry a much needed gift.
Not only did they not raise the Federal Funds Rate, they also announced their intention to drop it three times in 2024.
Conventional mortgage rates responded by dropping from 7.1% to 6.62% within 2 days.
Mortgage rates have now dropped 1.4% since they peaked at 8% in October 2023, saving a borrower nearly $380 per month on a $400,000 loan, a payment decline of 13%.
I am very much in HOPE as shown above and I bet you are, too. This is the time to be buying a home, so that you get to start out with a very good chance of gaining equity out the gate.
Affordability. (Yes, it looks like it isn't a 4 letter word, but sometimes it feels that way!) Our metro area used to bounce between 60-75 on the HUD site's graph, which was pretty close to the national average. Now we are 24.9 and the nation is at 37.4. That means it is harder for first-time home buyers to get into the game. Absolutely right! Now, if you didn't study the underlined sentence 2 bullet points up, do so now. Affordability will improve as the interest rate goes down, even if housing prices stay exactly the same. (Why is everything so complicated? Right?)
There was little movement in pricing between December and January. The average $/SF for closed listings has been trending down for the last two months from an unusually high November reading.
However, the average $/SF both for pending listings and for listings under contract have been moving higher. We (the Cromford Report folks) assert that these two trends cannot go in opposite directions for a prolonged time. Either the closed prices have to rise, or the pending and under contract prices have to fall. We think the closed prices are more likely to start to move higher under the current market conditions.
As you can see in the chart on the left, dated 12/16/23, the Valley was mostly green, which is a balanced market. Only 4 zip codes were in the hotter category, aka seller's market. In the #2 chart on the right, on 1/20/24 we had 7 hotter markets and 6 frenzy markets. As a reminder, frenzy markets mean there are 100 homes for sale for every 113 actively looking buyers.
To Recession or not Recession? That is the question!
For perspective, each time the rate drops by 1%, the mortgage payment can drop between 9-10% depending on where it started, in many cases saving at least $200 or more a month. This rate drop was enough to give December’s mortgage applications a boost, which could be a precursor to January’s accepted contract counts.
So what can Greater Phoenix expect for 2024? It’s reasonable to expect some relief, not in the form of declining prices but in declining mortgage payments. Combine this with rising family incomes and we can expect affordability measures to improve along with demand.
Things could get more exciting after the Federal Reserve meets again at the end of January and further reveals their plan for the Federal Funds rate in 2024. Stay tuned.
Side note, don't tell me if you read any of Harry S. Dent, Jr's books. He cried Recession "wolf" in 2009, 2011, 2014, and 2017. He's 0 for 4 at this point. (Hahahahaha)
And, I have proof that Case-Shiller is always a couple of months behind reality, as well. (Just ask and I'll share the details. Really!)
Do the elections have an impact on the housing market:
- Yes and no. Helpful, wasn't I? Let me explain.
- People need to live in houses all year long, year after year. If you don't like the person in the White House, does that mean you are willing to be homeless, not have kids, not let your kids leave your house, get married, get divorced, move for work or any of the other many reasons that cause people to move for AT LEAST 4 years. When the question is asked that way, it looks pretty silly.
- The stock market does go flat around the elections and they do have an impact on the real estate market; only luxury homes, though. When stock values go up, more people buy flashy and expensive homes. Keep in mind, only a small percentage of homes fit into this category.
- Mortgage rates also have a biggest impact on sales volume, which you had first row seats to that truth last year. The above chart shows elections and how rates were afterwards. (If that isn't very legible for you, since 1996 the rates went up two times. Twice they went down. And 3 times they were flat.) Coincidence? Nope.
for all sorts of real estate content and some weird randomness thrown in for fun.
In fact, I've started doing different series specifically tailored to for Buyers, Sellers, and Investors, We'll cover topics such as negotiation techniques, home improvement, credit scores, escrow hurdles, market updates, recent news articles, and so much more.