Metro Phoenix housing continues to perform very well. After a slow summer, which traditionally happens in our market, things are starting to heat up again. Year over year, active listing inventory was down 2% in October and closings were up 12% in the same time frame. Pretty easy to see that as inventory shrinks and sales increase, prices will continue to increase as well and it remains a seller's market. Further evidence? Months of inventory is down from 3.4 last Oct to 3.0 last month.
The main thing you need to understand that the bulk of this increased activity is at the lower end of the market. Properly priced homes under $200,000 is flying off the shelf while homes between $200,000 and $500,000 is also doing well. However, things start to slow down once you get above $400,000.
So are we in the middle of a bubble? The answer is no. Price appreciation has been very slow and steady for the last few years without a massive run-up in values. Slow and steady growth tends to be more sustainable for a longer period of tine and in my humble opinion, is better for our local economy that wild fluctuations.
Stay tune for our end of year review and projections for 2017!
Metro Phoenix Mid-Year Market Review - 2016
The real estate market continues to perform strongly in Metro Phoenix. Market data shows that active inventory in many parts of town continues to shrink below a 3 months supply of homes. Historically, a 3-4 month supply of inventory suggests a balanced market so in many parts of town, we continue to see a STRONG seller's market - particularly under $200,000. It is almost impossible to find homes below that threshold number. As of July 17th, we sit at 20,335 active listings for sale in the MLS with 8,367 sales in the past 30 days. That means only a 2.4 month supply market-wide (not including under contract homes)! June resales were 6% higher than the same period last year and represented the LARGEST UNIT SALES MONTH SINCE 2006!
Absorption rate is the percent of sales that are sold each month of the inventory. A higher percent means that inventory is moving at a faster rate, and thus is a Seller's market. 25-30% absorption would represent a balanced market, Valley-wide we current sit at a 34% absorption rate. Some of the best parts of town in terms of absorption are:
Northwest Valley 51%
Peoria and Glendale 42%
Desert Ridge 43%
South East Valley 42%
South West Valley 46%
The median price in Maricopa County for June 2016 was $240,000 compared to $237,000 in May 2016 and $220,603 in June 2015 for an 9.0% increase!!!!
Our real estate market continues to perform strongly and recover nicely. Even with all the recent gains, we can still be considered affordable compared to most other major metropolitan regions which give us even more potential upside. With the announcements of many new jobs (many of which are high tech related) in the past several months, the future looks bright. Seems like we are finally getting some recognition for being a viable alternative to California and other markets.
Easy Come, Easy Go.....Eh?
Recently I have explained the dynamic of Canadians selling homes in Arizona at a much greater clip. I thought I'd share some recent MLS data that shows this exodus in more analytic terms.This comes directly from our monthly ARMLS STAT newsletter:
"Canadian buyers accounted for 5.95% of the homes purchased in Maricopa County at their peak in April of 2011. The Canadian dollar (CAD) was worth more than the US dollar and Canadians were purchasing at the bottom of our market. Today, the stronger US dollar buys 1.29 Canadian dollars turning our Canadian friends into mostly sellers rather than buyers. In reviewing buyer/seller addresses on recorded affidavits of value in Maricopa County for the first six months of 2016, we see that for every one Canadian purchasing a home there are nine selling. The fear of some is now confirmed - our collective hockey IQ is falling.
Currently in the MLS there are 388 active listings and 109 pending listings with Canadian owners according to mailing address on file with Maricopa County. Of these listings, 65% were purchased between 2009 and 2013 with 20% of the current listings having been purchased in 2011. Buying at the bottom of the market with a strong CAD, seeing significant appreciation gains since and now selling through a stronger USD has to be better than winning Sir Stanley’s “eh.” In short, Canadian sellers who purchased at the bottom are cleaning up and out."
I can totally understand why many Canadians feel the urge to sell now that the market is significantly higher and the Cdn$ is much lower. On the other side of the coin, I wonder why more Canadians are not shifting their money out of the major Canadian metropolitan markets like Vancouver, Toronto and Calgary that are now super inflated to purchase in the much less expensive and sane US market. Even our market in Phoenix is significantly lower than than the market top back in 2006-2007 and offers very reasonable values in relation to other major cities.
We are now seeing real estate values catching up to new construction costs which is starting to drive new home construction which we should see accelerate in the next few years. Now is also a great time to think about getting into residential development, if that is your business.
Mid year real estate market update for Metro Phoenix - 2016
The residential housing market has been very strong to open up 2016, particularly in the $200,000 and under category as first time homebuyers flood the market. There is a real shortage of listing inventory in that subsection of the market and prices have really been pushed upwards as a result. As prices increase, the demand slows down and becomes more balanced. The luxury market is much improved as well but is much more balanced and there still remains a larger inventory of homes which results in less upwards movement on values.
From the commercial market forecast: If you look at where we are at in the cycle for various commercial real estate product types, we are very far along in multifamily – close to the peak. Industrial is next on the list having recovered significantly. Office is the one sector that is in the beginning stages of recovery as we are seeing office vacancy slowly decline. Retail is still puddling along and just now showing signs of perhaps beginning a comeback.
Nate Nathan, our preeminent land broker in Arizona gave a somewhat surprising overview of the land and housing market. He prefaced his speech by saying that right now is the busiest he has ever been in the 38 years he’s been a land broker in Arizona and he compared the current market to 1995 which was just before the last great boom in housing in Metro Phoenix.
Updated population growth is through the roof and Nate predicts building permits are going to skyrocket. Builders are freaking out right now because there is only a 2 year supply of finished lots surrounding the metro area. They are buying up every piece of residential land they can get their hands on.
While there has already been a major uptick in infill sales, he said that is not the millennials buyers because they cannot afford the $500,000 - $1,000,000+ homes being built. The millennials are starting to look for entry level housing and are scrambling to the outskirts for affordability. He said there has been a major uptick in sales in those areas in the past 90 days that has builders scrambling. Financing is also getting easier to obtain and more housing programs are tailored towards these buyers (which is what caused the slowdown from a couple years ago when new housing permits and construction was starting to recover in a big way).
Nate called this the golden age of residential housing and said we are in for major growth in the next 10 years. Much of the Valley is now controlled by State Land Department from North Phoenix to the area west of Mesa. The is a lot of activity in the SE Valley in master planned communities way to the south but there is not that much room left to grow. Towns like Maricopa and then Casa Grande are in for some massive growth. Then the west Valley is going to be the next area to go bonkers because of the availability of affordable land. With the new highway being completed, there is a new corridor for employment growth out in that area as well.
I am working on getting the housing permit numbers to see how they are trending but am hearing that they are way ahead of projections for 2016 already.
All in all, it looks like residential housing is set to explode back on the scene in a very big way.
Metro Phoenix MLS Real Estate Market Data – Year In Review 2015
While 2015 can definitely be considered a big improvement over 2014, it ended up being an average one, when compared to historical results. In comparing December 2015 to the prior year, all the metrics showed significant improvement. Median Sales Price was up 9.1% to $215,000, average sales price climbed 3.8% to $267,621 and price per square foot rose 4.58%. Active inventory was down 11.2% as well showing the market moved to a more balanced level from being a clear buyer’s market the year before. Distressed inventory continued its plummet from the recessionary highs, down 26% from the prior year.
New construction, historically considered a leading indicator of economic activity, was up 18.2% in 2015. New home construction has been at historic lows for 7 years and is showing signs of waking up. In the spring of 2015 in Maricopa County, we saw reports of new home building permits increasing 40% year-over-year. December 2015 reported the highest number of new home sales in the last 7 years. The 1,284 new construction sales were 44.9% higher than last year for the same period.
“As we begin 2016, all of our housing market metrics are positive, nothing but green lights. Over the next three years, approximately 3,500 to 4,000 completed foreclosures per month will hit their magic seven year anniversary and millennials will mature one more year (or at least grow one year older).”
Data & analysis provided by ARMLS STAT, January 2016
New Changes To FIRPTA Rules Taking Affect Next Month!
On Dec 18th, 2015 the US congress passed a new act that modifies FIRPTA rules as it applies to foreigners selling real property in the US. Representing a large number of Canadian buying and selling in Arizona, this may have an impact on many of my clients so I am bringing it to your attention.
The major change as it applies to directly held real estate is the withholding rate was increased from 10% to 15% unless you meet certain criteria. This is a significant change and may affect you when you sell your property.
There are 2 exception to this rule:
If the sale price is $300,000 or less and the buyer intends to occupy the property as their residence and executes a certification of the facts, then the rate of withholding is 0%. This exception remains unchanged and was reaffirmed by the PATH act.
If the sale price is between $300,000 and $1,000,000 and the buyer intends to occupy the property as their primary residence and executes a certification of the facts, then the withholding rate is reduced to 10%. This exception was newly created.
These changes will take effect on any closing on or after Feb 17th, 2016.
There are other ways to possibly reduce the amount of withholding. That is why if you plan on selling real estate in the US, you should speak with a cross border tax specialist.
If you are Canadian and own property in the US, I suggest you speak with a cross-border tax specialist for more details and how it may affect you when you sell your property in the US. Also, make sure to work with professionals that are familiar with the unique issues facing your planned home sale. The most important being a tax specialist and Realtor that is acquainted with these unique issues and can help you navigate through them. Our Team specializes in assisting Canadians buy & sell real estate in Metro Phoenix. As Canadians ourselves, we can help you navigate through the process to make your purchase or sale as worry-free as possible – all while offering top-notch marketing and service.
Canadians – Is Now The Time To Sell Your Arizona Real Estate?
I have been noticing more and more Canadians starting to sell the homes they have purchased in Arizona in the past 5-7 years. Not only my own clients, but many others across Metro Phoenix. Let’s examine why this appears to be happening and whether this might be the right time to sell your home if you’re a Canadian.
In the past 3 years, the Canadian Dollar has fallen from a high of roughly $1.05US to a current low of $0.71US. That’s a 32% drop! In the same timeframe, home values have increase roughly 30-80% from their recessionary lows. While still a significant bargain due to how far values declined during the ‘great recession’ they are still considered by many to be a bargain when compared to other major US metropolitan markets.
So why are so many Canadians selling their homes now? Let’s take a look at a more specific example.
Let’s say you bought your home back when the Canadian dollar was strong in 2012 at par value and you paid cash (no mortgage). You are now thinking of selling and trying to figure out how much money you’ve made as your home has appreciate 50% from the time of your purchase. We will leave out closing and selling costs to keep the example simple.
Purchase Price in Jan 2012: US$100,000 (Cdn$100,000)
Sale Price in Jan 2016: US$150,000 (Cdn$211,267)
Average yearly home appreciation: 12.5%
Average yearly total appreciation including exchange conversion: 27.8%
Total Gain on investment in Cdn$ Terms: $111,267 or 111.3%
This example allows you to see how the tanking Canadian Dollar has made a great home investment in Metro Phoenix an absolutely incredible one. Some of my clients have done even better because their home values have gained significantly more than 50% in that timeframe.
If you are Canadian and thinking of selling your Arizona real estate, there are some other factors you will need to consider including IRS taxation issues (FIRPTA) along with disclosure requirements. Please feel free to contact us for a free market evaluation to determine what your home is worth and for assistance in planning your home sale in advance. Advanced planning could save you major headaches and money. We are well versed in Canadian home ownership and sale in Metro Phoenix having lived here for 20 years since moving from Toronto, Ontario. Our specialty is assisting Canadians buy & sell real estate in Metro Phoenix and we will guide you through and simply the entire process.
Still like the idea of keeping your home in our sunny and warm state but want to perhaps cash out some of the gain and profit from the Cdn$ decline? Then maybe refinancing your property is the right strategy to have the best of both worlds. Contact me to discuss your options. We’re here to hel
2016 Economic & Real Estate Forecast – My Comments
I would like to provide my insight into the Metro Phoenix Real estate market’s future by combining the local real estate market data with the national and regional economic data.
Overall, we can see from both the national economic data and the local real estate performance that both they seem to be mirroring each other. Our economy and real estate market are mired in mediocrity. Our growth coming out of the major recession we experienced is anemic and after a brief jump in values between 2012 and 2013, our local real estate market is back to slow appreciation. We did have a bit of a surge in market activity and values earlier this year but it has since returned to the slow growth levels of last year.
From the data we were presented along with local market data as it comes in, my thoughts are that we will continue to see slow appreciation for the next year or 2 and that it will gather some steam in 2017. Next year is an election year and there is a lot of uncertainty about the future of our country and economy. Hopefully we get someone in the White house that will be good for the economy and job growth. If that happens, our local economy and housing market are bound to improve at a faster pace.
Here’s a quick summary of October 2015 Metro Phoenix’s housing market: Active listings are up and sales are down from last month. Pending sales are also down and our market currently sits at approximately 3.3 months of inventory – again slightly worse than last month although 3-4 months of inventory is still a sign of a balanced market. Even with the sales numbers looking worse than last month, they are still a significant improvement from year-over-year figures with median sales price up 8% from last year. In addition, there are certain areas of town that are moving at a much more rapid sales rate than others. For example the SW Valley has an absorption rate of 71% (the average Valley-wide is 26%). This is the percentage of homes that are sold each month from inventory. Finally the homes priced under $200,000 are still moving extremely quickly compared to the rest of the market while homes priced over $1 million are selling only 5% of inventory per month giving us a 20 month supply of homes to be sold.
While the market is slowing, it is still a great time to own real estate in Arizona. The future seems bright and good things are on the horizon.
2016 Economic Update
Yesterday I attended an economic forecast presented by some excellent speakers from the real estate sector. I like to share this information and my thoughts after these presentations for my clients and fellow Realtors.
Presenters were Economist Elliot Eisenberg, Lawrence Yun, Chief Economist for the National Association of Realtors and Jonathan Smoke, Chief Economist for Realtor.com
Elliot was up first and gave an entertaining presentation (one of the more fun lectures I’ve seen by an economist). Here are the major takeaways from his presentation:
Household consumption is good
Corporate spending is crummy
Dollar is strengthening against other currencies
As a result, manufacturing sector is suffering (less exports with a stronger US$)
Non-manufacturing is doing well
Oil is down and is a huge wildcard – keeping inflation in check
GDP is blah
Government spending is up a bit but relatively flat
Housing is outperforming the economy
Auto sales are excellent
Consumer confidence is great
Our economy is just meandering along
Not likely to see a recession – Elliot gave it a 10-15% chance
CPI – no inflation
Inflation expectations are extremely low for the next 5-10 years
Home loan growth is pathetic
Low interest rates are a sign of a bad economy, they don’t drive the economy
Arizona population growth is good
Labor force is improving
Phoenix is doing well while the rest of the state sucks
Second was Lawrence Yun. Here’s a quick outline of his presentation:
His probability for recession was 20-25%
US GDP growth is well below historic average of 3%. Last 10 years @ approximately 1.5% making this a very lackluster recovery. Bounce back after recession is low compared to historic average. Should be 4-5%
New unemployment claims are very low which is a great sign of future job creation
Unemployment rate looks good but….labor participation rate is low
Fed rates don’t affect residential mortgage rates dramatically, as most people think. Mortgage rates are affected more by bonds
Even though national debt is increasing and Fed is printing money, the US$ is still strong relative to other global currencies. Why? Because other major economies are in worse condition that us
Residential rental rates are rising at 30 year high level
More credit may be on the way with new methods of calculating FICO scores that will help boost some individuals’ scores and Fannie/Freddie providing lower down payment loan products. FHA limits may also be on the rise
Arizona housing Stats are very good. Sales up 40% in Aug from a year ago, prices up 5.3% and volume up 45%
And finally, Jonathan Smoke spoke:
Homeownership rate increased in the 3rd quarter for the first time since the crash
Rents are rising faster than home prices
Smoke also share a lot of demographic data about the different home buying generations and their buying tendencies moving forward. Overall, Realtor/com is reporting a large group of serious buyers entering the home buying process that should translate into an uptick of activity in spring/summer of next year. He is also anticipating a stronger than normal volume of sales this winter from the secondary home buyer segment.
Stay tuned for my next blog by the end of the week with my observations and commentary from this update.
Beware Wire Fraud!
Theft and fraud are becoming more high tech and common. I want to share this latest trick being used by thieves to steal money from unsuspecting homebuyers. If you are wiring funds to escrow for earnest money, or closing funds or any other reason, quite frankly), the escrow company will send you wiring instructions for your bank to correctly send the funds to the right place. You should ALWAYS verify that these instructions are coming from the escrow company by calling your escrow officer to confirm their validity. There are now hackers that are trolling real estate agents email accounts and zeroing in on clients that are in escrow on real estate transactions. They are sending out fake wiring instructions to people and having funds routed to offshore bank accounts. They also use a technique of sending out emails that look like they come directly from the escrow company stating that the escrow company’s bank account information and wiring instructions have changed and give a new (And very false) set of new fraudulent information. It is highly unlikely that an escrow company changes their wiring instructions in the middle of a transaction so if you ever get an email like this, CALL YOUR ESCROW OFFICER DIRECTLY and ask them point blank if they sent the email and if the information is correct before sending any money.
This is apparently happening all over the country. It is important to be very cautious with this because normally it involves large sums of money and once the money is sent to the wrong place, it is gone forever because it ends up offshore somewhere that is untraceable and/or irretrievable. Sure, you have recourse through the authorities but the likelihood of catching the thief or retrieving your money is slim at that point.