By Mike Bodeen · 7 December 2020
Well, there’s no pretty way to put this. The Phoenix Metro communities are in crisis real estate mode. Last week we stated that we were “starving” for listings. The listing drought is for both homes for sale and homes for rent.
The supply side of homes for sale as of the first of this month was 7,388 compared to 8,682 on November 1st – a 15% drop in homes for sale in the Arizona Regional Multiple Listing service (ARMLS) in just one month! One year ago, we had 13,869 homes for sale – a drop of 47% in one year.
The drop in homes for sale and for rent has pushed the price up of both categories between 15% and 20% in one year. What has assisted these dramatic price increases is record low interest rates, now nearing 2.5% for a fixed rate 30 year mortgage.
We can continue to lament our current state of housing in Arizona, or we can see if there’s any way to help the problem. Well, yes, there are some things that can be done to decrease demand and increase supply, but these solutions come with unintended consequences.
“…let’s be clear here, unless our population increase slows or decreases considerably demand for homes will remain high, perhaps more than offsetting other approaches that might slow rising values.”
Developers are doing what they can to develop homes for sale and rent, but neither can do it fast enough. One builder, NexMetro Communities, among others is developing a home rental community. This company has seen the writing on the wall and began developing new home communities – just to rent. It’s termed a hybrid development. This company, at the end of February, had 2,524 hybrid homes completed, or in the developmental stage. These are very nice communities that are single family detached homes with minimal setbacks between homes – very minimal. But they’re new, modern, energy efficient, and include amenities.
See story: https://www.bizjournals.com/phoenix/news/2020/02/28/why-phoenix-is-ground-zero-for-homebuilders.html
One of the main events that can create more supply in the shortest period of time is a rise in mortgage rates. A 1% rise in rates could potentially increase the supply of homes for sale – but only for a short while. We tend to get use to the new normal pretty quick. And the unintended consequence of rising rates is that the homes for sale likewise become more expensive to own.
A much higher rise in rates could further dampen buyer enthusiasm, but let’s be clear here, unless our population increase slows or decreases considerably demand for homes will remain high, perhaps more than offsetting other approaches that might slow rising values.
In other words, get used to the new normal.