Sellers Compete on Condition as Builders Ramp Up New Permits
Why Homeownership is a Hedge Against Inflation
For Buyers
Inflation is a hot topic today. Talk to any investor about hedging inflation and they may bring up strategies that include gold, commodities, rentals, or even cryptocurrency. For young adults, however, the first step towards hedging inflation is typically moving out of a rental and into homeownership. Let’s discuss why.
The Consumer Price Index (CPI) is arguably the most quoted inflation measure in mainstream media. Most readers assume the main driving forces of the CPI are food and energy. They make up 20% of the weight, so that’s a fair assumption. However, it’s shelter costs that are weighted the heaviest of all the categories at 36%, specifically the cost to rent.
Nowhere in the CPI does the cost to purchase a home come into the equation because there is no rent to pay if it’s purchased with cash, or the cost is fixed for 30yrs if there’s a mortgage. So while the Consumer Price Index has increased 5.4% since June 2022, once shelter is removed the increase is only 2.1%. One could argue that this is the 2-year inflation rate for those who own their primary residence versus rent,
which accounts for roughly 64% of all households in Maricopa County.
For Sellers
It’s the peak Spring buying season in Greater Phoenix, although it may not feel like it for some sellers. The housing market has begun to drift towards another balanced state over the past 4 weeks, which is the result of an accumulation of supply as demand remains weak. Listings under contract are only down 6% compared to last year, but active listings are up 26%. Days prior to an accepted contract would be 3 weeks at this time of year normally, but current conditions are adding an extra week for sellers.
Word on the street is resale homes needing to be remodeled or updated are sitting a bit longer as builders are ramping up permits for new homes. In fact, single family permit activity is up 125% year over year for January and February and sales are up 16%, surpassing 2021 (the previous 10-year high mark). The competition isn’t just for the sub $500K market either. Luxury new home sales over $3M are up 79% so far this year and up 28% between $1M-$3M.
The struggle for resale listings that need paint, carpet, or significant changes is fewer traditional buyers have the capacity to finance a remodeling project with current rates, or they may not be able to visualize the space any other way, or they may think the cost and time for basic renovations is greater than it is. As far as investor purchases go, wholesale offers are due to get uglier with increased holding costs, stagnate monthly appreciation, and smaller returns. Flip sales are down 74% from 2 years ago and at a level comparable to 2015. Whether it’s getting quotes for work, renditions to help with visualization, or advising the seller on the most important updates to make prior to listing, it’s markets like this where professional representation and feedback makes a difference for both sellers and buyers. Despite current challenges, sellers are averaging 97.8% of their last list price at close of escrow so far this month. Seller-paid closing-cost assistance is down 2% to 44% of sales, and the median sales price
increased to $444,900, up 6% from last year.
Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2024 Cromford Associates LLC and Tamboer Consulting LLC
Misha’s Commentary
There is so much talk about affordability recently, and for good reason. When I moved to the valley 20 years ago, it felt like the land of opportunity in comparison to living in Southern California. I couldn’t believe the rental quality compared to San Diego and Orange County- albeit it came with a 6 month long summer, I was living the good life. Fast forward to 2012 when I purchased my first home. After watching the market (via Zillow) and seeing prices start to creep up after the great recession, I knew that if I didn’t make homeownership a reality, and quick, the moment would pass me by and I may never buy. Although a bit dramatic, I am so glad I made the leap when I did.
Now, most buyers don’t feel that pressure to buy when they can rent without the hassles of homeownership at nearly the same price, often times for less than a mortgage. This is why demand has softened. Affordability is not looking positive for would-be-buyers, instead, they continue to pay rent and push off homeownership until something gives.
You know those graphics, “The Cost of Waiting,” well, give them a good hard look, because although it’s not looking extremely affordable, or fun to buy right now, by waiting you are losing tens of thousands of dollars in would be equity; your piggy bank that fights inflation and builds your net worth! I have stressed it before, but homeownership may not look exactly like you planned; you may be in a condo or townhome to start, you may not have the interest rate of your dreams, but it’s a start- and an important one that you shouldn’t wait too much longer to figure out.
For Seller’s
Preparation is key to selling, we have been saying this for months, years even- but it is so imperative that you are ready to sell before you hit the market. Not only with maintenance items- servicing your HVAC, cleaning, organizing, painting, etc., but with who you select to represent your property and their marketing efforts to get you sold. Experience is key- make sure your agent has a proven track record, gorgeous listings, a support system (transaction coordinator, marketing assistant, showing agents, etc) because this all matters- especially now. Let me explain why….in a market where homes take longer to sell, buyers have more options, and competition is high- there will be more showings, more time on market, more negotiations, and ultimately you will need more guidance and strategizing from someone with experience. This is where teams outperform individuals- being alone out there doesn’t always pay. Your agent (and their team) is your expert and should be relied upon for their knowledge in navigating this market and making adjustments quickly and effectively. You need someone that knows what will sell, how much money to spend or not spend, and has the network to make your listing stand out.