Soaring equity keeping inventory tight, expert says - SanTan Sun News SanTan Sun News

Soaring equity keeping inventory tight, expert says

March 25th, 2021 SanTan Sun News
Soaring equity keeping inventory tight, expert says

Executive Editor

Anxious homebuyers hoping to see a deluge of foreclosures springing from the pandemic’s impact on the economy and loading the Valley market with short sales should think again.

It’s more than unlikely that the Valley’s housing scene will see a flood of for-sale homes and plummeting prices that some reports in 2011-13 purported, says the Cromford Report, the leading tracker of Valley housing scenes in the Phoenix Metro area.

That’s primarily because equity has ballooned, making it less likely owners will simply walk away from homes as they did more than 10 years ago.

Noting the inventory of homes this month is 60 percent below March 2020, Cromford did note a downward trend in demand but said “that really does not make much difference when supply is this scarce.

“Even if demand dropped well below normal, we would still have multiple offers for most listings,” it continued,

“Multiple offers are the mechanism that drives prices up,” it said. One offer per listing represents stability. No offers tend to drive prices down. We would need about seven times the current supply to get back somewhere close to normality.”

Cromford also said something most other real estate experts agree on – the end of mortgage assistance by federal pandemic relief money will likely not lead to massive foreclosures and flood the market with resales.

“While we can imagine a noticeable increase in supply taking place,” it said, “it is very unlikely to reach the levels that would dramatically change the balance in the Greater Phoenix market.”

“There was no significant shadow inventory” in 2011-13, Cromford said, “and there is no huge wave of distressed homes waiting to hit the market now.”

Warning that buyers should “not be taken in by these myths,” Cromford said the sequence of the housing bubble’s collapse needs to be examined.

“Prices started to fall from July 2006 onward due to supply becoming much stronger than demand,” it said. “The fall in prices meant recent buyers had zero or negative equity from 2007 onwards, loosening their motivation to keep up their mortgage payments.”

As a result, “a huge wave of bank-owned properties hit the market in 2008 and 2009, adding to the supply problem” that was exacerbated by a major increase in new-home construction.

“The lack of equity meant many homes listed in 2008 through 2011 were short sales,” Cromford noted. “Investors pounced on the bank-owned homes and short sales from 2009 onwards, bringing the drop in prices to a complete halt by 2011.”

Currently, it said, “We have far too little supply, not far too much. Note that the excess supply in 2006 was the primary problem that burst the bubble. The foreclosures came later and were an effect, not a cause, of the bubble bursting.”

Stressing that “foreclosures did not cause the housing crash” and “were a consequence of the excess supply of 2006,” Cromford said this year has opened “a period of extreme appreciation.”

It said square-foot prices rose 5 percent in just four weeks last month” and sales are up 7.4 percent over a year ago while prices have climbed 23.1 percent.

“We expect to see dollar volume hit new records during the second quarter,” it predicted, “along with all of the pricing metrics.”

Meanwhile, reported that homebuyers have been dealt another setback – cheap loans apparently are disappearing.

Mortgage rates crossed the 3 percent threshold for the first time since July 2020, according to Freddie Mac.

“The era of mortgage rates under 3% is likely behind us,” said senior economist George Ratiu. “For first-time buyers, the market is looking a lot more challenging. The current trajectory of interest rates is putting a damper on their budgets and making it more expensive to afford a home.” said almost 20 percent of first-time buyers spent more than a year shopping for a home due to the high prices and lack of inventory as the coronavirus pandemic and low mortgage rates pushed more would-be buyers into the market.

“As a result of the low rates and the pandemic, the number of homes for sale plummeted 49 percent compared with February of last year,” the website said. “That’s particularly bad as the nation was already in the throes of a severe housing shortage a year ago.”

The low supply of homes for sale, coupled with high demand, has resulted in median home list prices rising 14% in February compared with the previous year, according to

“For sellers, the rising mortgage rates can motivate them to list their homes sooner,” Ratiu said. “There are still plenty of buyers in the market and many of these buyers are getting squeezed by rising rates.”

But he added that rates are still low even if they have crept above 3 percent.

“Home sellers and home buyers have gotten really used to extremely low rates,” he said, saying rates in the 3-3.4 percent range “remain extremely affordable by historical standards.”