Market cooling, but region is still very warm - SanTan Sun News SanTan Sun News

Market cooling, but region is still very warm

October 30th, 2021 SanTan Sun News
Market cooling, but region is still very warm
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By Paul Maryniak, Executive Editor

The Valley’s housing market is cooling a bit, but buyers might not be ready to uncork the champagne.

The Cromford Report, which closely tracks the housing market in Maricopa and Pinal counties, reported last week that listings have risen above 8,000 for the first time in more than nine months.

But it warned, “The cooling trend is very weak compared with the second quarter, but it’s there.”

Nevertheless, other national data earlier this month showed that Phoenix continues to lead the nation in year-over-year home price increases while Cromford showed the larger role investors are playing in the regional housing market.

The S&P CoreLogic Case-Shiller 20-City Home Price Index looked at data for July and said Phoenix led the pack with a 32.4 percent year-over-year increase in home prices in July, with San Diego (27.8 percent) and Seattle (25.5 percent) coming in second and third, respectively.

Overall, the National Composite Index marked its 14th consecutive month of accelerating prices with a record 19.7 percent, the report said.

That’s had an impact on mortgage rates, which the Mortgage Bankers Association of America said “rose across all loan types” in response.

“With home-price appreciation continuing to run hot, increasing more than 19 percent annually in July, applications for larger loan amounts continue to outpace lower-balance loans,” said Joel Kan, an association economist.

Meanwhile, the Cromford Report said that Phoenix also led the nation with the largest percentage the increase in home prices from August to September.

The 3.32 percent August-September increase in Phoenix easily beat those in the next two cities – Tampa (2.94 percent) and Las Vegas (2.77 percent).

Cromford also shed additional light on the role investors are playing in the regional housing market.

Looking exclusively at iBuyer sales, Cromford reported that purchases by institutions or large companies in the region comprised 26 percent of sales so far this year as opposed to only 10-11 percent in each of the past three years.

And this year, iBuyer sales by companies and institutions have steadily risen the first three quarters, going from 19 percent of all iBuyer sales in the first quarter to 27 percent in the second and trending upward again to 31 percent in the third quarter.

Noting that “iBuyers selling homes to investors is not a new thing” and that “it has been happening for many years,” Cromford said: “However, just as investors are buying more homes in general, they are also buying more homes from iBuyers. iBuyers have been recruiting specialized staff to focus on serving their investor customers.”

But it also said, “Demand is improving but a lot of this is coming from investors and iBuyers so could die away quickly.

“Demand from ordinary home-buyers is subdued, no matter what the media might be telling you,” it added. “If the iBuyers stop their spending spree then demand could fall quickly.”

That pause in spending may be starting after Zillow announced last week that it is pausing new home purchases because of the same supply-chain disruptions that have affected their conventional competitors.

Entities like Zillow, Opendoor and Offerpad paid a median price of $435,396 in September, compared to a median price of $276,000 a year ago. They also are selling at prices comparable to the overall market, Cromford’s data indicated, with a median sale price of $412,000 in September compared to $287,000 a year earlier.

“If it were not for investors and iBuyers the market would be cooling much more quickly that it is,” Cromford said.

Greg Hague, owner of 72SOLD, said iBuyers’ profits in the Valley housing market have averaged more than $40,600 between May 1 and June 20 this year and that their fees drive up their profits by another $10,000 to $30,000.

Meanwhile, in a somewhat cautious word for sellers, Cromford noted the average closing price in September was only .26 percent above the listing price – a far cry from the 1.82 percent above list that closings averaged in June.

“There is no guarantee that the current trend will hold, of course,” it added.

And that also offers no great comfort to buyers, judging by the market index Cromford developed in which scores of 100 indicate a balance between sellers and buyers and anything above that number swings toward a sellers market.

As of last week, the 17 communities in the Valley that are tracked by the Cromford Market Index showed the lowest score was 214 in Maricopa – twice the number indicating a balanced market.

The highest was 634 in Fountain Hills. Phoenix came in ninth among the 17 cities with a score of 333.

One of the more startling finds by Cromford in recent weeks shows how iBuyers have surged as a market force, commanding more than a third of the the Valley’s inventory of homes for sale.

Cromford also indicated that investors have found a version of “flipping” with new builds.

“We are seeing many examples of brand-new homes being re-sold at much higher prices shortly after their initial purchase,” it reported. “One specialist investor has resold a dozen new homes for a profit of more than $600,000. We can expect more developers imposing contract terms to try to prevent this in future.”

For now, though, “the fact that developer prices are usually fixed at contract signing is limiting their ability to sell at market price.”

While the median sale price for re-sale homes was $415,000 in September – up 26 percent from a year ago – the new home median price was $412,000 – only 11 percent higher than September 2020.

Cromford attributed that to “supply chain problems and chronic labor shortages” that it said “are limiting the developer’s ability to capitalize on the market strength.”

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