What’s up with the very low real estate inventory in greater Phoenix?
Over the past several years, the real estate market has seen consecutive years of declining “for sale home inventory”, both new build and existing. United Brokers Group, and other quality real estate information resources, report these monthly trends, so we won’t dive into the numbers, but the extent of this trend is both unusual and even slightly dramatic.
In our industry, much has been postulated about the cause or causes of this trend. Certainly, some of the blame can be laid at the feet of the huge housing bubble and subsequent bust we all experienced in 2007-2008. This bubble impacted both facts and emotions which had a significant impact on buying and selling homes.
1. When the bubble popped, home builders dramatically cut back on new construction which is only now beginning to recover.
2. Many potential buyers experienced personal credit problems in 06’ and 07’ due to rapidly rising prices, and over-valued homes, and have only recently come out of the “damaged credit waiting period”.
3. Another reason for our general lack of inventory is our “historically” low interest rates. Rates dove immediately following the stock and housing crash. The Fed hoped to cushion some of the long-term pain to come by making more money available. To put this in perspective, even though today’s 30 year is around ~4,5%, ~.5% higher than our all-time lows, it is significantly less than the average of ~7 % – ~8% typical of the preceding 10+ years. For the past 10 years (since 2007) we have had really terrific mortgage rates. Smart home buyers have taken advantage these ultra-low low rates by buying sooner rather than later.
4. Finally, Money Magazine says that the millennial generation has just entered it’s “peak nesting years” (their words, not mine:).
5. A significant influx of new buyers + a lot of available money + the builder hangover from the bubble is a perfect recipe for a housing shortage.
So, that’s where our inventory went, now what do the forecasters say will happen, and when.
1. General economic confidence is at its highest level in many, many years. America is ready to invest!
2. Builder forecasts for 2018 and 2019, done by ASU’s highly respected Seidman’s Institute (the Greater Phoenix Blue Chip Panel), is forecasting an average increase in the number new build permits of ~26% for 2018, and ~12% 2019. Also, area new home builder’s stated strategy is to target the entry-level home market this year. That should help alleviate some pressure.
3. Interest rates will remain low (by historical standards) and prices will continue to rise, but price increases should begin to moderate, towards the end of this year into next.
4. As the new build inventory comes on line, and rising prices curb some buyers, the inventory shortage should moderate, then return to a more balanced buyer/seller market.
That’s the story on our inventory shortage. Prices will continue to rise for a while, and if you’re currently considering selling, you should be in the driver’s seat. If you’re looking to buy, it might be smart to do so sooner rather than later. Buying now should save you a lot of money and give your new home purchase immediate equity.