Have you ever caught yourself questioning what the local real estate market in 2020 will look like? How many of you have heard about a potential crash in the market for this year, or that there's too many people moving to the Phoenix area/Arizona in general because of cost of living and housing prices? We talked to Zoltar, one of the world's most famous fortune tellers... Just kidding! We didn't necessarily talk to Zoltar about the local real estate market but we did do some research about the market and we have answers to the questions many are asking their local realtor! Don't worry, we don't have any bad news to bear but mainly great news that will keep you at peace when it comes to potentially buying or selling a home this year!
Let's start with the most talked about topic - a potential 2020 market crash. Many of us have noticed that the local real estate market is booming and that's great, but it also makes many wonder if that boom is happening too quickly. Not to worry, there won't be a recession or setback any time soon for the Phoenix area (yay!). Truth is, with these types of myths being thrown around in conversations, current homeowners are going back and forth about selling their home. Although house prices are currently increasing, they aren't going up rapidly. As a matter of fact, according to a recent article written by AZ Big Media, house prices for 2020 aren't quickly rising like they did in 2019 . This puts a homeowner in an interesting spot because there's a potential fear of getting stuck to a depreciating asset in the future if they don't take advantage of those rising prices. This could mean that there would be more of a push to put their home on the market before it starts to depreciate if a homeowner decides to wait a few more years.
So what exactly is determining the rise in prices here in the Phoenix area? Well, there's plenty of factors that go into play, but the Home Buying Institute states that, "there are two dominant trends that stand out within the Phoenix real estate market. They are a growing population and a limited supply of real estate inventory. These two factors account for the ongoing rise in home values, and the positive forecasts for the Phoenix real estate market in 2020" Brandon Cornett, Home Buying Institute (January, 2020). The article also mentions that the population has nearly rose by 15% within the last 9 years, which is much higher than the nation's rate. Don't fear that percentage because it's actually a good thing! Another important detail to point out that relates back to increased house prices is the imbalance of supply/demand. According to Redfin, a real estate brokerage company, at the end of 2019 the Phoenix area saw a 2-month supply of homes for sale, while the national average was roughly at a 3-month supply. That 2-month supply of homes for sale is what created that imbalance of supply/demand, which isn't necessarily a bad thing, it just means that we are currently in a sellers market. For those who don't know what a seller's market is, it's basically a situation where there's more demand than supply for homes. For example, a home that is being put on the market will have plenty of potential buyers coming in, which leads to multiple offers on that home (that's a great sign). The only challenge Phoenicians would be facing is competition amongst the lower price ranged houses. Lower end house prices will create more competition for buyers who want to stick to prices that are considered more affordable. Speaking of lower-end house prices, who exactly is searching for homes within this price point? Let's find out!
And the award goes to... young people! Yes, you the millennial, is the type of buyer who is looking for a home that's considered to be in the lower price point. It isn't necessarily bad, if anything it's a good thing because it indicates that young people are becoming financially ready to make a pretty big purchase in their life that doesn't include pricey lattes or avocado toast. In fact, millennials who are in their late 20s are getting ready to purchase a home because they are feeling financially stable to do so. It's been predicted that the younger generation is fascinated with wanting to live that luxurious lifestyle they see in LA or New York City, but realistically, it won't be happening any time soon. That's why many of them are looking at areas that still have a similar lifestyle but with a better overall cost of living. Imagine the suburbs being filled with a bunch of millennials years from now...
Did you know that there's also another generation who is making a change to the market? You guessed it, boomers! Sorry to call your generation boomers, but it does sound better than saying senior citizens... Anyways, in the same article mentioned above by AZ Big Media, it's predicted that around 2035, seniors will approximately make up 1/3 of the overall population. An entire third of the population... That's a lot! It also does mean that they'll be in need of houses and/or retirement homes, which will be a hot market later down the road for us realtors.
So we went over the myth of a potential recession, why prices are rising, and which groups are creating a shift in the market, but what else is there to mention? Probably one of the more important factors of buying a home, money! We are by no means loan officers but we can tell you this, the interest rate for a mortgage is still relatively low! Last year in June we published a blog that talked about low rates and we're happy to say that they are still sticking around for another while! The Home Buying Institute's article brings up a very interesting point about overall mortgage rates. The Consumer Financial Protection Bureau did research on the local market and they created a chart showing us delinquency rates. What's a delinquency rate you ask? In the simplest terms, it's the percentage of loans that are considered past due. Back when the recession hit, the percentage for those rates were fairly high. Fast forward to 2019, those rates are considered to be lower than average. That just means homeowners are doing a much better job with keeping up on their mortgage payments. Keep it up Phoenix!
Before coming to an end, we just wanted to make a few honorable mentions to a few other factors that go into play when it comes to the local real estate market. As technology continues to advance, the way we do business is also advancing. Local realtors are now competing against iBuyers. An iBuyer comes from a computer generated service that's making it easier to purchase a home. How do they make the process easier? iBuyer companies make a potential seller fill out information about their current home, then sends them an offer and the price the iBuyer is willing to pay for the home. Most iBuyers are real estate investors who are looking to make cash offers on that specific home. This could potentially bring in a lower than expected offer, compared to a higher offer a traditional realtor can bring in, and those companies take the pain of marketing, repairs, etc. out of the equation. Oddly enough, the iBuyer method was pioneered here in Phoenix. By the way, check out this article by Forbes that gives you more insight on iBuyers and how they shifted the market as well. Another honorable mention is the labor market! With more people moving to Arizona, that means there's also a need for more people with skilled labor experience. It's good news for those who are looking to go a different route than the traditional, let's get a college degree route! Trade jobs, specifically in the residential construction industry, need to be filled with potential employees who are looking to still get a job that comes with great benefits and pay. Trust us when we say those jobs are definitely out there.
Let's wrap it up! Is it truly a good idea to sell your home to buy another one if you're already in consideration of doing so? We still suggest that you do, only because the market is in good standings and we would hate for you to lose value on your current home if you decide to sell later on. We aren't just saying this because we're realtors and we want to make money, we genuinely say this because we believe that the time is now! We want to help our clients make the best decision they can when it comes to their home. Whether you're buying or selling, we have all the resources you need to get what you want. We as a team are learning to adapt to these changes. Sure, we might complain here and there about those shifts but that won't stop us from going out of our way to get you one step closer to your dream home. We'll continue to develop those awesome relationships with our clients like we always have, we'll make sure we can personalize the experience for each and every person we work with, and we'll refocus on the basics of real estate while still keeping up with the times. Just for the record, we don't run off of algorithms, we run off of emotions and we can guarantee you that we are all real human beings, check out the picture below for proof. ;) #robotsdontshowemotionbutwesuredo
Blufish. (2020, January 26). Housing market in 2020: Here's what to expect in Arizona. Retrieved from https://azbigmedia.com/real-estate/residential-real-estate/housing-market-in-2020-heres-what-to-expect-in-arizona/
Blufish. (2019, October 28). Housing market forecast: What can we expect in 2020? Retrieved from https://azbigmedia.com/real-estate/residential-real-estate/housing-market-forecast-what-can-we-expect-in-2020/
Cornett, B. (2020, January 14). Outlook: Why the Phoenix Housing Market Won't Crash in 2020. Retrieved from http://www.homebuyinginstitute.com/news/why-the-phoenix-market-wont-crash/
Ellis, T. (2020, January 16). US Home Prices Up 7% in December. Retrieved from https://www.redfin.com/blog/housing-market-news-december-2019/
Wake, J. (2019, September 1). The Surprising Way Real Estate Agents Are Adapting To "iBuyers" Buying Houses Directly From Sellers. Retrieved from https://www.forbes.com/sites/johnwake/2019/09/01/the-surprising-way-real-estate-agents-are-adapting-to-ibuyers-buying-houses-directly-from-sellers/#a3fe9a942120