PHOENIX AGENT MAGAZINE

Article by John Yellig - August 16, 2022

New residential construction fell 9.6% in July, as both single-family and multifamily starts fell from June’s pace, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development said in a press release. New construction of single-family homes dropped 10.1% from June’s revised estimate to 916,000, while multifamily starts fell 10% to 514,000. On a yearly basis, single-family starts were down 18.5%, while multifamily remained strong, with a 17.4% increase.    

Altogether, the combined construction pace of single-family homes and buildings with five or more units was down 8.1% year over year, at 1,446,000 units. “A sharp decline in single-family home construction is another indicator that the housing slowdown is showing no signs of abating, as rising construction costs, elevated mortgage rates and supply chain disruptions continue to act as a drag on the market,” Robert Dietz, chief economist for the National Association of Home Builders, said in a news release. 

The declining pace of housing starts in July was even slower than expected, as analysts were expecting it to come in at 1.52 million, compared to the reported 1.45 million, First American deputy chief economist Odeta Kushi noted. 

“Housing is a primary transmission mechanism for the Federal Reserve and, as monetary tightening has intensified, so has the impact to homebuilding,” Kushi said. “Builders are responding to a pullback in demand, as rising mortgage rates have dampened affordability and caused would-be buyers to sit on the sidelines.” Privately owned housing completions hit an annual rate of 1,424,000 in July, 1.1% higher than June and 3.5% above the previous year. The seasonally adjusted annual rate for privately owned housing units authorized by building permits was at 1,674,000 in July, down 1.3% from June and up 1.1% from a year earlier.  

Despite the challenges of high costs and high mortgage rates, the housing market continues to be undersupplied, which should alleviate concerns about a market crash, RCLCO Real Estate Consulting principal Kelly Mangold said, “Looking ahead, housing starts are likely to continue to be impacted by interest rates, though there is still the growing demand by households who would like to buy — and who may be adjusting to the new market conditions — because in reality, interest rates are still low when compared to longer-term historical levels,” Mangold said. 

The residential housing market for Phoenix, as well as most of the country, has rapidly shifted from a red-hot sellers’ market to a more balanced market where buyers now have choices and regain their bargaining power. The main reason for this change is an increased amount of inventory and affordability.

In the beginning of this year, Phoenix had roughly 5,000 homes on the market, now there are over 18,000! People who were waiting to sell their properties at the “top of the market” have realized the market has peaked, so there has been an influx of new homes for sale. MLS data also shows that it is taking longer to sell a home and the number of completed transactions is decreasing, down almost 8% in June. This is bringing the number of active listings up to an amount we haven’t seen in years. Selling a home is once again a competitive process and allows buyers to be more selective.

In June, it was reported by Core Logic that 14.9% of homes under contract fell through. The contracts were cancelled by the buyers. This number is usually closer to 10%. Taylor Marr, the Deputy Chief Economist at Redfin, said in a statement, "The slowdown in the housing-market is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals. Buyers are increasingly keeping, rather than waiving, inspections, and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process."

While this is all good news for buyers, inflation and rising interest rates have made affordability a problem for many, thus decreasing the amount of demand (buyers) for homes. According to the National Association of Mortgage Brokers, applications for new mortgages are at a 22 year-low across the country.

If you are thinking of selling or buying a home, please give me a call to discuss the current housing trends and other factors which may influence your decision.

Housing prices have soared recently throughout the greater Phoenix area, and it has been difficult for buyers to find a home because there are so few homes for sale. Well, over the last 45 days, things have changed. Interest rates have risen and have made affordability an issue for many buyers. In addition, the supply of homes available for sale, is 26% higher this month than last. In the past 30 days, we’ve had a few thousand more homes come onto the market. Since supply is increasing, it’s no surprise that 36% of the homes now on the market have had to reduce their original list price.

Tom Ruff, with the Arizona Multiple Listing Service (ARMLS), recently reported, “When the housing market moves from a sellers’ market to a balanced market, demand softens first, and a drop in demand is what we’re seeing. As reported by ARMLS on May 1, demand was down 7.9% year over year, with supply up 10.6% year over year." While we are far from a “balanced market,” where the marketplace for housing doesn’t greatly favor one or the other, buyers or sellers, trends show we are moving in the right direction.

This is great news if you are currently looking for a home. Your options and choices are increasing by the day, however, so are interest rates. You may want to purchase something sooner rather than later. For the past couple of years, people thinking of selling their home have been concerned about where they might move to next if they did. If you are one of them, the wait is over. There are plenty of homes to choose from in the greater Phoenix area and you more than likely won’t be in a bidding war to get one. Please give me a call if you’d like to discuss your options.

Here is a quick update on the multi-family housing rental market and how it is impacting our housing market as a whole. While the for-sale single family home market is starting to moderate, the rental market is heating up! This will most definitely place added pressure on people saving up to purchase their first home. Rental listings are now attracting multiple offers and the vacancy rates for apartments are at all-time lows. The combination is causing the fair market value of rent to soar. This is being fueled by high demand for rentals by those most affected by the job losses during the pandemic as well as former home buyers who are now priced out of the market to purchase a home. As you can imagine, those who have been homeowners over the past couple of years have benefited greatly with the sharp increases in home values but it has caused serious anxiety for non-home owners.

Mortgage rates may apply added pressure over the next few months as they are expected to rise from the Federal Reserve slowing the pace of buying mortgage-backed securities. In short, it’s not just Arizona, but the entire United States could use more houses, both to purchase and for rent. New construction cannot keep up with America’s need for housing. Rehabbing dilapidated homes or repurposing commercial buildings that are empty is essential.

If you have been thinking about buying a rental, rehabbing a home or commercial property… give me a call at (602) 818-0533. I have experiene in doing all of the above over the last 15 years and can share my knowledge and expertise to ensure a successful outcome. If you are currently renting and want to plan to buy a home in the near future, let me know. I have helped many of my own tenants develop a plan to achieve home ownership.

Buying a home has so many caveats and limitations that it may be hard to find a dream home. It's especially hard for individuals who aren't able to pay for a home in cash and don't qualify for a mortgage loan from a lender. These individuals sometimes can get trapped in home mortgage scams where they lose money and their new home. Landmark outlines three possible mortgage scams and how to avoid them.

Lease to Own

A lease to own mortgage is usually something offered by the seller when an interested buyer doesn't qualify for a loan to pay for the home up front. Instead, the seller becomes a landlord for a time and charges rent to the homeowners, until they can build up their credit and qualify for a mortgage. Often, the seller charges "opt-in" money at the start of a lease to own agreement, which shows the buyers intent to purchase the home after qualifying.

Many times a lease-to-own mortgage seems like a great deal. The buyer pays "rental" payments until they can buy the home outright. However, these rental payments are usually overpriced. Worse than that is when the contract states it's time for the buyer to purchase the home outright, and they still cannot qualify for a home loan. The seller can then kick them out of the home and keep all of the rental payments and opt-in money.

If you don't qualify for a mortgage, talk to your local Approved Housing Counseling Agencies. Some can find mortgages for low credit or low-income individuals. With this lower rate, homeowners can purchase home warranty insurance and save money by protecting their systems and appliances. Home warranty insurance could also be included in a home sale.

Wraparound Mortgages

For individuals who cannot qualify for a home loan, a scamming seller will provide a mortgage instead of a traditional lender. This "mortgage" wraps around the mortgage the seller has on the home already. When the buyer pays money to the seller, the seller pays it on their mortgage to the bank. 

Some sellers in this situation scam the buyer. If the seller doesn't make payments to the bank, the home will be foreclosed and the buyer is kicked out. Or, if the seller wants to make money, they'll charge more from the buyer on the mortgage payment, pay their minimum to the bank, and pocket the rest. 

The best way to combat this mortgage scam is to make sure there is a written contract between the seller and the buyer of the home. Then, a real estate agent hired by the buyer should properly vet the contract. If there are loopholes in the contract, the buyer should look for another home preferably one covered by home warranty insurance. If the home doesn't have home warranty insurance, it may be hard to buy a home, as home warranty insurance can save a homeowner hundreds of dollars a year.

Bond or Contract for Deed

When a seller enters into a Contract for Deed agreement, the buyer is entering into another type of "rent-to-own" arrangement. Instead of agreeing to have rental payments until the individual is qualified for a loan, a seller will let the buyer pay rent until they pay the seller for the home in full. Although this may seem like a wonderful idea at first, most of the time this payment and contract will last for 10 to 20 years, depending on how much the home is worth. If the buyer happens to miss a rental payment, the seller can evict the buyer and not give them any of their money back from their rental payments.

Instead of entering into a contract for deed agreement, a buyer should go to home buying counseling to see what options there are to fully pay for a home and use a trusted lender (like a bank) to finance their home. 

If it Seems too Good to be True...

During times like these, when the housing market is hot and home values are rising, sometimes buyers get creative out of desperation and sellers can get greedy. If you have a question or concern, do not hesitate to pick up the phone and call me at 602.818.0533 to discuss whatever options you are considering, even if I am not representing you in the transaction or future home purchase. I am happy to provide you with what insight I have on the topic and let you know if I think an opportunity that's been presented to you is “too good to be true.”