2021… Crystal Ball Anyone?
January 4, 2021
Branch Manager Foothills Office
Long Realty Co.
There is no doubt that 2020 has been a memorable year… unique to say the least, very difficult, but for every negative it has brought, we Arizona REALTORS® know this has been one of the wildest markets in memory and, very profitable for many. But, where do we go from here? While no one has a crystal ball, there are a few things we can state with relative certainty: 1) the ride isn’t over for Arizona, as indications are the market will continue to surge; 2) there is no evidence of a bubble or a bust anytime soon and; 3) the coming year is uniquely positioned to be both excellent for Buyers and for Sellers in our state…let us explain.
First, how is it this trend can continue in the face of economic uncertainty and a raging pandemic? While Arizona has always been uniquely positioned for those who want a year round active lifestyle, open spaces and relief from natural disasters, as a result of COVID, people with means have realized they can work from home, and home can be wherever they wish. So, they are moving here now. It seems extremely likely the steady tide of people coming from both coasts and inland large cities will continue. Where will these people get the money to purchase? It turns out that, according to John Burns Consulting, 42% of homeowners have 100% equity in their homes, and an additional 29% have between 40 and 99% equity. They just need to sell where they are to have the funds…and, the market is hot all over.
For Buyers coming from most markets on the coasts, and in larger cities, Arizona prices are extremely reasonable. Additionally, there appears to be a large pent up demand due to COVID, which our market will happily satisfy. Also, according to Ali Wolfe, the chief economist at Meyer’s research, the year after a presidential election has always been the best of a four-year cycle. Bottom line: this is a bifurcated economy and one portion of that economy is not suffering and will continue to buy. Admittedly, the other portion will put pressure on the rental market and, failing some assistance for landlords, we can predict some turbulence in the residential income market in the year to come.
Next, reasonable people are worried that there will be a bubble…after all, if you were to look at the kind of Seller’s market which preceded 2007-2008, it looks very like today…so what is the evidence that is not happening?
First, bubbles happen when people are buying homes they do not intend to live in… that is part of what drove the last collapse. Second, when demand outpaces supply, as in the current situation, prices do not drop. We currently have a dearth of inventory, even though more listings are coming on the market than we have ever seen in a September/October… how can this happen?
It is because we have a record number of buyers snapping them up as fast as they come on market.
I hear you asking, “But what about Forbearance? Surely there will be a flood of foreclosures hitting the market.” Actually, no. Remember the startling equity numbers? It turns out less than 7% of homeowners owe more on their houses than it would take to sell them. Should they need to because of a furlough or job loss they would either break even or make a small profit. It is true that some homeowners will be underwater and may let their houses go back to the bank, but that number is small, and even those folks will have options that simply were not available in 2007-2008.
High demand, continued low interest rates, high homeowner equity, pent up desire, and the ability to telecommute and live where you want all tell a story for continued strength in the Arizona market in 2021.
Last, how is it possible this can be a good market for both Buyers and Sellers? It does seem like a paradox, but this is exactly the case, and the numbers prove it. For Sellers it’s an easy argument, we have the strongest Seller’s market in memory, with days on market historically low and months of inventory also at record low levels. Consider the fact that a balanced market is when there are roughly 6 months of inventory… that means if there were no more listings at the current rate of sales it would take six months to sell every listing. I do not know if Tucson has ever had such a strong Seller’s market for properties under one million. Even properties over one million have almost reached a balanced market and if trends continue, it will also slide into Seller territory. At the current levels of inventory it would take the majority of the next year to return to a balanced market… so, the outlook for Sellers in 2021 remains very positive.
But how about Buyers? Consider our record low interest rates. All indications are that interest rates will remain at or around these historic lows for the coming year. In fact, Fannie Mae is predicting a further drop. Currently Arizona ranks very well nationally, as far as affordability… this coupled with interest rates put cash in the pocket of today’s home buyers for the next 30 years, should they keep their home for the life of the loan.
Yes, no one has a crystal ball, it is possible that unforeseen outside events might drastically alter the educated guesses above, but all indications are that 2021 will be an even better year for Real Estate in Arizona. It seems certain that despite COVID-19 and the economic chaos which has resulted from the pandemic, we will do well. Additional stimulus is likely, the election is over and so that uncertainty is passing, the workforce has changed and is now free to relocate, vaccines are on the near horizon, sellers have equity and are free to move up, and buyers have record low interest rates which will apparently continue. The future seems very bright.