And just like that, the first month of 2020 is halfway over!

The spring buying season seems to already have started here in Metro Phoenix, as historically low-interest rates AND historically low inventory is adding pressure to our buyers, boosting sales prices for sellers, and creating a very fast-paced market in general. 

This comes with the usual questions and speculation, and in this week's blog, we want to address some of those in case you've been trying to figure out where you fit in this interesting real estate market: 

"I'll just wait until this 'bubble' pops and pricing drops again."

This is one of the most dangerous assumptions we hear buyers making. 

For starters, the pressure you’re feeling in the housing market is not a “bubble”. A bubble indicates inflated values and “panic” buying or selling. That’s just simply not what’s going on here.

What we are seeing is a simple expression of economics: Supply & Demand. There are historically low levels of inventory (homes for sale) and far more many people who need good homes and are capable of purchasing them. In fact, we have about a third of the housing on the market that we typically want to see.

According to Tina Tamboer at The Cromford Report (the foremost statistical reporting on the housing market in the Phoenix area):

On January 9th, active supply was counted at just over 12,000 listings for all of Greater Phoenix.  This is down 32% from this time last year and excruciatingly low.  To put it in perspective, a “normal” level of inventory should be at least 28,000 - 30,000 active listings in the MLS for a metropolis the size of Maricopa and Pinal County.  The last time inventory was recorded this low was in 2005 at 9,000 listings with a population of 3.8M.  Now Greater Phoenix has 4.8M people with less than 1% of existing housing available for sale. 

So it’s not accurate to say that we’re in a bubble. There are enough weights and measures to keep prices stable and loan products are healthy. In fact, I think a year from now we will look back on today and wonder how on earth prices didn’t rise even faster. Phoenix Metro is just seeing massive population increase and housing demand fueled by job growth, income growth, and low-interest rates.

"What if we sell now only to have to buy again at top dollar?"

A natural concern but not totally founded. After all, who says we are at top dollar? Many areas in Metro Phoenix still haven’t recovered from the damages to property values that occurred ten years ago during the Great Recession.

There are simply no indicators that prices are not going to continue to increase well into 2020. According to Tina at Cromford, there is not ONE measure from any able that says they won’t.

Not only will they not decline, but they also will not stop rising this year at the current levels of supply and demand.

Monthly sales are up 17% over last year, even with lower inventory, and with that continuing demand, you can expect to see home prices steadily rising to meet it. Homes are so needed that they simply will continue to sell.

But back to the question: What if I sell at top dollar just to buy at top dollar? Well, it would be the same question in any market. If the current conditions were reversed, you’d be concerned about selling at or below market value but could get a screaming deal on your next home.

In any market, your job is to see what factors you can leverage to your benefit and take advantage of them. Today, it’s all about capitalizing on the equity you’re growing from rising home values, and historically low interest rates that will reduce your monthly payment on your next purchase.

"We’re nervous making a hasty decision/breaking our lease/competing with multiple offers…we’re going to put off our purchase until next year."

This conversation comes up every single year with our buyers. Every now and then, no matter what state the market is in, we see buyers get cold feet and put off their home purchase for “another year” hoping to see more favorable conditions the next time around.

Sadly, it hasn’t worked out well for most of them. There are a few factors to consider here:

Back to what I stated earlier, home prices are not going to decline. Sure, you may be able to find a deal here or there, but in general, say goodbye to the screaming deals of post-Recession America. Don’t forget that the Great Recession was a tragedy, the greatest economic disaster in 100 years. It was an anomaly and cycles like that do not often repeat. The housing market has recovered to over 85% from the Recession, and that’s a good thing.

It is in everyone’s benefit to see higher home values, more property taxes being paid, and neighborhoods improving. It also means that we hope to continue to see more stable markets going forward with steady home values rising and plateauing, rising and plateauing, year over year. That’s what makes real estate a worthy long-term investment, after all.

So, it’s not likely that you’ll save money on a home if you wait for a year from now. Prices will continue to rise. But there’s another factor to consider as well -

Interest rates are at historic lows. While a lot of consumers get hung up on home prices, interest rates actually can have a much more direct impact on your monthly payment (which is what most buyers are most concerned about) than any other factor.

Here’s what I mean -

On a $200,000 home purchase with $10,000 down, a difference in just 1 percent of the interest rate (3.5%-4.5% here) can increase your monthly payment by more than $100. That alone is tough for buyers, but say we factor in rising home prices to that. Say you qualify for a $200,000 purchase today at 3.5% interest and decide to wait for a year. Well, if the market sees 7% value increase (some areas are seeing higher now, but that’s a good average) that same house will be valued at closer to $215k after 1 year. Not only is that now outside of your price range (income levels and wages sure aren’t increasing 7% on average, after all), but what if the interest rate also goes up 1%? That could mean not only can you now not afford the same home at $215k, but because your monthly payment would be $100 higher, you can actually afford LESS, say $190,000.

Obviously this is a totally hypothetical scenario and a loan professional (we work with the best!) can help walk you through exactly how these numbers would look in your exact situation, but you get the point, hopefully.

Over the last few years, as home prices have continued to rise, we’ve seen the monthly payments for those same homes actually drop with the lowering interest rates. But, there’s really not much lower for them to go and no one can predict where they will be a year from now.

ALRIGHT - that was a LOT of information! Obviously this stuff gets hairy and your exact situation will look different from anyone else’s, so if you’d like to chat about this and see what home buying or selling would look like for YOU, send us a quick email to Holla@TheLugos.com and we can get you pointed in the right direction.