Arizona Home Group

Source: Inman News | Taylor Anderson 

New markets require new approaches and tactics. Experts and industry leaders take the stage at Inman Connect New York in January to help navigate the market shift — and prepare for the next one. Meet the moment and join us. Register here.

Rent was 4.8 percent higher in December than the same time a year before, Redfin reported on Thursday.

While that’s still above historical norms, it’s the smallest increase since June 2021. Median asking rent in the nation’s 50 largest markets climbed to $1,979 last month.

That’s down 3.6 percent from a peak of $2,053 per month in August, while December closed as the seventh-straight month that saw a slowdown in rent growth compared to the prior year. That slowdown is expected to continue.

“Rents have room to fall,” Redfin economics research lead Chen Zhao said in a statement. “While they’ve cooled significantly from their peak, it still costs the typical renter 20 percent more to take on a new lease than it did two years ago.”

The incoming glut of apartments in some markets could cause a further drop in rent, according to Zhao.

“An increase in the number of rentals on the market should also cause rents to ease in the coming months,” Zhao said. “Rental supply is growing due to an influx of construction in recent years, ebbing household formation and a slow homebuying market, which is driving many homeowners to rent out their properties rather than sell.”

Other recent reports have found that renters are simply staying put amid ongoing economic uncertainty. 

The historically high rent prices and slower sales market have some homeowners deciding to rent rather than trying to sell, a prospect that could come with a drop in the home’s price, a Redfin agent said.

“A lot of sellers are turning to the rental market because they’re still having trouble wrapping their heads around the fact that they’re not going to get sky-high offers like they would have at the height of the pandemic homebuying frenzy,” said Josh Felder, a Redfin real estate agent in the Bay Area. “Some sellers are reluctant to drop their price, even when their home has been sitting on the market for a long time. I’ve had two sellers recently decide to rent out their homes because they couldn’t get the price they wanted. Both homes were listed for over $2 million.”

If sellers are indeed deciding to capitalize on high rent prices and avoid a slow buyer’s market by renting their homes out, it would be the latest indicator of a recent trend.

Year-over-year median asking rent declines

1. 1. Minneapolis: -8.5 percent
2. 2. Oklahoma City: -6.4 percent
3. 3. Phoenix: -5 percent
4. 4. Houston: -4.6 percent
5. 5. Milwaukee: -4.1 percent

Year-over-year median asking rent increases 

1. 1. Salt Lake City: 29.8 percent
2. 2. Raleigh: 24 percent
3. 3. Indianapolis: 16.3 percent
4. 4. Cleveland: 14.6 percent
5. 5. Nashville: 11.7 percent

Source: Phoenix Business Journal | Angela Gonzales

Diamond Age, which moved its California headquarters to Phoenix last year, has begun selling its first community of 3D printed homes starting in the upper $200,000s.

Using full-stack robotics, the company can build homes within 60 days, said Jack Oslan, CEO of Diamond Age.

"Diamond Age is not a 3D printer," Oslan said. "Diamond Age is a construction automation system. We are building robots bigger than houses to build houses. We do leverage 3D printing, but it is only a small facet of what we do."

Oslan said he's developing robotics tools to offset the labor required to build a new home.

"There isn't enough labor to build homes in this country anymore," he said. "If you don't have the labor, the only way to solve the problem is through automation. Our system will ultimately offset 60% of the manual labor required to build a new home. Our goals are better, faster, cheaper."

While the walls are 3D printed, the house is finished with robotics.

"We build the roof, plaster the walls, stucco the exterior, paint, and cut openings for doors and windows with robotics," Oslan said. "We're building homes in less than 60 days and we're actually delivering the finished homes ready for consumers to buy."'

The first community of 3D printed homes is being unveiled in Casa Grande on behalf of Denver-based Century Communities Inc. (NYSE: CCS) under its Century Complete brand.

"Diamond Age is a B to B company," Oslan said. "We have aligned ourselves with the production homebuilding industry. Our mission is to get people into their first home faster. To do that, we need access to lots of land that's already developed. That's what production homebuilders do extraordinarily well. We're literally partnering with these companies."

His partnership is not exclusive to Century Communities.

"You can't solve the housing crisis and be exclusive to anyone," Oslan said. "Our goal is to be building all across the U.S. We do that literally one community at a time."

Moving headquarters

When Diamond Age moved its headquarters to Phoenix from northern California in February 2022, 20 employees moved here.

"One of the most gratifying things about coming to Arizona is of the people that came with us, seven of them bought their very first home," Oslan said. "For someone in the homebuilding space to see their employees buy their first house was extraordinarily gratifying. This move enabled people to get into their first home faster. That's our mission. We want to get young people and first-time homebuyers into their first home faster."

Today, the company has 160 employees.

Oslan said he moved the company to Phoenix for two reasons, one being that he had a lot of friends in the industry here already who helped him navigate and get started quickly.

The second reason is the cost of doing business in Arizona is much lower than California.

"We can pay our employees higher wages here in Arizona that are still less than what we would have had to pay in California," he said. "And they can all get a house."

The homes Diamond Age is building for Century Complete's Mountain View Estates located off Arica Road and South John Jacob Astor Avenue in Casa Grande come in three single-story floor plans, offering up to four bedrooms and 1,901 square feet.

Most of the homes start at $289,990 and go up to $354,990.

Source: Phoenix Business Journal | Ashley Fahey

Despite a much cooler housing market, a higher percentage of people looking to buy a home in the fourth quarter were seeking to purchase outside of their metro area, suggesting relocation trends remain strong nearly three years after the pandemic's onset.

That's according to data by Redfin Corp. (Nasdaq: RDFN), which analyzed the activity of about 2 million users on its website who viewed for-sale homes online across more than 100 metro areas between October 2022 to December 2022. A record 24.6% of Redfin users in Q4 looked for homes outside of their market, up 22.1% from a year earlier and about 18% more than before the pandemic. 

Daryl Fairweather, chief economist at Redfin, said based on surveys Redfin has conducted, the No. 1 reason for relocations is for affordability, the signature challenge of both the for-sale and rental markets even before the pandemic.

But while the share of home shoppers looking to relocate last quarter was up meaningfully, buying activity has slowed considerably.

Pending home sales were down more than 30% from a year ago at the end of 2022, according to Redfin. Active listings were up 54.7 % year over year in December 2022, Realtor.com recently found.

Even metro areas with a significant share of potential buyers from outside of the market are seeing reduced activity.

Sacramento, California, for example, which ranked No. 1 among metros buyers looking to relocate to a new city, saw net inflow of 5,700 in Q4, compared to 6,700 a year prior. The top originating city to Sacramento was San Francisco. Net inflow and outflow, as defined by Redfin's analysis, is calculated by the number of home searchers on its website looking to leave a metro area compared to the number of searchers looking to move in.

Las Vegas, which ranked No. 2, had 5,400 net inflow in Q4, compared to 6,300 in Q4 2021. Los Angeles was the top originating city for those migrating to Las Vegas.

Among the remaining top 10 cities in Redfin's analysis, the originating cities were all New York, Chicago and Los Angeles, suggesting the move out of expensive gateway cities to more affordable metros like Tampa, Florida, and Phoenix continues to hold steady.

Despite that trend continuing, though, fewer homebuyers overall are leaving those places than a year earlier, a reflection of how the housing market has slowed in the past year.

MOVING OUT

San Francisco saw the biggest net outflow, based on Redfin home-search traffic, in Q4, with 26,900, down from 40,000 in Q4 2021. Some 24% of home shoppers in that market are looking to relocate elsewhere.

Los Angeles, meanwhile, had net outflow of 23,100 in Q4, down from 32,000 a year prior. About 20% of those searching for a home based in Los Angeles are looking to relocate elsewhere.

But what happens to migration activity if the economy ends up in a recession in 2023, and job layoffs become more widespread?

Fairweather said, during a recession, people tend to have a tougher time moving because of the costs associated with a move, but there's also a greater willingness to move if a job in another city comes up.

She said she expects the share of people looking to move to increase this year, as people continue to get priced out of housing in their local markets, but the total number of people looking to relocate may decline.

There's also been an observed trend, especially since the pandemic, of people moving out of core urban areas to more suburban counties of the same metro area, in large part to find more affordable housing. Fairweather said that phenomenon was seen especially right after the onset of the pandemic but some urban areas rebounded as condos became a more affordable option during the ultra-competitive for-sale housing market that ended about a year ago.

Source: Inman News | Taylor Anderson 

Opendoor faces a fight for survival after ‘an abrupt strategy pivot’ sent it to 2023 ‘without a proven business model.’ See the 5 biggest challenges facing the king of a troubled business model

This is the fourth in a series of 10 reports on the challenges the country’s largest brokerages, portals and iBuyers face in 2023. Check back as Inman dives into the biggest obstacles of the new year for RE/MAX, Offerpad, CoStar and more all this month. And look back at the challenges they faced in 2022 here.

Let there be no elephant in the room: Things did not go as planned for iBuying in 2022, and who but Opendoor is the king of the iBuyers.

A year that was supposed to chart a clear path to profitability ended with the company facing an existential dilemma to reinvent its business model, its public shares falling and its future more uncertain than ever before.

In 2022, Opendoor laid off staff and shut down some of its ancillary services. Rather than scaling up its pace of buying homes, it closed 2022 pulling back after reporting losing almost $1 billion in three months ending in September. It shifted its focus to a new side of its business. Then it its president departed and its founder and CEO stepped down and took a new role in the company.

Even as it remained the clear front-runner in the space, Opendoor went from simply trying to weather a once-in-a-generation housing downturn to reinventing itself entirely.

As we’ve done in the past two years, Inman reached out to Opendoor and industry observers to gauge the company’s possible paths forward and the biggest challenges in the way heading into the new year. 

“The larger challenge here is credibility,” said Mike DelPrete, an industry analyst who closely follows iBuyers. “Last year, Zillow flamed out. [In November], RedfinNow flames out. Offerpad’s stock price has been below a buck for weeks now.”

“All the questions are, can this business survive? They’ve just lost $1 billion,” DelPrete continued. “Now what? And is there a future for iBuying?”

Moving on from the ‘Q2 cohort’

The source of much of Opendoor’s recent financial pain can be traced back to homes like 1776 E. 2700 S., in Salt Lake City’s Highland Park neighborhood.

Listed for $745,000 before the peak of the market, this three-bed, two-bath Opendoor home didn’t sell quickly like so many others nearby. Nor did it sell when the firm dropped the price to $734,000 in March or $707,000 in April.

Month after month, as homes in Salt Lake City and nationwide continued their unprecedented run-up in price, Opendoor was lowering the listing price on scores of its homes. At the same time, interest rates were quickly rising and buyers watched their purchase power rapidly shrink.

Opendoor bought the home at 1776 East for $678,000 in August 2021, according to MLS records. It eventually sold for $570,000, a 16 percent loss. 

Now amplify that by thousands of homes in markets across the U.S. that are going through the same market correction and it amounts to a challenge for the company, which emerged as the iBuying frontrunner by growing to buy and sell billions of dollars of homes every few months.

Many of the homes it was buying during the lead-up to the peak of the housing market remain in its inventory, many now worth less than they were when the company bought them.

The company has a mundane-sounding name for one of its biggest problems: “The Q2 cohort.”

This is the stock of homes Opendoor bought between April and June. Opendoor bought 3,653 more homes in the second quarter of 2022 — when the market reached its peak — than it sold.

After the initial shock and blow to its bottom line starting in the middle of 2022, Opendoor is now moving to offload these money losers quickly so it can regain a book of inventory that might make it profitable again.

“We’re continuing to clear the book of inventory we acquired in Q2. We’re doing that fast,” said former President Andrew Low Ah Kee in an interview shortly before he resigned in December. “The reality is we own those homes and we’re going to sell through them as quickly as we can.”

Opendoor moved into a conservative stance toward the end of the year, buying far fewer homes and shifting focus to new tools and features it hopes will make up a bigger portion of its business moving forward.

But the pain may continue. The company posted a near $1 billion loss in the third quarter, and company leaders have shared wary outlooks recently.

“Q4 is going to be the trough for us,” Low Ah Key said.

Clawing out of a deep hole

Ongoing financial trouble preceded a clearing out of the company’s leadership team. In December, the company announced founder Eric Wu would shift out of the CEO position and President Andrew Low Ah Kee resigned.

Low Ah Kee will act as an adviser until the end of the first quarter before departing. Wu will act as president of Marketplace, one of the company’s key new focuses.

The moves made clear the company felt it needed to make big changes to right the ship. Yet among investors, the move was met with a question: Why now?

“This change obviously is coming at a very turbulent time for the company,” said Ryan Tomasello, a trader with Keefe, Bruyette & Woods. “Navigating this housing slowdown. This shakeup, I think investors will think of as adding to the list of risks that the company is currently facing in terms of execution.”

In the weeks following the leadership change, the company’s stock fell toward a dangerous threshold right around $1 per share. Below that point, the company risks being delisted from the Nasdaq.

Company officials suggest they are in a good position to withstand market headwinds for years as they shift their business model.

In November, the company had up to $11.8 billion in borrowing capacity, $8.2 billion of which was committed. It had another $1.5 billion in cash on hand and $6.1 billion in homes.

“We know we have a strong capital base, a product that consumers love and want, and a belief I would say that the real macro trend that we’re playing against isn’t volatility in the real estate market but is consumers’ desire to shift from an offline to an online transaction,” Low Ah Kee said.

Some investors, however, aren’t as optimistic, saying the company has “downplayed” the near-term risk to the company.

“Beyond the transition to Exclusives, we also see continued tail risk from [Opendoor’s] iBuyer financing, where aging inventory and additional impairments could trigger more margin calls that further reduce liquidity,” Keefe, Bruyette & Woods said in a December outlook on Opendoor.

That firm now expects a rough year for Opendoor throughout 2023 even in the best scenario, with the company underperforming the broader market.

Opendoor’s “abrupt pivot to the uncertain ‘Exclusives’ strategy leaves the company without a proven business model during a turbulent housing correction,” Keefe, Bruyette & Woods said.

Not all investors are singing the same tune, however, and public shares rebounded slightly in early January.

Financial services and analytics firm BTIG set a new price target for the company’s shares at $6, and Opendoor shares rose to $1.66 by Jan. 13.

Maintaining credibility

One bedrock that Opendoor falls back on is its credibility among consumers.

Company leaders said Opendoor’s Net Promoter Score (NPS), or a gauge of customer satisfaction with a company, is strong at between 80 and 90 out of 100. That means customers that have experience working with the company have enjoyed the experience. 

The company says difficult but strategic decisions made in 2022 have helped to keep it in good graces among customers and the public.

At the first sign that interest rates would dramatically cool the market, company officials say they made a difficult but strategic decision to honor contracts for homes they knew might fall in value.

“It’s a belief that trust is important,” Low Ah Kee said. “That actually was behind and underneath our decision not to cancel contracts earlier this year.”

In effect, the company said it was holding onto the Q2 cohort despite knowing they were likely to fall in price. That had a tremendous impact on the company’s financial performance in the months to come. 

But with several billion dollars in its coffers and a conservative approach to buying homes in today’s market, the company is focusing on creating new tools that can build on the popularity of the brand name. 

Opendoor’s challenge, according to DelPrete, is maintaining credibility with a long list of players.

“That can be credibility to investors, executives in the real estate space, real estate agents,” DelPrete said. “All the questions are, can this business survive? They’ve just lost $1 billion, now what and is there a future for iBuying? Is there a path to profitability? That’s the biggest challenge: There’s a credibility challenge.”

Finding the right scale

In the lead-up to 2022, as in years past, Opendoor was focused on acting as a market maker.

In a new and tech-driven model of buying homes, fixing them up and reselling them — ideally at a profit — Opendoor chose to set itself as the leader by increasing its volumes.

Whereas Offerpad was operating in volumes of hundreds, Opendoor was buying and selling tens of thousands of homes worth billions of dollars in several quarters. The unprecedented run-up in home prices helped the company post its first and only profitable quarter in the first months of 2022.

When it had a handful of competitors, Opendoor’s strategy was to grow bigger than the rest. When Zillow bowed out of the iBuying game in 2021, Opendoor was moving full steam ahead.

In the four quarters beginning July 2021 and ending June 2022, Opendoor scooped up 47,975 homes. It sold 38,933 homes during that same time frame.

That scale-up, DelPrete said late last year, was “exponentially increasing its risk.”

When 2022 saw a major slowdown across the real estate market, that risk proved extreme.

“When Zillow and Opendoor got to scale, it coincided with big market fluctuations and they got punched in the face in a major way,” DelPrete told Inman in late 2022.

Indeed, what started as a central way to make it the king of iBuying rapidly changed to one of the biggest threats to the company. As it works to offload its overpriced homes, Opendoor is committed to a conservative, “risk-off” business model to start the year.

“We’re not offsetting that, by design, with much in the way of new acquisitions,” Carrie Wheeler told investors just weeks before being named CEO. “We’re risk-off.”

Opendoor will continue to buy and sell homes, its leaders said, and the conservative approach to buying homes is helping to balance out its inventory with homes that it is selling for a profit.

“That new book, those are coming in at positive margins,” Low Ah Kee said. “They’re going to perform just the way we expect them to.”

Building ‘Exclusives’

Toward the end of 2022, Opendoor began increasing its focus on its “Exclusives” marketplace, the new focal point of the company in the immediate future. 

The company hopes its Exclusives marketplace will attract independent buyers and sellers and put the company in the middle of consumers’ real estate transactions. Opendoor charges sellers a 5 percent fee but avoids having to put up its own cash to buy or repair homes.

“We’re going to be the platform to connect buyers and sellers,” Low Ah Kee said. “Marketplace isn’t a pivot. It has been there since the [beginning]. We’ve been working on the pieces for a long, long time. We’re going to continue to innovate around that because it’s what we do.”

By the end of 2022, Opendoor hoped Exclusives would account for 30 percent of its transaction volume.

To some, the shift moves Opendoor closer to the realm of existing models in real estate.

“It’s FSBO, but it’s For Sale By Opendoor,” DelPrete said. “And to be clear, this Exclusives marketplace, when you think about that pitch to sellers…that sounds exactly like a real estate agent. It should be noted that Opendoor’s pivot in this direction is pivoting closer to the traditional model.”

During that pivot, Opendoor will have to outperform the outlook of the analysts at Keefe, Bruyette & Woods, who said the shift to Exclusives would “drive significant operating losses” throughout 2023.

Redefining iBuying 

It’s the moment many have been waiting for: If Opendoor could only eke out a profit during one of the longest bull market cycles on record, how would it fare when things turned south? 

“If they’re at 5-6 percent (margins) on their best quarter after 10 years, and a brokerage can make the same exact profit margin but not have to spend $4 billion in a quarter to get that, why in the hell would you spend that much money just to make the same return?” said Hank Sorensen, an area manager for RE/MAX Realtec Group in Florida. “I don’t see a path for them.”

Even if the new marketplace proves to be profitable, Opendoor leaders said the company would continue making cash offers on homes.

That puts the company in a position to carry on its original iBuying model, but with a more conservative approach and a source for backup offers if a house doesn’t meet Opendoor’s needs.

Source: Phoenix Business Journal | Angela Gonzales 

Boyer Vertical is nearly sold out of its sustainable infill development in north central Phoenix.

With base prices starting at $1.45 million, only two homes remain available at Karma, a community of 11 smart, modern homes with sustainable features on a 1.6-acre parcel near 13th Street and Bethany Home Road.

Seven homes already have closed, another is closing this month and another is in escrow to close in February, said Jason Boyer, founder of Boyer Vertical.

The developer broke ground during the summer of 2021, and expects to have 11 homes built by February. The Brokery is handling all sales for Karma.

The two-story homes range between 2,380 square feet and 2,610 square feet with four bedrooms, two-car garages and small private backyards.

Click through the gallery below to see the project in progress:

Source: Phoenix Business Journal | Audrey Jensen

The city of Glendale, one of the largest suburbs of Phoenix, is looking to increase its affordable housing supply by incentivizing developers.

A city report said that Glendale currently has 1,306 units of affordable housing under some form of development with five developers. But market conditions including inflation, supply chain issues, labor shortages and increased costs of materials have made it difficult to build.

As a result, all of the affordable housing developments underway in Glendale lack the funding to begin or complete, according to the city, which also said that Glendale's median household income is 17% lower than Maricopa County's.

"The number of persons living in poverty is 6% higher, indicating that Glendale has a larger proportionate rate of residents in need of affordable housing units," the city report said.

On Tuesday, Glendale City Council will hold a workshop to discuss a community development fee waiver and grant program to help support affordable housing in the West Valley city.

This would allow up to 100% of community development fees to be waived or rebated for development that have a contract with the Arizona Department of Housing to maintain affordability for 30 years, the report added.

A proposed, three-year grant program would also incentivize additional private capital investment and development of affordable housing. This program would provide grants to developers that may need city assistance.

In addition, the city said the proposed incentives could complement the existing tax credit programs available through the state's housing department.

A city spokesperson said staff expects to present an ordinance for the community development fee waiver at the next Council meeting on Jan. 24, while the grant program funding will require further discussion at future workshops before it goes before Council.

More cities are working on solutions to increase the state's housing supply following a shortage of units and significant increase in housing and rent prices across Arizona, pushing many residents out of their homes.

Right now, the Arizona Department of Housing estimates that the state currently needs 270,000 additional units to address the housing shortage as a result under building since 2010 as more people moved to Arizona.

The state is also in need of nearly 144,000 affordable rental units for extremely low-income renters, a city of Glendale report said, citing the National Low Income Housing Coalition.

Source: Phoenix Business Journal | Ashley Fayhey

Foreclosure filings were up 115% in 2022 compared to the year prior, as the last pandemic-imposed foreclosure moratoriums expired, but were still 34% below 2019 levels.

That's according to Irvine, California-based Attom Data Solutions LLC, which collected data from more than 3,000 counties nationally for its analysis. Foreclosure filings include default notices, scheduled auctions and bank repossessions.

There were 324,237 properties with an associated foreclosure filing last year, representing 0.23% of all U.S. housing units.

Rick Sharga, executive vice president of market intelligence at Attom, said the year-end findings weren't necessarily a surprise, but the ratio between foreclosure starts and repossessions is noteworthy.

Lenders started the foreclosure process on 248,170 U.S. properties in 2022, up 169% from 2021 and 26% less than what was observed in 2019, Attom found. Meanwhile, lenders repossessed 42,854 properties through foreclosures in 2022, an increase of 67% from 2021 but down 70% from 2019. 

"It does suggest, because there’s so much equity that homeowners have access to, we’re seeing people more successfully avoiding that final foreclosure action on their property, whether by selling it at a profit or because their temporary job situation has improved or they’ve refinanced into a new loan," Sharga said.

Attom is forecasting foreclosure filings to reach pre-pandemic levels sometime between mid- and late 2023, Sharga said. But, he continued, 2019 levels of foreclosure activity were still well below what had been observed in the wake of the global financial crisis in 2008.

To compare, foreclosure filings hit their peak — 2.9 million — in 2010, or representing 2.23% of all housing units.

He said the X factor will be whether the U.S. economy enters a recession this year, which many economists are predicting.

"There is usually a strong correlation between job rates and foreclosure rates," Sharga said. "Depending on what happens with the overall economy, that’s more likely to have an impact on foreclosure rates."

Sharga said the mortgage servicing industry is much better prepared to work with distressed borrowers today than it was at the onset of what led to the Great Recession. But for homeowners already stretched financially from inflationary pressures on daily expenses, those borrowers are more at risk of foreclosure if the economy enters a recession and job losses become more widespread.

The Federal Housing Administration loan portfolio, in particular, is something to watch this year, Sharga said.

"(Those households) may be one water-heater replacement or a medical bill away from missing a mortgage payment," he continued.

Source: Phoenix Business Journal | Angela Gonzales

Homebuyers in metro Phoenix are gaining some leverage heading into 2023, as Phoenix topped Knock's list of the top five buyer's markets for 2023 for the third month in a row.

The Knock Buyer-Seller Market Index 2023 forecast released Jan. 5 shows that the top five buyer's markets are west of the Mississippi River, while the top five seller's markets are concentrated on the East Coast.

Taking second place in the top five buyer's markets is Colorado Springs, Colorado; followed by the Las Vegas area; Dallas/Fort Worth area; and the Denver area, according to the Knock report. Fayetteville, N.C.; Harrisburg-Carlisle, Pa.; Syracuse, N.Y.; Hartford-East Hartford-Middletown, Conn. and York-Hanover, Pa., top the list of Knock’s best markets for sellers in 2023.

Sean Black, co-founder and CEO of Knock, said Phoenix quickly flipped from a seller's market to a buyer's market and he expects the trend to continue through most of the year.

"It remains one of the top 10 largest housing markets for sold homes," he told Phoenix Business Journal. "The Arizona capital now favors buyers more than any other major city, and is projected to remain the most buyer-friendly housing market into November 2023."

Fewer Phoenix housing transactions

Walt Danley, president and founder of Walt Danley's Christie's International Real Estate, said current transaction volume in the first half of 2023 will be significantly lower than 2022.

Still, he pointed out that 2021 and the first half of 2022 were outliers caused by factors stemming from the coronavirus pandemic.

"In my 45 years as a real estate agent in this industry, I have never seen a market like we went through starting in the summer of 2020 through the spring of 2022," Danley said. "A severe crimp in supply and above-normal demand drove appreciation off the charts. This made the market very unhealthy for buyers, but as the market is balancing, buyers are gaining more negotiating power."

Phoenix saw home prices grow by 47.4% between January 2020 and November 2022, according to the Knock report.

Even so, it was one of the first metros to see sales slow. Prices really didn't start receding until interest rates began to rise in 2022.

Phoenix home prices down nearly 14%

Phoenix metro home prices are down 13.5% from the peak in May 2022, said Greg Hague, CEO of 72Sold.

"Home prices appreciated rapidly from January to May of 2022, then reversed through the end of the year," Hague said. "The net result for 2022 was a home value decline of 3.5%."

Home values have fallen steeply in Pinal County, Maricopa and Buckeye, he said.

"The rapid decline in these areas is partly driven by the large number of newly built homes for sale," Hague said. "Buyers looking for a lot of home for the money can find very nice, newer homes in Maricopa and Buckeye for under $400,000."

Danley said it has been interesting to watch what happens to mortgage applications when interest rates drop.

"We saw a drop for a short time in August, which resulted in an immediate and meaningful uptick in buying activity," he said. "The same thing happened in November, when the rates dropped again. This data tells us that there is still a hearty appetite for real estate, but buyers want to see lower interest rates before they write contracts."

What's next for interest rates

Interest rates will be the key stats to watch in 2023, Danley said, as the Mortgage Bankers Association projects that interest rates will drop to 5.6% in the second quarter, 5.4% in the third quarter and 5.2% by the end of 2023.

"If their projections hold true, 2023 will be a better year than most people are currently anticipating," Danley said.

Buyer demand will continue to be driven by more companies that move to Arizona, he said.

"Over 60 international companies are looking at establishing a footprint in the Phoenix market in the next few years," Danley said. "The inbound migration that these high-paying jobs will create will help fuel our real estate market. Affordability will continue to be a challenge in our market, but a large percentage of these jobs are high-paying jobs in the tech and biomedical industry."

For buyers, Phoenix remains an affordable alternative to high-cost West Coast markets, such as Los Angeles, San Francisco and Seattle, according to the report.

Demand will be lower this year than it was last year, but a lack of inventory will continue to be a buffer to any major downward pressure on pricing, Danley said.

"We anticipate that we will give back some of the huge appreciation that we have seen over the last two years, but prices will still remain significantly elevated when compared to pre-pandemic pricing," Danley said.

According to Knock, the metro Phoenix area showed a median home price of $426,990 in November 2022.

The Phoenix metro housing market at a glance:

• -Forecasted 2023 home price change: -5.4%
• -Forecasted 2023 home sales change: +6%
• -Forecasted 2023 month's supply: 3.7 months
• -Forecasted 2023 sale-to-list price ratio: 96%

Source: Phoenix Business Journal | Angela Gonzales

Single-family homebuilder permits were down 19% so far this year, the latest numbers from the Home Builders Association of Central Arizona.

Between January and November, municipalities across metro Phoenix issued 23,480 permits, down from 28,983 permits during the same period last year.

The new year will bring reduced profit margins for homebuilders, said Thomas Brophy, research director for Colliers International.

But homebuilders who have branched out to the build-to-rent sector will have a captivated audience of investors, he said.

Homebuilders likely will need to lower prices and offer incentives to spur buyer demand, said Steven Hensley, advisory manager for Zonda housing market research firm.

"This will impact their margins for each home sold," he said. "However, builders have maintained healthy margins over the last two years and likely have some room to absorb the lower prices."

Danny Court, principal and senior economist with Elliott D. Pollack & Co. in Scottsdale, said homebuilders have felt a bit of relief in vertical construction costs, but not in horizontal construction costs yet, which limits a builder's ability to lower prices.

"We are seeing more interest rate buy-downs to help motivate potential buyers," he said.

Scott Grigg, founder of The Grigg's Group, said he is seeing luxury homebuilders sidelining their projects to see how the market plays out.

"We keep a good track record of what is happening in Paradise Valley for new builds," Grigg said.

Looking at the Arizona Regional Multiple Listing Service, Grigg said he sees 33 listings for new construction projects. Of those, only three are completed and move-in ready.

"All the rest are paper specs," he said. "For us, we see a big opportunity to get homes in the ground and built so we can capitalize on that market. Coming out of the pandemic, people want new construction. They want move-in ready and there is not enough availability to handle the current demand for a well-built product."

Click through the gallery for a look at predictions of the number of permits expected to be issued in 2023.

Permit Predictions

Here's a look at permit activity in the metro over the past five years:

2021: 31,381

2020: 28,704

2019: 24,274

2018: 22,437

2017: 19,864

Source: Home Builders Association of Central Arizona.

Source: Inman News | Ben Verde

New markets require new approaches and tactics. Experts and industry leaders take the stage at Inman Connect New York in January to help navigate the market shift — and prepare for the next one. Meet the moment and join us. Register here.

Home sales posted the biggest annual decline on record in November as the housing market ground to a near standstill in the face of rising mortgage rates, according to data released Thursday by Redfin.

Home sales fell 35.1 percent annually in November according to data released Thursday by Redfin, the biggest annual drop since the brokerage started tracking the metric in 2012.

November also saw home price growth slow significantly. The average U.S. home sale price grew by only 2.6 percent from the previous year, the smallest rate of growth since the pandemic ground the U.S. economy to a halt in May 2020.

New listings slumped, falling 28.4 percent year over year, also the biggest drop seen since April 2020. Despite the drop in new listings, overall inventory for sale grew by 4.6 percent year over year, suggesting that homes are sitting on the market longer while less homes are being listed.

But as mortgage rates retreated from their highs of above 7 percent there were signs of homebuyer demand awakening slightly, according to Redfin. The brokerage reported a slight downtick in the portion of home purchase agreements that were canceled in November, and both mortgage purchase applications and Redfin’s Homebuyer Demand Index both charted increases.

With inflation slowly retreating and some economists predicting a further decline in mortgage rates next years, Redfin economists said the 2023 housing market may bring some reasons for hope.

“The worst of inflation is likely in the rearview mirror,” Redfin Economics Research Lead Chen Zhao said in a statement. “We do anticipate that mortgage rates will decline slightly further in 2023 as the Fed’s actions continue to bring inflation down, which should ultimately bring more homebuyers back to the market. Still, we have a ways to go until we reach recovery mode, and we may see sales continue to ebb in the short term.”