The last several years have been great for homeowners in the Valley who have enjoyed dramatic increases in their property values. According to the recently released S&P CoreLogic CaseShiller U.S. National Home Price NSA Index for May of this year, Phoenix led the nation with a 25.9 percent year-over-year price increase.
As we have noted over the past 18 months, the significant increases in property values have been driven by simple supply and demand economics. We have a very limited supply of available homes on the market and a huge demand from buyers (many from out of state) — a combination which is driving values higher.
The rental market has also been subject to the same economic forces. According to a report by Realtor.com, the Phoenix metro area saw rents grow more than 25 percent year-over-year in August and the median monthly rent has now increased to $1,688.
This data corresponds with similar information reported by Bloomberg.com in August: “The U.S. is witnessing the biggest increase in tenants in history. In July, the rental occupancy rate hit 97%, allowing landlords to flex unprecedented pricing power. People who signed new leases last month paid 17% more than the prior renter, the highest surge on record.”
So, what does all this mean? It means that we are rapidly approaching a crisis of affordability for buyers and renters alike. First time homebuyers are finding that they are not able to compete against out-of-state buyers and investors who bid with stronger cash positions. The average FHA buyer with a 3.5 percent down payment is not in a position to get into a bidding war, aggressively compete with an appraisal waiver, or even find eligible properties.
For example, at the time this was written, there were only a total of seven, three-bedroom homes, townhomes, or condos for sale under $350,000 in all of Northeast Mesa (85207, 85215, 85205, 85213). Of those seven, only two of those were eligible for FHA. Consequently, even qualified buyers who have saved enough money for a down payment and have a credit score to qualify are finding that they have no choice but to rent.
Rising rental rates also mean that the average renter in Phoenix is now spending more than 29 percent of their income on housing, which further constrains their ability to transition to homeownership. Individuals who are renting are also finding that their renewal rates are increasing substantially or their leases aren’t being renewed as properties are being placed on the market. Alternatives for these renters are limited at best, more expensive, and competitive. Often renters have no choice but to move back in with family or friends.
Why is this all especially critical right now? Home prices are expected to increase another 15 percent in 2022 as our extreme housing inventory shortage continues and our population continues to grow. Additionally, interest rates are expected to start increasing, which will further curb affordability. Lastly, a large influx of Wall Street capital (including, but not limited to, iBuyers) is actively participating in our market and purchasing large volumes of single-family homes — further restricting inventory and driving prices higher.
If you have children or family members who are in need of housing or who are currently renting, please consider giving them some financial support and encouragement to help them get into the market. We are at the tipping point of affordability and in the final stages before our real estate market becomes more similar to Denver, Seattle or Orange County.
Here are some ways we have seen our clients help their children and family members achieve homeownership:
• Gift money for a down payment. Sometimes as little as $5,000 is all it takes to help someone transition from renting to owning.
• Offer to provide support for an appraisal waiver (it may not actually be needed — but the support is critical when writing competitive offers).
• Become the bank and offer private financing to a family member so they can compete with other cash offers.
• Buy the home for a family member and structure a lease-to-own agreement or a plan to have them finance you out of the deal.
• Provide physical help with painting, yardwork, and repairs when a family member buys a home that needs TLC.
Homeownership has always been valued in the United States. It is proven to provide better social, educational, and economic outcomes for children and has been a vehicle for individuals and families to build wealth for generations.
If you are thinking of helping a family member secure their first home, please give us a call. We would be happy to walk you through the process and answer your questions!
John and Natascha Karadsheh are co-owners of KOR Properties, a boutique real estate brokerage serving the Valley of the Sun, and the creators and founding sponsors of Mesa Food Truck Fridays. John has been a Multi-Million Dollar producing agent for over 19 years and is an Accredited Buyers Representative (ABR) and Certified Residential Specialist (CRS), a member of the Arizona Regional MLS Rules & Policies Committee & Appeals Committee, and the West and Southeast Realtors of the Valley Professional Standards Committee.
Natascha is an Associate Broker, a Multi-Million Dollar Producer, Founder of Mesa Food Truck Fridays and Member and Past-Chair of the City of Mesa Economic Development Advisory Board.
You can reach John at (602) 615-0843 and Natascha at (602) 909-4995, or visit their website: KORProperties.com