Paradise Valley Real Estate News

Jan. 10, 2016

Record Breaking Rents and Phoenix Home Values

U.S. apartment rents leapt at the fastest pace since the real estate crisis of 2007. The average apartment rent now stands at nearly $1,180, up from about $1,125 a year ago, a gain of 4.6%. 

The vacancy rate is now down a whopping 45% from its 2009 peak. In some markets like Portland and San Francisco, vacancy is minuscule and rent increases are 2-3x the national average. Full coverage can be found in this Wall Street Journal article.
 
This is terrific news for landlords. There's not much to reverse this trend either, with new home formation having far exceeded new home construction since the last peak. Mortgage lending also remains tight, with millions of people still shut out.
 
To take advantage of high rents, please click here for access to unlisted cash flowing real estate. It's possible to get returns in excess of 10% per year now, with opportunity for future rent increases and capital appreciation.
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Have the recent increases in real estate prices got you wondering if our market is overvalued? 
According to this excellent analysis, the answer is no. Phoenix real estate is fairly valued, in line with the long-term trend.
The same cannot be said for many other cities in the US, notably San Francisco, New York, and Denver -- each of which are flashing major warning signals.
Posted in News Category
Dec. 19, 2015

How The Rise in Interest Rates Will Affect Paradise Valley Real Estate

The Federal Reserve's 1/4 point interest rate hike was the big economic news around the planet, affecting bonds, currencies, commodities and stocks immediately.
How will it affect real estate? The most likely consequence is the opposite of what most people expect: the rate hike will actually driveup property prices.
You may be thinking: wait a minute, higher interest rates mean higher costs, which drive down the price people can afford to pay. This is correct -- in the long run, and only with all other things being equal. 
However, in the short run, there is likely to be a bit of a buyer's panic. People who have been "thinking about" buying a home realize that their window of opportunity is closing. While their monthly loan cost is slightly higher now than it would have been a few months ago, it will likely be a lot higher if they wait another year. 
Thus, a large pool of prospective buyers becomes active, committed buyers. More demand leads to faster turnover and higher prices. So, even before rates have started to bite into buyers purchasing power, they may also have to pay more for their property.
This is a general analysis, and the real question is what happens specifically in Paradise Valley real estate?
First a bit of background. Interest rates affect luxury properties less than the average property, since there are more cash buyers. Since Paradise Valley has the most expensive real estate in the state, interest rates are not quite as impactful of this market.
However, certain market segments within Paradise Valley rely on loans more than others. For example, many buyers at the $1.5 million price point require a loan to make their purchase. However, many buyers at $3 million+ do not require financing, and have been using loans only because rates have been so favorable.
Consequently, expect to see the following in Paradise Valley:
1. Q1 2016 should be a blockbuster quarter.We always get a boost from seasonal visitors, but this year may be even more intense as any who planned to use a loan see their window of opportunity closing. Expect to see quality properties selling even faster, and new listings of quality homes to sell very close to asking price.
2. Competition in the under $2 million segment will be especially intense, as those buyers realize they may be priced out of the market the longer they wait.
3. If rates rise 1% over the next 12 months as anticipated, it won't be enough of a headwind to take the real estate market off course. This last cycle has been driven by lack of supply, far more than credit. We will see the market gradually adjust and become more balanced, but a significant retreat is unlikely. Even at higher price levels, real estate remains very attractive relative to bonds and stocks.
4. A large segment of buyers who had been insistent upon "move in ready" homes will reconsider their position, and start looking for fixer uppers. Simply put: if the banks are squeezing them on their loan, and competition is red hot for turn-key homes, then the only way to get into PV economically is a handyman special.
My crystal ball is no better than anyone else's, but I have been through a few cycles and have the scars to prove it. The financial markets appear to be much more volatile, and vulnerable, than real estate.
It's worth noting that despite the incredible array of changes we've seen in the tax code in recent years, that many of the biggest tax "goodies" for real estate remain unscathed.
However, many financial assets appear to be in the sights of both Republicans and Democrats. Perhaps the only thing that Donald Trump and Hillary Clinton agree upon is they hate Wall Street, and want to see more taxes and regulation there.
 
Given the privileged tax status of real estate, and the bipartisan distaste for Wall Street, my investment dollars will continue to go toward real estate. If you feel the same, please click here for access to unlisted cash flowing real estate.

 

Posted in News Category
Dec. 12, 2015

Paradise Valley Real Estate at Year's End

Year end is always a very slow time for real estate. People are simply too busy to think about real estate, with family and social gatherings. 
Would you be briefly inconvenienced to save hundreds of thousands of dollars?
The home that sells for $1.8 million in January may just sell for $1.6 million today. There are very real factors that can make a seller agree to terms they would never otherwise agree.
 
Why would this apparent inefficiency in the market exist?
 
1. Tax Consequences. For some people, the tax consequences of selling in 2016 are quite different than 2015. In these cases, consider Uncle Sam the loser, and both the buyer and seller winners.
 
2. Divorce. It's a sad situation, and the people who are in it want one thing more than anything else: to be done with it. Knowing that they can close the books on what is likely a major point of contention has tremendous value.
 
3. Psychology of a Clean Slate in the New Year.What's the most common thing associated with every New Year? Resolutions. People resolve to do something differently in the New Year, something better, than they've done before. Letting go of the home they've been living in can be a great release for people who've been trying to sell a long time. This simple psychology is more powerful, and more prevalent, than people may realize.
4. Investment Opportunities. A seller may very well want to take advantage of a buying opportunity, and therefore be more motivated to sell. 
Sometimes, one can even reap these rewards without closing the deal by year's end. In other words, just negotiating the deal is sometimes enough to get the benefits.
I negotiated my own home purchase during the holiday lull in 2014, but didn't close until 2015 due to inspection items the seller was fixing. When I would return to check on progress from the various contractors, there were prospective buyers showing up constantly, disappointed to learn that they had missed their opportunity.
In conclusion, it may be an inconvenience to be out looking at real estate this busy time of year. However, you may be very well compensated for the effort.
Posted in News Category
Nov. 28, 2015

Real Estate Values Now vs. Peak

Longtime readers know my thoughts on the current run up in real estate prices versus the last cycle: now we are supply constrained, whereas before we had excess demand driven by insane credit. 
 
A recent article in the Wall Street Journal explores where we are in the real estate cycle versus the previous 2006 peak. On an inflation-adjusted basis, US real estate values are 20% less than the previous peak.    
When compared to the stock market, and most particularly technology stocks, the real estate market looks downright sleepy. If the stock market takes a hit, seems like real estate is primed to be a safe haven as people run for the exits. 
Unlisted real estate cashflowing 10% or more annually can be found here

 

Posted in News Category
Nov. 21, 2015

Robot Homebuilders, Co-Signing Jumbo Loans, and Off Market Properties

The future is here: a robot is laying 300 bricks per hour, which is three times the human rate. They believe the next generation will go to 1,000 bricks an hour, 10x what humans can do. Full coverage on this story is here.
Between robots, and 3D printing of homes, it's incredible to think how different construction will be in 10 years. There will be more innovation in construction over the next decade than in the last century. We live in interesting times!
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Parents who want to co-sign a jumbo home loan for their children can have a tough time of it. The practice is viewed quite differently from bank to bank, and region to region. If you've contemplated helping one of your children by co-signing a loan, then this Wall Street Journal article may be helpful.
If you'd like to cut to the chase: TD Bank welcomes the practice, but Citi Mortgage and Quicken Loans do not. High net worth families with relationships at private banking divisions will find the banks accommodating, e.g. Citi's Private Bank will do it even though Citi Mortgage will not.   
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If you're contemplating a new home, and haven't signed up for the VIP Buyer service, you're missing out.
Get access to off market homes, and behind the scenes information about on market properties that you may have overlooked. 
There's no cost or obligation, and it takes just a brief moment of your time. Please visit iparadisevalley.com/vip/
Posted in News Category
Nov. 7, 2015

Seasonal Fluctuations in Paradise Valley Real Estate

There are seasonal fluctuations in real estate all over the world, and Paradise Valley is no exception. Historically, our seasonal fluctuations have been more exaggerated than most other parts of the USA due to the large percentage of seasonal residents.
November and December are historically the slowest months. Everyone has so many social and family obligations around the holidays, real estate goes down the priority list. Furthermore, many seasonal residents are spending the holidays in other states.
So what does this mean for prospective buyers and sellers?
For sellers: this time of year typically means fewer showings. However, it also means that those who are looking are serious buyers. If someone is prioritizing their home search at this busy time of year, they want to take action.

For buyers: this time of year can be a great opportunity. The competition is reduced, of course. However, there's also a psychological component that can help negotiations. Specifically, getting a property "off the books" by year end gives the seller a fresh start in the new year. For some sellers, there may even be tax implications to closing this year versus next. 
This isn't hypothetical, I "eat my own cooking." I put my personal residence under contract in November of last year, to take advantage of the lull in activity.
By January, there will be a lot more buyers competing for properties. Consider prioritizing your home search now.
Posted in News Category
Oct. 3, 2015

New Federal Regulations Impact Paradise Valley Real Estate

As of today, all real estate transactions in the United States are undergoing a major change, including of course Paradise Valley.
Specifically, the closing process and lender requirements have been subjected to the largest overhaul in decades, mandated by the US Government. 
If you've bought or sold a house in the past decade, you received a settlement statement at closing. That form, called a HUD-1 in industry parlance, is dead. 
It has been replaced by a new form mandated by the Consumer Finance Protection Bureau (CFPB). The form isn't the big deal, though, it's the rules that come with it.
The new rules are SERIOUSLY complicated. I graduated with honors from Northwestern and was a visiting scholar at Oxford; I'd like to think I'm not the dullest tool in the shed. Nevertheless, after 3 hours of training and discussion on CFPB rules, the nuances and implications remain as clear as mud.
I even asked several questions of the head of a title company and lender who were teaching a class on the new rules -- and they couldn't answer my questions. The government just isn't making this easy on anyone.
Without bogging you down in details, and hypothetical scenarios, here's what everyone should know:
45 is the new 30. 30 days used to be industry standard for a reasonably speedy close. No more. There are mandated disclosure time periods and rights of rescission that can easily add 15 days to a transaction. Lenders and escrow companies are telling everyone 45 days is as speedy as it will get. The government is also telling people to write contracts for at least 45 day closes.
In theory, these changes only impact transactions involving a loan. Cash only deals can still happen as quickly as you'd like -- except that there's going to be a lot of chaos happening in coming weeks and months. So, even on cash deals better to give yourself some wiggle room, because title companies are going to be as crazy as accountant's offices on April 15 -- for months.
Loans are going to get more expensive. The added compliance involved in all of this is going to be costly. It's basically a tax on the mortgage lenders, and they'll build that into their pricing.
Buyers will have more liability! The CFPB will not tell you this, because these rules were made to protect consumers. However, the rules have a significant (presumably unintended) consequence. Specifically, there's a burden on buyers to handle loan document requirements -- on a government mandated timeline. 
This allows sellers to cancel a contract -- and take the buyer's earnest deposit as liquidated damages -- if the buyer isn't following all the steps in a timely fashion. In other words, a buyer could fully intend to close AND lose their earnest deposit AND lose the right to purchase the home -- just for paperwork delays. Expect some fun and fascinating lawsuits to follow as people get burned.
Title companies and lenders are saying it will be at least January before the chaos subsides, and very few are confident it will be that soon.There's no need to refrain from doing a real estate transaction now, just know that the time and toil will be greater.
Also make sure you're represented by an agent who understands the very substantial unintended consequences of this change. I will be taking specific actions to help protect the interests of my clients, but many agents are unprepared.
Posted in News Category
June 13, 2015

Paradise Valley Mortgage Update

There are two noteworthy developments in the mortgage market this week:
 
1. Rates are rising. The average on the 30 year fixed mortgage has broken above 4% for the first time this year. Most economists are forecasting higher rates over the next year. To be fair, though, a lot of pundits have been forecasting higher rates for years now. 
 
The biggest this is having is bringing out a rush of buyers. People who plan to buy with a mortgage are worried this their last opportunity to lock in great rates. 
 
Since Paradise Valley buyers are more often cash buyers than other places, it won't impact us quite as much. But it will have some impact, and given the competition we've seen for quality homes, it doesn't take much of an increase in demand to have a substantial impact.
 
2. Jumbo lending continues to get more competitive and creative. It used to be that jumbo loans were a lot more expensive than conforming loans, but that's no longer the case at many financial institutions. According to this report in the Wall Street Journal, the options for mortgages in the $4 million+ market are better than they've ever been. 
Posted in News Category
June 6, 2015

A Tale of Two Markets in Paradise Valley

Looking at this week's closings, there's valuable information lurking beneath the averages. The average house in Paradise Valley that closed last week was on market 91 days. That's pretty healthy considering that PV has the most expensive real estate in Arizona.
 
Here's where it really get's interesting: half of the homes were on market 40 days or less. The average of these homes was 28 days on market.
 
The other half averaged 156 days on market. That's over 5.5 times as long.
 
The homes that sold quickly got 91% of their asking price on average -- versus just 83% for the homes that took 5.5 times as long to sell.
 
This tells us loud and clear that the market is efficient, and people who overprice homes do so at their peril. The market will wait out the sellers who are hoping for the greater fool to come along.
 
There are really two markets in our small town:
 
1. A market of high quality well priced homes that move quickly, where it's a sellers market.
 
2. A market of overpriced homes that become stale, and have to fight for buyers attention.
 
Whether your contemplating a purchase or a sale, it's important to make a decision about which market you plan to participate. Your strategy and expectations should be very different, depending upon which one you choose.
 
Even though we are a fairly small town of less than 14,000 people our real estate dynamics are more complicated than the averages will ever show. That's why this newsletter has focused on Paradise Valley for 5 years running.
 
If you'd like to talk in more detail about what's happening in the market, please reply to this email or call me at (480) 442-7325. As long time readers and clients know, there's never any pressure to take action, I'm very patient and methodical. We'll keep at it until we find the ideal situation for your family.
 
Also note that interesting deals happen off the MLS. If you'd like to know about them, please click here
Posted in News Category
April 17, 2015

Nationwide Shortage of Homes?

We have a reasonably balanced market right now in Arizona, but around the country there is an outrageous level of competition for homes. I hear it from agents around the country, and this article in the Wall Street Journal highlights just how intense it is.
 
Days on Market is an obsolete measurement in many markets -- it's MINUTES on market. Literally, offers are being submitted electronically at warp speed because there's such a frenzy. One major buyers of homes interviewed in the WSJ article said they have their bids ready within 8 minutes of a home coming on market. They have hundreds of millions of dollars to spend, and they're showing up 8 minutes into the game.
 
Buyers in Arizona should be thankful that their options are considerably better. However, with the low building rates and continued migration we've experienced, it begs the question: how long will they enjoy this opportunity?
 
Homebuilders have certainly become more confident: housing permits in March were up 50% in Arizona, according to RL Brown Reports.
Posted in News Category