Arizona Real Estate Outlook during the Coronavirus

[Jared Smith]

A number of people seem to assume that we are heading for a recession and that home prices will fall. The 1st assumption is quite reasonable. The 2nd assumption is based on fear and has little analytical data to back it up. Obviously anything can happen in an uncertain times, but a fall in home prices is still looking very unlikely from today's numbers.

In 2005 the housing industry started to sicken because homes were being used as speculative commodities not for places to live. 100% loans from unscrupulous lenders who went bust between 2007 and 2010. The housing industry (and more particularly the lending industry within it) was the cause of the 2008 recession. Phoenix was a hot spot for the cause of the problem, as was Las Vegas.

In 2020, housing is an innocent bystander to a probable recession caused by a pandemic. It has supply at extremely low levels and most homeowners have a large amount of equity. Even if they lost all their income and could no longer pay their mortgage, they could quickly find a buyer to release that equity. There is little likelihood of them facing foreclosure because the lender can be paid off with the sale proceeds. Only when demand collapses do the banks have to foreclose to get their money back. At the moment demand is still well above normal and has only shown very tiny signs of easing. In 2006 demand fell off a cliff yet home builders continued to build even more new homes because lenders continued to write ill-advised loans in huge numbers.

In 2020 builders are probably going to have to build fewer homes than they wish because of shortages of labor and materials. We are unlikely to see a glut of homes on the market for a very long time. A successful vaccine for the corona virus is more likely to appear before a surplus of homes could possibly develop.

Renters rather than homeowners will be out of work for quite some time. Landlords may find it much harder to collect rents and the yields from their portfolios are likely to fall. Some may decide to evict tenants and sell their properties. At the moment the extra supply would be welcomed and receive multiple offers, even in these troubled times. The evicted tenants still exist and therefore still represent demand for shelter of some sort. There will be hardship, but not a flood of homes with no-one to live in them.

Housing demand is created by the existence of people and increases when more people turn up and decreases if they go away. In 2005 the people we were building new homes for were largely imaginary. In 2020 they are very real and migration trends have been very favorable with families and individuals moving to Arizona from other parts of the country.

All the indicators for the Arizona housing market remain very healthy at the moment. There is no cause for panic and if you are delaying a purchase because you think the price will come down, you are probably making a poor decision.

Please stay safe and reach out if you have any questions, happy to help!

-Jared