What a strange year for the economy and more generally, one most would soon like to forget. Beginning in March, we witnessed what happens when a pandemic leads to decisions to forcibly shut down parts of the economy and issue stay-at-home orders. Millions went on unemployment and discretionary spending on services such as travel and entertainment plummeted overnight. GDP dropped a record 31.4% from April to June. Then, as dramatically as it dropped, GDP rocketed up by 33.4% from July to September as lockdowns eased. Even though the entire economy did not fully reopen and there are several industries still suffering, the economy came roaring back when it was allowed to.
This is because the real issue isn’t the economy. It’s COVID-19. And the recent run up in the number of cases suggests that the last shutdown has yet to take place in many areas of the country. This could cause continued volatility. Until this wave is brought under control, the risk of continued or expanded shutdowns exists. Indeed, another shutdown could reverse the expansion and the rollercoaster could continue.
We now know that this will end soon - probably by the third quarter of 2021. The efficacy rates of the vaccines that have been approved are an unbelievable 90+%. An estimated 75 million Americans are likely to be vaccinated by the end March and by the third quarter most Americans who want the vaccine will be able to get it. Herd immunity or something similar will occur.
There are still questions. But, barring any unforeseen curve ball, the end is in sight.
For the economy, this is huge. It creates a timeline as to when the economy can start on the road back to normalcy. It also means that as tough as the next several months might be, those months will be an aberration. So, while the fourth quarter of 2020 will be weak as measured by real GDP and while the first quarter might also be down due to the re-shutdown of the parts of the economy, things will bounce back quickly after that.
By spring, shutdowns could be a thing of the past. As the economy reopens, people will spend money because their savings rate has been so high. Most of those unemployed due to COVID-19 will be able to regain employment. The stage is set for rapid economic grow that will be very strong and will be followed by above normal growth at least through 2023.
So, ignore the news about the poor economy over the next couple of quarters. It is unavoidable but also temporary. Nationally, we have already recovered almost 55% of the jobs lost due to government mandated shutdowns. In Arizona, we have recovered almost twothirds of those jobs. And that has occurred even though hotel occupancy, air travel, trips to retail and recreation, and seated diners are all still down significantly. Virtually all of those indicators will return or exceed February 2020 levels very quickly once vaccinations are available for enough Americans.
The Greater Phoenix market came roaring out of 2020 breaking records left and right. Not even the COVID-19 pandemic and economic shutdowns could close the gap between supply and demand enough to bring the market into balance last year. The result of stay-at-home orders was a “pause” in housing demand followed by a surge that continued through the end of the year. The surge was massive in the luxury price ranges, which contributed to the following year-over-year price trends through the Arizona Regional MLS (ARMLS):
July 2020, Arizona ranked 3rd in population growth behind Texas and Florida. When the 2020 Census is complete, we expect California will be the #1 source of inbound migration for Greater Phoenix. This is especially true in the luxury market.
Luxury sales over $1M soared after the pandemic restrictions were lifted. While they were already up 7.7% over 2019 at the end of June, by the end of December the surge brought the 2020 sales count to 2,575, beating 2019 by 48.7% and securing another record for 2020. Much of the luxury migration has been attributed to the threat of possible income tax increases in California in addition to a possible wealth tax causing corporations, small business owners and wealthy individuals to consider moving. For the rest of the market, the new possibility of working remote full time has allowed some residents in high-cost areas to move to more affordable areas, keeping their incomes and jobs without the worry of a commute.
Outside of the MLS, new home developers have been scrambling to meet demand as well. As of the end of November, despite lumber shortages due to massive wildfires and bark beetle infestations, labor shortages due to the COVID-19 pandemic, and disruptions in the supply lines for appliances and imported materials, builders still managed to sell 14% more new homes and obtain 28,204 more single family permits for future supply, up 24% over 2019. Multi-family permits which mostly represent apartment complexes, are up 21.6% over 2019 through November and represent another 12,224 doors. The median price of a new single family home rose 6% from $333K to $353K.
2020 saw demand soar from a normal level to 35% above normal just between July and December. There were 111,036 new listings added to ARMLS supply last year, only 38 more than the previous year. That was barely enough to satisfy the 105,271 sales closed, which surpassed the previous ARMLS sales record of 104,071 achieved in 2005. Already 56% below normal in July, supply fell to 64% below normal by December and prices increased at an accelerated rate under the pressure of multiple offers. As of January 2nd, 2021, there were only 6,326 active listings without a contract and 13% of them were outside the Greater Phoenix Metro boundary. This is the lowest active listing count recorded in at least 20 years.
Where did the extra demand come from? Aside from the lowest mortgage rates we have ever seen, Arizona and Greater Phoenix continue to top the list of growing areas in the country. According to the most recent US Census report released December 22nd, 2020 covering July 2019 –
Median ARMLS rental rates rose 12.9% from $1,550 to $1,750/month in 2020, which closely resembles the percentage growth in median home prices. The sharp increase in the cost of housing has caused much speculation regarding a possible “bubble” and imminent crash. It is important to recognize that today’s housing shortage has been caused by a severe lack of building over the last decade in relation to population growth. From 2010 to 2019, the Greater Phoenix population grew by 18%, but the number of single family and multi-family units combined only grew by 9%.
As the population continues to grow, the housing gap is becoming harder to close. This took years to develop and will take longer than a year to correct. Home prices are projected to continue rising throughout 2021; however, as affordability is expected to drop below normal, it is reasonable to expect some demand to drop with it. When that happens, prices will still rise but at a slower pace.
Glendale $272,903 $307,286 Phoenix $316,262 $364,140 Mesa $290,995 $328,221 Peoria $336,070 $377,093
Litchfield Park $334,957 $378,058
Tempe $310,943 $353,490 Gilbert $380,387 $431,719 Chandler $363,014 $408,331
Cave Creek $524,939 $629,810
Fountain Hills $475,560 $583,191
Scottsdale $615,827 $721,760
Carefree $774,445 $870,032
Paradise Valley $1,940,080 $2,086,990
Aviano $700,238 104 98% 29 Arcadia $1,300,063 137 96% 44 Biltmore $938,325 150 96% 67 Coronado $361,656 64 96% 9
Fireside at Desert Ridge $590,072 68 98% 16
Fireside at Norterra $434,541 55 99% 51 Encanto $305,998 73 99% 65
Moon Valley $369,785 64 99% 146
Tatum Highlands $411,456 59 99% 69 Tatum Ranch $401,220 68 98% 192 Desert Ridge $520,652 63 98% 210
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