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Top Ten Trends Impacting Real Estate

November 26, 2021 By quadcities 1 Comment

The market is split into the haves and have-nots in terms of where capital is flowing.

Everyone wants to know where the real estate market is headed. There was big news in November when the real estate giant, Zillow, known for its consumer website and property value estimates, announced it would no longer be buying homes.

In the recent real estate runup, Zillow had turned from its core business model of providing real estate listings to gain consumer interest and then selling the consumer’s contact information to real estate agents and brokerages. Zillow had transformed into a real estate brokerage and, with deep-pocketed investors, was buying thousands of homes in 25 major market areas. Then, what seemed to be an abrupt pump of the brakes on new purchases, the company admitted the algorithm made it difficult to determine property values in three to six months during one of the strongest markets in history.

Zillow laid off 25% of its workforce and is arranging bulk sales of property to institutional investors that plan to put the properties on the market as rentals in a buy-and-hold strategy that will not dump much-needed inventory into the market for sale. There is also a shortage of rental property and that has created a spike in rental rates at a time when most renters have had a reduction in income.

The National Association of Realtors remained cautiously optimistic at its recent annual conference in San Diego, California. Buyer demand is expected to continue through 2022, although we have seen a tapering of multiple offers in our local market as sellers realize there is a limit to how high home prices can climb in one or two years.

Here are the top 10 trends impacting commercial and residential real estate as we move into 2022:

  1. Bifurcation of Capital Markets

The market is split into the haves and have-nots in terms of where capital is flowing.

Industrial real estate has been the darling of commercial investment, so much so that cap rates have fallen from 2% to 3%. Phoenix currently has 29 million square feet of new industrial space under construction and there is little supply in the Prescott area.

Multi-family investments are attracting capital but there are just not enough properties to satisfy the decade-high demand for multi-family rentals. The Phoenix metro area is on the list of top areas in rental demand and has the strongest apartment rental growth of 21% according to a NAR analysis of Costar data.

Ecommerce is booming but brick and mortar is gaining market share particularly in open air centers or strip malls anchored by a grocery store.

Restaurants overall are suffering, but we are seeing a demand for quick-service spaces that accommodate drive-thrus, and not just one, but two, three and even four drive-through lanes with small or non-existent dining rooms.

  1. The Need for Adaptive Re-Use

There are many empty big box stores and regional malls that need to be reimagined with the needs of the community in mind. In Prescott, we have seen hotels repurposed into apartments and that is the kind of thing developers and communities need to be working on together.

  1. Economic Structural Change

The U.S. economy is still strong internationally; however, the pandemic continues to cause uncertainty and we are experiencing inflation. Interest rates are so low that many see that as a sign of an economy not as strong as we would like it to be.

  1. Political Polarization

The country has been more focused on what divides us than on what we agree on and that has made it difficult to find solutions as the political aisle widens across the parties in Washington and at home. Real estate needs a strong, stable government to thrive.

  1. Housing Supply and Affordability

Costs of both for-sale and rental housing are rising much faster in secondary and tertiary markets like Prescott as people flee pricier gateway markets and are able to bid up residential prices past the point that local workers can afford.

Housing production overall has fallen short of new household formations as millennials approach their peak buying years and more baby boomers are aging in place. Many first-time homebuyers struggle with putting together their down payment, with only 28% receiving assistance from family or gifts.

About 80% of renters earn $36,000 to $60,000 annually and only 3% of construction of rentals in the past 10 years was for B and C class units, which would be considered affordable. Millions of moderate-to-lower income families are severely housing cost burdened, spending more than half of their income on housing.

  1. Infrastructure  

This is perhaps the biggest issue facing our Prescott area. Commercial agents working with companies looking to bring business and jobs to the area cite the distance from I-17, the lack of a rail line or port to deliver goods and even the cost to bring utilities to an area or upgrade water mains and sewer systems to increase demand on an area. Matt Fish from BHGRE Commercial said, “Modern and reliable infrastructure is an essential building block of commercial development. Without the roads to access it, without the power to run it, without the gas to heat it, and without water and sewer, it’s not profitable to build it. Our economy is changing as fast as our society. In order to continue attracting new jobs, economic opportunities and essential services, we must constantly invest in the infrastructure needed to ensure economic growth.”

There is also a social equity concern with infrastructure such as widely available broadband. As more shopping, work and school moves online, we have a great need for expanded service to rural areas.

  1. Logistics

The economics of the last mile of service are growing ever more important to the field of logistics as companies struggle to predict demand and manage their supply chains with significant challenges not always in their control.

  1. Environmental, Social Governance, or ESG

ESG is at a tipping point, especially in major market areas. A reported 82% of the people making the world’s real estate decisions are considering ESG. Most of our carbon footprint comes from the buildings we live in, work in and construct. Buildings without the proper retrofitting are falling out of favor in large funds as a preference for buildings that are newer and constructed with attention to clean energy are garnering the most attention and, of course, capital. This has not been a big concern for seekers of commercial real estate in our area, but it will be someday.

  1. Tech Acceleration

This year has taught us that adoption of tech is a must. Some technology solutions were adopted easily, especially those that aided us in working from home and doing more business in a contactless environment.

  1. Remote Work and Mobility 

A third of workers were able to work from home specifically because of the pandemic, according to the BLS, but there were sharp differences by educational level. More than half of workers with a college degree worked from home, while only 5% of those with a high school diploma did.

NAR economist Lawrence Yun believes we are only in the first innings of work-from-home options. We now have “WFA,” or Work From Anywhere! The great resignation is in sectors where employees cannot work from home – in retail, hospitality and entertainment/events.

Working from home is trending down as employees go back to work, but it remains elevated above pre-pandemic levels. Office occupancy levels are increasing but the vacancy rate is still high in metro areas. In downtown Prescott, we have had high demand for office space and there are almost zero available listings. QCBN

By Leslie Guiley 

Leslie Guiley is chief operating officer at Better Homes and Gardens Real Estate | BloomTree Realty, which includes BHGRE Commercial and she is an area ambassador with Inman News.

Filed Under: Columnists Tagged With: Better Homes and Gardens Real Estate, Better Homes and Gardens Real Estate | BloomTree Realty, BHGRE Commercial, BloomTree Realty, Inman News, Lawrence Yun, Leslie Guiley, real estate, real estate trends

Top Seven Actions Homebuyers Can Take to Improve Chances for an Accepted Offer

June 29, 2021 By quadcities Leave a Comment

The median home price has grown from $288,000 to $399,000 over the last year.

It’s no secret that the housing market has been red-hot over the past year. Some cooling of the market is expected in the next six months; however, shifts in demographics, growth in population along with low interest rates indicate it will be a seller’s market for the foreseeable future.

Here are the things buyers most often consider to sweeten the deal and get their offer accepted in this market:

1) Offer over asking price – This is a common occurrence as more buyers arrive in Arizona flush with cash from selling in a more expensive market and multiple offers make it competitive. There are buyers with healthy savings from stimulus payments and who have spent less during the pandemic, but not everyone can offer over asking price. It is not uncommon for offers to include an escalation clause to scale their offer over a competing offer by a fixed amount. Typically, proof of other offers is required and these are falling out of favor with sellers who just want a solid highest and best offer.

2) Waive the Inspection – A misconception is that waiving the inspection means there is no inspection.  What it really means is the contract is not contingent upon an inspection; therefore, a buyer cannot cancel and receive a return of their earnest deposit based on the results of the inspection. It is wise for a buyer to perform a home inspection so they know the property condition. Sellers are not typically doing repairs prior to putting homes on the market, so a buyer needs to know what outstanding maintenance issues exist. A preferred option is to keep your inspection period and preserve your right to accept or reject the property based on condition. A buyer inspection period is also for due diligence on the systems of the home, such as well and septic, and of the overall area, such as schools and roads.

3) Sign an Appraisal Waiver – This is similar to the inspection waiver and it doesn’t mean there is no appraisal, unless the buyer is paying cash. Bank loans are based on an appraised value of the home and appraisals are for the bank. It simply means the buyer cannot cancel the contract or ask for a price reduction if the home should fail to appraise. Buyers of homes with an appraisal lower than the purchase price will have to come to the closing table with the difference between appraisal price and purchase price if they waive the appraisal contingency.

4) Offer Post Possession – No one wants to move twice, so some offers are chosen if the buyer offers a period of time after closing that the sellers can remain in the home. This could be a few days to a few months. Find out what is important to the seller and then everyone can move once.

5) Offer Buyer Concessions – This is a turn-the-tables moment, as sellers have long been asked to help buyers with closing costs and fees in addition to paying both sides of the commission. There is no reason a buyer can’t offer the same to a seller! A buyer could also offer to pay for moving expenses such as moving trucks, packing service, boxes… it all adds up!

6) Get Creative Based on What’s Important to the Seller – We have seen buyers offer things to the seller that vary from a vacation getaway to a hot pizza delivered upon contract acceptance! These gimmicks don’t outweigh the strength of a good, clean offer, so take this tip with a measure of advice from your agent.

7) Work with a Great Agent! Don’t underestimate the importance of agent-to-agent relationships. This is not the time to use your cousin or neighbor’s best friend from another area just to be nice. The agent community mirrors Prescott as a closely-knit community. The most productive agents work with each other on sale after sale. A listing agent who knows the buyer agent will communicate in a timely manner and get the deal done will go a long way when offers are accepted by the seller and listing agent.

Here is a market update for Prescott Valley, where listings are down year over year and sales are up, creating upward pressure on price. The median home price has grown from $288,000 to $399,000 over the last year. These numbers are meant for general interest only. Please review your specific situation with a qualified local agent. QCBN

By Leslie Guiley

Leslie Guiley is chief operating officer at Better Homes and Gardens Real Estate | BloomTree Realty, which includes BHGRE Commercial and she is an area ambassador with Inman News.

Filed Under: Columnists Tagged With: Better Homes and Gardens Real Estate, BHGRE Commercial, BloomTree Realty, Inman News, Leslie Guiley

Experts Offer Overview of Real Estate Market

May 28, 2021 By quadcities Leave a Comment

Locally, if no new homes came on the market, we would sell out of the current inventory in less than one month.

Google reported last week that the search question, “When is the housing market going to crash?” spiked 2,450% in the past month. We have a classic supply and demand issue, coupled with some of the lowest mortgage rates on record and a national reshuffling of population groups that has sent prices soaring higher in 2020 than any year since the Great Financial Crisis.

Realtor.com reports the national median list price at $375,000, up 17% from the year before. Listings are down nationwide 53% and even more in some areas of Prescott. Locally, if no new homes came on the market, we would sell out of the current inventory in less than one month.

The first factor driving demand is a huge demographic shift that has been steadily unfolding for the past several years. There are 72 million millennials who are in their ideal buying years when they are starting families and in the prime of their careers. The median age of a first-time home buyer is in their mid-thirties and there are tens of millions of Americans at or approaching that age. Coming up right behind the millennials we have Generation Z.

We have experienced a lack of supply for multiple reasons. Construction has been down for several years, and that has affected the number of available starter homes. The National Association of Realtors predicts we would need 3.8 million new homes to handle the current demand and they just can’t be built quickly enough. There is a labor shortage of skilled workers, a lack of materials in the supply chain, and costs have soared, with lumber topping the charts at 300% higher than the same time last year, according to the National Association of Home Builders. There is also a shortage of available lots that are prepped and ready for construction, so it will take several years to see building ramp up to the levels needed.

We saw listings being pulled off the market last year as sellers hesitated to have buyers inside their homes during the pandemic. At same time, Americans became frustrated with the homes they have been living in on average eight to 10 years as they stayed at home more and realized their needs for a home had changed.

What about the mortgages in forbearance as a result of the pandemic? The Mortgage Bankers Association reported in April that a majority of the loans are exiting the program because they either caught up or have a workout arrangement in place. Only 16% of those loans are noted as still in trouble. Homeowners who purchased as late as 2018 or 2019 have also benefited from the recent equity gains, so if a sale becomes necessary, they could do it prior to a foreclosure.

What does this mean for buyers?

Preparation, patience and working with a professional are key. Buyers need a full-time professional agent on their side who is connected and can keep them posted about “coming soon” listings, and is available to get them in to see homes and write offers quickly. Most homes are getting multiple offers, so it’s important to be prepared, write a strong offer and know where you can be flexible and what not to give up in the negotiation process. It will likely take a few offers to win the bid, but look at getting into the housing market as a win right now because interest rates are low and data and demographics point to housing appreciation ahead. The market is not favoring buyers who have a home to sell before they can move, so many sellers are asking to rent back from the buyers while they search for their next home.

Sellers, there is no time like the present to get your home on the market! We expect buyer demand to remain strong through 2021, but there are signs our extreme seller’s market is beginning to shift. Every busy agent can share a story of a would-be buyer that decided to either not buy now or buy in another area as they just couldn’t find something available in their price range.

Tennessee, North Carolina and Idaho are all popular destinations for those looking to relocate from other states and considering Arizona. As more people are vaccinated, it is expected we will see more sellers feeling comfortable about putting their home on the market even as agents have become adept at selling virtually. Investors are being encouraged to put homes on the market now in advance of new capital gains tax legislation, or just as they are moving toward retirement and away from wanting to oversee tenants and toilets. Most economists are predicting a rise in available inventory by late 2021 or early 2022. One thing we know for sure, the summer of 2021 will be a great time to be a seller! QCBN

By Leslie Guiley

Leslie Guiley is chief operating officer at Better Homes and Gardens Real Estate | BloomTree Realty, which includes BHGRE Commercial and she is an area ambassador with Inman News.

Filed Under: Columnists Tagged With: Better Homes and Gardens Real Estate, BHGRE Commercial, BloomTree Realty, Inman News, Leslie Guiley

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