Pima County’s residential real estate market is experiencing an economic boom as an influx of out-of-state buyers are creating bidding wars to own a piece of Southern Arizona during the pandemic.
Within the past six months, Southern Arizona’s median home price increased by nearly $30,000 and has risen by 14.8 percent when compared to last year’s median sales numbers in the county. Kevin Kaplan, vice president of marketing and technology at Long Realty, said the rise in residential prices is due to a limited amount of residential real estate on the market as purchasers move from larger cities to smaller communities.
“The pandemic has created a very dramatic situation where there’s very little inventory compared to the amount of buyers out there,” Kaplan said. “It’s created a lot of situations with multiple offers, competing offers and homes selling very quickly.”
Kaplan believes changing lifestyle needs and a lack of vacation options are other factors contributing to Southern Arizona’s real estate bonanza. As more people work from home, they’re questioning if their living space is living up to their requirements, said Kaplan.
“I think people are trying to figure out what they actually really do need and does their home meet those needs?” Kaplan said. “We’re seeing people not take vacations and instead take some of those dollars and buy a second home or a vacation home and potentially working out of them for long periods of time.”
Another factor driving the recent real estate boom is historically low mortgage rates nationwide. Ryan Vondrak, chief capital markets manager for Nova Home Loans, said rates dropped after the Federal Reserve purchased a massive amount of mortgage-backed securities in late March. Mortgage-backed securities are home loans bundled into securities typically bought for investment opportunities, Vondrak said.
“In a normal market, investors would buy those. It could be insurance companies. It could be private equity companies. It could be retirement funds,” Vondrak said. “In this case, the Federal Reserve came in and dumped a ton of money into the housing market to make sure mortgage rates stayed low.”
The Federal Reserve’s massive mortgage-backed securities acquisition dropped rates from around 3.5 percent at the start of the year to about 2.6 percent as of September, according to Vondrak. That rate decrease translates to big savings for borrowers as economic uncertainty looms.
However, Vondrak does note that first-time home buyers are being left out of the current real estate boom due to the increase of median home prices. As bidding wars between homebuyers become commonplace, those attempting to get in on the action with little purchasing power unable to find proper financing, Vondrak said.
“There’s a bidding war happening in the market. We’re seeing two to three offers above the asking price on many properties these days,” Vondrak said. “If you’re financing first-time home buyers and a bidding war happens, they won’t be able to find financing because there are limitations to what we can do.”
Vondrak is hopeful mortgage rates are going to stay low and median home prices will continue to rise well into 2021, especially if COVID-19 continues to drive big city dwellers into small communities. However, he said he does believe the upcoming election could play a factor should a new administration apply lending restrictions once taking office.
Both Vondrak and Kaplan agree the residential real estate in smaller cities and towns are doing better than anyone could have anticipated as coronavirus restrictions ravage other industries. But there was cause for concern throughout the real estate market at the start of the pandemic, said Kapaln
“There was a temporary dip in activity because there were a lot of concerns about how coronavirus and shelter-in-place orders were going to affect us,” Kaplan said. “But by the end of April, new sale activity increased by about 50 percent.”
Kaplan does warn that the increase in Southern Arizona’s median home price could be skewed by an increase of luxury sales in the area. Luxury sales are defined as real estate priced at $800,000 or more in the county, according to Kaplan.
“We’ve had a very robust luxury market this year. Sales are up over 30 percent from last year,” Kaplan said. “Our median price can be impacted if there’s a lot more luxury sales which can drive that number up.”
All things considered, Kaplan said there are some lucrative opportunities for homeowners who may want to sell at this time. He suggests those interested in putting their home on the market consult a good real estate agent to help get the best possible deal during this extraordinary time.
“This is a good opportunity for people who are realizing that maybe their home doesn’t fit all their needs,” Kaplan said. “But it’s not a question of if your house will sell, it’s how quickly do you want it to sell.”