Property Management Blog

Advice for the Phoenix Landlord | What will happen with the Real Estate market in 2021?

David Swaim - Wednesday, January 27, 2021

Market Update - Where Will the Market Go in 2021? 


As we look ahead to 2021, we see a number of promising signs for property owners in the area. Like always, our team has been analyzing the latest data about the ongoing strength of the marketplace. Even in this time of unprecedented changes, our team has managed to keep our eviction rates exceptionally low because of our screening process and the high demand for rentals. In the coming months, a shortage of homes is expected to fuel rental prices and home sales. Because of this, right now is a good time to hold onto your investment property so that you can enjoy additional price appreciation. 

  • Proactive communication and screening keep our eviction rates at less than a percent. Less than 4 percent of our renters are on payment plans.
  • Before rental or property prices drop, supply would have to exceed demand. We are nowhere close to that situation yet. Even when that happens, the situation changes slowly.
  • Increasing rental rates show that we are experiencing true demand.
  • Phoenix still suffers from a housing shortage because of population growth.
  • The monthly average price per square foot is still appreciating across the board.


What Will Eviction Rates Be Like?


Recent reports say that Arizona has a high eviction expectancy in the future, but this is contrary to what we have experienced. Our Phoenix property management team has found that the right techniques can prevent residents from falling behind in rent. We communicate with our tenants and are proactive so that we can avoid potential issues.
 
Additionally, all of our tenants go through a diligent 
screening process. Because of our thoroughness, our residents are less likely to fall behind in rent. Even with the current crisis, less than 4 percent of our residents are on payment plans. Our eviction rate is less than 1 percent. 

Will Prices Drop?

Even though this year has been full of unexpected challenges, there is still a strong demand for homes. For prices to drop, supply would have to be greater than demand. That is not happening right now. Even if this occurs in the future, the change will happen slowly. Supply and demand do not shift immediately, so there will be plenty of warning if the supply of homes starts to exceed demand.
 
When rental rates increase, it shows that we are experiencing a true demand for homes. Between 2005 and 2007, rental rates did not increase as home prices advanced. Right now, the opposite is happening.
 
One of the reasons why supply is not equaling demand is because we have not been building enough homes for our population growth. From 2010 to 2019, our state had an increase in new residents, but we did not construct enough new homes for them. This housing shortage has been developing for the last decade, so we are not going to escape it overnight. Even though there is a high demand for homes, we are not building them fast enough. Even when we have completed all of the homes that currently have building permits, we will not be able to satisfy the existing demand for homes. 

You Will Know When There Is a Balanced Market

In 2018, we almost reached a balanced market. The decline in interest rates helped spur additional demand for homes. Right now, we have not reached a balanced marketplace yet. When that happens, you will be able to tell.
 
If the market changes to a balanced market from a sellers' market, the real estate prices do not suddenly drop. Instead, prices begin to rise at a slower rate than before. While prices may increase at a slightly slower rate, they will still be rising. Since May 2020, home prices have 
appreciated by 18.7 percent. Even if appreciation declines during the next year, home prices may still increase by 8 to 10 percent. Because of that, homeowners will miss out on price increases if they decide to sell too early.
 
Appreciation rates are increasing significantly for lower price ranges, but they are also going up for higher price ranges. For example, the monthly average price per square foot increased by 15.4 percent for homes worth $225,000 to $250,000. For homes worth $1.5 to $2 million, the monthly average price per square foot advanced by 11.9 percent. Even for homes worth $500,000 to $1 million, the average price increased by 3.2 to 6.3 percent. 


Takeaway

The latest data shows that right now is a good time to keep your investment properties - it is too soon to sell. The market is not going to suddenly change or crash.  In fact, it will continue to be on the rise. Even if we reach a balanced market in the future, the change will be gradual. In a balanced market, the prices still appreciate at a gradual rate.  
 
At our Phoenix property management company, we will continue to monitor the marketplace and share regular updates. If you are concerned or need help making a decision, 
Contact Us we can perform an analysis on your property. Then, you can figure out your investment's true earning potential and make an informed decision.


The source of this information is from The Cromford Report - https://cromfordreport.com/