Real Estate Market Update by the #1 Arizona Data Scientist: What to Expect In 2023

Speaker 0: Jump on the steep train. We real estate disruptors.

Steve Trang: Hey, everybody. Thank you for joining us for today's episode of real estate disruptors. Today, we have Tina Tambour back for the second time. Tina's with the Crawford Report. She is the resource for housing data in Arizona.

And today, we're talking about the state of today's real estate market and potentially what we've got coming down the pipe. Now I am on a mission to create a 100 millionaires. The information on this podcast alone is enough to help you become a millionaire in the next five to seven years. If you'll take consistent action, you will become one. Now these days, I'm having a lot of conversations with friends, peers in the industry, talking about what's going on in their business, what challenges they're facing, this and that.

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And it's a live show. You know, I've got Tina here in the spotlight. We're gonna be grilling her a little bit. So ask your questions, and she will be happy to answer those that she can answer. Ready?

Tina Tambour: Uh-huh.

Steve: Alright. So, you know, I have the great honor, you know, first calling your friend, and having the ability to, you know, subscribe to the comfort report Mhmm. Which by the way, for $35 a month is a stupid good deal.

Tina: I agree.

Steve: So for $35 a month, I got the comfort report. So it's fascinating because, you know, like, towards the end of the year, last year, we're we're like, okay. This is happening again, like, last year or the year before. And it was doing the same exact thing until about, like, March or April. And then it started going down.

And then it started really going down. Mhmm. And so we hit, I think, the high the low fours. This year, we weren't fives like we were last year. I think we were high threes, low fours this year.

And then it started, like, going down. We're like, where can this possibly bottom out? And it seems like

Tina: Mhmm.

Steve: We're leveling out a 100, but I don't know if we're gonna stay there.

Tina: It is a delicate balance. That's what I've been calling it, a delicate balance. We, hit balance in August, and we hung out there. So the main driver was initially the Fed funds rate, obviously, was going up. Typically, that's not something that has direct effects on mortgage rates, but this time, it did have a a direct effect.

It's you you know, there's a way to get there. It's a bit of a gray association, but it's clear that there's a lot of,

Steve: Well and that's an interesting thing. Right? Because, like, historically

Tina: Mhmm.

Steve: Like, before I got into real estate Mhmm. Long time ago, Fed rate goes up. For sure, interest rates goes up. Right? Mhmm.

And then you get into the business, you're like, oh, you realize, oh, that's actually not true. Like Yeah. The Fed rate is not tied to mortgage rates. Mortgage rates tends to tie to the ten year rate.

Tina: Yeah. Bonds.

Steve: But now Yeah. There's a very strong correlation. So what why is there such a strong correlation?

Tina: Well, you know, that's probably a better question for a lender.

Steve: Mhmm.

Tina: So I'm just gonna talk about because it you know how I am. It's really easy for me to get off on a tangent and then be like, how did we get here?

Steve: We got time for tangents.

Tina: I know. But let's just talk about real quick the the Crompton market index going from that high point to this balance point. It started off when the mortgage rates went from 3.1 right at 4.4% is when we started to see the crack. Okay?

Steve: So when Fed rate what what happened when Fed,

Tina: The mortgage rate.

Steve: Mortgage rates went from 3.1 to 4.4, That's when we started seeing, like, okay. Yeah. There's something going on.

Tina: Right after 4.4%, we started to see a crack in our demand. Where we should have been going up seasonally, we started to go flat. So at that 4.4 to five point o, that's when we started to see a curve. Okay? And then we hung out in the low fives for a while, but then the emotions around the that mortgage rate was like, this is ridiculous.

We're never gonna we're never gonna survive at 5%. Right? But then it boomed, like, right in June. Remember, it it bolted from 5.1 to almost 6%

Steve: Mhmm.

Tina: In a matter of three weeks.

Steve: Yeah.

Tina: That is when we saw a massive drop off, almost 30% drop off in contract activity. Right?

Steve: Mhmm. But

Tina: then it started to come back down to 5%. And when it went back down to five in August and this is important because For,

Steve: like, just like a week or or for a couple

Tina: of weeks. Two weeks. Two weeks, it was at 5%. All of a sudden, we saw a boost in demand. Like, we saw the contract activity jumped up, like, 25% from the bottoming out where we were on fourth of July weekend, frankly.

So we saw that boost, and that gave us this hope. Like, okay. We can handle 5%. 5% is five 6% is too high, but 5%, we can work with this. We're doing the two one buy downs.

We were doing all of these, you know sellers are starting to give concessions, and it was working. Right? And we got this hope. And then in another month, it went from five points to six points, and then it popped down a little bit, and then it boinged right back up to seven with all of this within a matter of two weeks. And what happened is, we went from hope to despair.

Right? Because then at the 7%, our contract activity has now dropped off another 24%. Yep. We're now hitting low points that we haven't seen since 2008. Now all of the despair headlines are coming.

And so on our emotional side of things, the sellers have hit a level of despair. And in in some cases, you know, some of our industry has reached despair

Steve: as well.

Tina: Yeah. Some. Because they're like, oh, I'm not gonna sell a home in four days or even thirty days now. So, as things shift, marketing, all everything changes, this is where we've often stated that true professionals are made in markets like this.

Steve: Oh, absolutely.

Tina: Because, you know, sometimes we work a little and we make a lot, and sometimes we work a lot and make a little, and we're kinda heading into that latter stage right now. But, at this stage, what happened is at that 5%, and this is important, we got that boost of activity, and then we had legs on it in our demand line. Because at first, they're just they're in the pipeline Mhmm. Waiting to close, and then they actually close. So now we're coming into the stage where we weren't replacing those deals.

We're going down after that. So now we're not gonna have as many in escrow. We're not gonna have as many closed going forward, so our demand information is gonna shrink. And that's why, at this stage, we're gliding down. We're not plummeting, but we are gliding into more of a buyer's advantage.

Steve: Sure.

Tina: And it is possible that if these rates stay where they are, they we are gonna continue to glide into potentially a weak buyer market. Not a not a 2,007 type buyer market, but, like, definitely leaning towards buyers. And this is really where opportunities lie for buyers. And they might not feel that way.

Steve: But

Tina: if anything has happened, now 5% feels like an amazing rate. No. No. No.

Steve: 5% feels great. So I know you can't predict what the market's gonna do, but you you're you're very glued into, like, what the experts other experts are saying. Your following certain industry experts. Mhmm. What are they predicting, as far as rates goes or, I mean, what that Fed's gonna do, but what the rate's gonna do?

Tina: From what I understand, from what I hear from people in conversations specifically with lenders, they do have a lot more optimism about the spring.

Steve: Mhmm. And I

Tina: think part of that optimism comes from watching the inflation rates. And, lately, the in the rate of inflation, not the not the year over year change. Okay? The actual measure of the there's two measures, by the way. There's the consumer price index, the CPI, and then there's another one called the PCE, the, personal consumption expenditure, whatever.

Steve: It's a newer one.

Tina: So there's two of them, but that doesn't matter right now. The only thing that matters is both of them have been flat for three months. We're waiting for the update for September, I think, tomorrow or the next day. And, because they've been flat for three months, that's a trend that we can extrapolate out now. So if nothing happens, if we can stay flat, just no rises, no falls, just flat, then, we will reach this magical 2% that apparently Powell wants before the beatings end.

But this magical 2% number could be achieved potentially by March if you're if you're following the PCE index. So I think that is what gives some lenders something to kinda look for. If it goes up, bets are off. If it goes down, it'll be sooner

Steve: Mhmm.

Tina: Even. So I think that's why, for a number of reasons, there is more optimism about the first and second quarter than there is about the fourth quarter.

Steve: So the the feds are looking at the CPI, consumer price index?

Tina: No. The feds are looking at the PCE. PCE. We tend to look at the CPI, the the consumer price index. That's what a lot of journalists report on.

But, Jerome Powell has stated more over and over again, we don't really look at that. We look at this PCE, the personal consumption expenditure.

Steve: And the

Tina: reason why they like that one better is because it's not only based off of surveys of consumers, but also surveys of businesses. And they can get much more information from businesses than they can get from consumers, and they can go back and change it as they get new information in retroactively. So that is a a much better index.

Steve: What business or what what, data are they getting from businesses that they're not getting from consumers? I'm just curious.

Tina: Pricing. So they can tell cost

Steve: of goods?

Tina: Yeah. So they can tell, for instance, when you a couple of things. For one, it's not only the expense coming out of the consumer's pocket. Say, for instance, the cost of health care, you pay

Steve: Mhmm.

Tina: Your your deductible. That's the max you pay out of your pocket, but your company might pay more.

Steve: Right.

Tina: So that takes into account all of the expenses of not only the consumer, but the expenses of a business as well. And say, for instance, as a consumer, you are still buying apples, but now you're not buying organic apples at $5 an apple. You're buying pesticide apples for, like, a dollar instead. Right? So, the the PCE will track substitutions better.

They will track, all kinds of other things, and they also weight housing differently. So housing on the consumer price index, the CPI is weighted at 42%. So it's a big deal. If housing comes down, then it'll have a major effect on the CPI. Mhmm.

But it's only about, I think, 22% in the PCE, and health care is a much larger percentage. They have a totally different setup on what weights they use in the PCE.

Steve: I would argue that's a really backwards way of looking at things.

Tina: Oh, what? That they wait how the

Steve: Oh, that they wait medical. Not that so much that they wait medical more so much as they're waiting real estate less. Because if you look at your regular spending expenses, a good chunk of your paycheck goes towards your mortgage and or your rent.

Tina: Right. But you're thinking as a consumer, though.

Steve: Right.

Tina: If you're thinking as a business owner now and you have employees, your health care expenses have gone up.

Steve: Right.

Tina: So, I think it's good to have to to not turn a blind eye to the other expense of health care, which is also in the core. Mhmm. So oftentimes, when you look at the overall index, the food and gas can be so erratic that, you know, it causes some

Steve: Sure.

Tina: You know, too big of, shifts. So that's why they'd often look at core and to not consider the increased cost of health care over the years as as a weight on inflation is probably

Steve: Oh, I think that. Absolutely. This should be a consideration.

Tina: It's not as big of a weight on the CPI. The health care is, like, a small little piece, but it's much more active. And and, no, that's the thing. You know, lately, Powell has been really targeting housing. Alright?

Steve: He's got, like,

Tina: a thing.

Steve: He's got a big axe to grind against real estate.

Tina: No. I think it's a math problem for him. I think with all these guys, it says it's a math problem. They're looking at these calculations and where can we make the biggest bang, And I think they thought, okay, housing. That's where we're gonna go.

They only have but so many tools that they can use. Right?

Steve: They have one tool.

Tina: They have one tool. They have one arrow. And so that's and so he stated we're going after housing. This is what we're trying to do. The issue with that, and that's why he's getting a lot of, criticism right now for overcorrecting Mhmm.

Is that the housing market takes a while to respond to anything you try to do. It's not like the stock market. It's a lagging indicator. And so what they're saying in a lot of the, articles coming out is that he is relying too much on final prices, you know, rents and all that.

Steve: And he's not waiting on that. So he's not he's waiting on not just lagging indicators, but extremely lagging indicators.

Tina: Housing is an extremely lagging indicator. Yeah. And so, my analogy that I use for lagging indicators, or or industries that are slow to respond is imagine you're sitting in front of a clear, motionless pond, and you wanna create some waves. And you have a wonderful arm, and you just throw this big old rock out there, and you're waiting for the wave, and you don't see a wave. So you throw another rock out there, wait for a wave, there's no wave.

And then you throw another rock out there, and finally you see a wave, but that's not from your third rock. Mhmm. That's from your first rock.

Steve: Right.

Tina: And so by the time he sees all of the things he's looking for, it's gonna be wave one, yay. Wave two, oh. Wave three, ah. Yeah. And that's when you find out that you've overcorrected.

So he in Phoenix, anyway, he got what he was looking for. Once we hit 5%, we actually went to a balanced state. If he had stopped throwing rocks at that point, he probably would have eventually gotten the statistics in his numbers that he was looking for.

Steve: Yeah. And it's really unfortunate. Right? Because I think maybe for him, a way to get this information because, you know, he's super high up. Right?

Yeah. He's in the ivory towers that we can't talk to.

Tina: Mhmm.

Steve: Right? But maybe we talk to the owners of, I don't know, Fidelity or the owners of, I don't know, Bank of America, Wells Fargo, whoever's doing the most loans in this country right now. Because, like, you and I don't do loans with the stupid big box. But I think they still probably do a lot of mortgages.

Tina: You might wanna get to know them over the next I know we, they're people are still mad at them over the a lot of things that were going on during the foreclosure crisis for a while. So there's still, like, some grudges going on. But I'd say that, if anybody is going to be able to respond in lending Mhmm. With new programs, it's gonna be the big banks. Yeah.

Steve: But if there's a way he could just, you know, hang out, just, you know, pick up the phone, call the CEO of Bank of America and the CEO of, like, Fidelity National, whatever their company is Mhmm. And just ask them what they're experiencing. Because you and I know a lot of people are getting laid off. Mhmm. Right?

I mean, like, I I I get to talk to, you know, people that, do really well in title. And, unfortunately, there are a lot of people that, you know, you look at was, I've been comparing this environment to, back in college in the class. You know, look to your left, look to your right. You know? One of you is not gonna be here, and maybe two of you won't be here.

Right?

Tina: Well, my feeling on the lending side of things is, you know, obviously, they've had a lot of layoffs. You can only lay off with so many people until you find you have to get some loans done.

Steve: Mhmm.

Tina: And I do believe that I well, I would expect to see some response in the lending things that they're doing, like, maybe some loosening up. Some loosening up could make big waves in bringing some buyers back in. I mean, there's Dodd Frank. There's a lot of stuff that are not my superpower. That's not my expertise.

But little things like allowing sellers to contribute more to closing costs, for instance, especially on a 3% down loan. I understand there's some restrictions based on Dodd Frank laws and so on about that, but that would open up a lot of things. You know, even just, if if FHA could loosen up on condo guidelines even. All kinds of things that could open up on

Steve: condo housing. For more affordable housing.

Tina: Because yeah. Especially in cities, and especially in Phoenix, the condo a lot of these condo complexes are shut out from first time homebuyers because they can't get funding

Steve: Right. On

Tina: them because too many investors or whatever or the condition and things like that. So I would say that I think the lenders are most likely going to start trying to come up with new programs, anything that will help ease the sting of these higher interest rates

Steve: Yeah.

Tina: And help people get qualified. I, you know, hear a lot about adjustable rate mortgages and so on.

Steve: Oh my god. Please don't.

Tina: I know. Right?

Steve: So, but, again, like, where where I was going to was, like, if you would just talk to the owners of the big banks

Tina: Mhmm.

Steve: And the big title companies and just kinda hear what's going on because they are the, leading indicators. Right? They're tracking open escrows. Right? They're tracking the

Tina: Well, they have only a part of so they don't have the entire market. So remember, they only track people getting loans.

Steve: They don't have the open they don't have the entire market, but they have, data that can be closely correlated. Right? I mean

Tina: Yeah. You can definitely on in terms of new loan applications, you can if you separate out the refinancing side of things and look at just, you know, loans on purchases. But also remember that there are some people who don't necessarily have to get a loan, but they use loans when money's cheap, and then they don't use loans when money's expensive. So you've got your your luxury area where they can take it or leave it.

Steve: Mhmm.

Tina: And right now, they're leaving it, so that would, you know, show up in your number. So there's there's definitely I would say, the under 300 market right now has seen a pretty drastic decline in price because those buyers are the most sensitive on interest rates. You also have just the emotional side of 7%. Some people just flat out don't wanna pay that.

Steve: They they don't.

Tina: They just don't flat out don't wanna do it.

Steve: It's been I mean, we've had historic low numbers for so long. But I guess where I was going with that is that if you would talk to these people he doesn't have to wait for the lagging indicators to see what's gonna happen to prices. He can know Mhmm. Next week.

Tina: I would say that

Steve: he could.

Tina: I mean, but that's strictly on the demand side.

Steve: Mhmm.

Tina: So it only gives him one side of the equation if he looks at that. I think that's why he should be talking to us. You know? The people who like, for instance, you need to know what your supply was, historically speaking. So our indexes at the Cromford Report are historically, I guess, more relevant now.

Because when you start looking at, like, what Powell said, he wants to bring supply and demand more in line with each other into a more of a balanced market so that prices rise at a more reasonable rate. That was literally what he said.

Steve: Mhmm.

Tina: But the problem is the only analytic he's affecting is demand. Yeah. So until he knows what supply is, he doesn't really know if they are actually in balance even if he talks to the lenders. So that's why he should talk to us. Right.

And we could tell him that

Steve: He's just 35 a month from the conference.

Tina: That's right. $35 a month. No. Actually, he can't actually get a subscription. We could get special permission from the MLS if he Got it.

Wants it. But the thing is that, that we could have told him that supply and demand came into alignment in August

Steve: Mhmm.

Tina: And at least in Greater Phoenix. We are only one market of an entire nation, so he's gotta collect data on the entire nation. So the question is when is what we're seeing in our marketplace gonna factor in? And remember too, when when the indexes talk about housing, they're not talking about the cost of a home or a mortgage. They're talking about the cost to rent.

Steve: Right.

Tina: Yeah.

Steve: So let's look at, right now, we see, like, Phoenix got hammered hard. Like, it seemed like overnight. Mhmm. Nevada's been hit pretty hard. It appears Idaho and California have been affected greatly.

But all my friends in the Midwest, they're like, what are you guys talking about over there? Are you guys crazy? Do you know why we're so much more volatile than the rest of the country?

Tina: Well, for one, I believe we were one of the one of the first places for the large iBuyers to come out. So the Open Doors offer pad, Zillow, Phoenix was one of the hot spots for that corporate flip model that was being tested out before it went out to all these other places in the nation, and I don't know that they really went into the Midwest a whole lot.

Steve: Yeah.

Tina: They were a disruptor Mhmm. If you will. Yeah. And the thing about that is whenever you have a

Steve: a

Tina: corporate entity coming in spending other people's money

Steve: Mhmm.

Tina: On flips, which is the arguably, the riskiest part of our market is short term holds.

Steve: Mhmm.

Tina: So they're gonna take a lot of money, a lot of other people's money, and spend it on short term holds. Needless to say, they were probably taking on way more risk than the normal flip investor would be taking.

Steve: Right.

Tina: Because the flip investor is getting their own loan. They're spending their own money. They're gonna be more conservative. They are in a risky business, but they are gonna be on top of it. Right?

You get a large corporation. Yeah. And the large corporations, just by nature, they don't move fast enough and make changes fast enough to adapt. Right? And so what happened is the iBuyers in general, we we know Zillow, they backed out.

Offerpad's actually not too bad. They're they're one of the more conservative ones, but Opendoor is the largest one. And what ended up happening for both Opendoor and Offerpad is they started to accumulate inventory very quickly, and they weren't selling as many. So if you are an entity and you need to have more money coming in than going out

Steve: Mhmm.

Tina: Right, You're going to need to now unload these properties. So what we look for in terms of prices coming down is how many sellers have to sell at whatever price they can sell at. Yeah. Because there are plenty of sellers out there that are not desperate to sell. They don't they have choices.

They can sell or not sell.

Steve: And we're seeing them right now actively. Mhmm. I guess, not actively, but they're not selling.

Tina: That's right. They're that's you're exactly right. Many people are choosing not to sell, which is a self regulating factor for supply, which is what we're counting on. We did not have that in 02/1967 Nope. Because we had, much different circumstances.

But this time around, many sellers are like, I don't have to sell under these circumstances. I won't.

Steve: Yeah. I'm gonna choose not to play.

Tina: Right. Exactly. But open door doesn't have a choice to not play. Yeah. Right?

The people who don't have a choice to not play, those are the ones who are going to be driving the prices down. So in areas like, say, for instance, 5 to 600,000 in Greater Phoenix, 14% of those sales last month were open door sales. If you were to take

Steve: 14.

Tina: 14% of all sales in the 5 to 600 range. So that price point, actually, you can actually point to that and say, if you were to look at March or I'm sorry. May, our peak, to today, the drop was about six point something percent.

Steve: Mhmm.

Tina: I wanna say two. 6.2%. If you take Open Door and Offerpad out of the equation, it was only 4%. So that's a pretty big effect that those, what we would call, you know, distressed sellers in a way, have that effect on the overall marketplace. The question is, how much of that inventory is there?

In 02/1989, it was a lot. We had 57,000 listings in the I

Steve: remember showing houses with 57 of

Tina: those listings. Right. Exactly. This time around, we have 19,000 listings, not quite the same. Well, 1,500 of them are open door.

That's a pretty hefty bite out of that whole thing. So if open door and I know I'm picking on them right now. But say for instance, just

Steve: using Strongly encourage.

Tina: Just say we let's just take them as an example. Okay? If they decided to list all of their homes for a dollar, alright, and they would sell all in one month or a week or whatever, they would sell it. All of those prices would come into our our average sale prices, and you'd see a massive drop off. But because there would be no more of that inventory, we would get back to a regular market of regular sellers.

Does that make sense? So, we are probably gonna get through this period in the fourth quarter where your serious sellers only are going to be, in a way, pulling those prices down. But at some point, we're gonna get through that type of inventory. Yeah.

Steve: So we gotta just kinda clear just this little, speed bump.

Tina: Yeah.

Steve: And it was, you know, like, kinda like driving over, you know, a body. But once we clear the speed bump

Tina: Right. And well, exactly. And, basically, the speed bump is anybody who bought this year and has to sell this year.

Steve: Mhmm.

Tina: Most people who bought this year are not necessarily in dire need of selling right now. And they have the opportunity to wait and maybe even rent their home out for a while and then retry again in the spring or whatever. Because come springtime, just seasonally, the fourth quarter is the slowest time of the year anyway for sellers. Yeah. And then to add 7% onto it, it's just gonna make that, you know, even more painful.

But come the first quarter, we're gonna have Super Bowl. We're gonna have golf and horses and cars and baseball and all that.

Steve: It'll be like it never happened.

Tina: Yeah. Well, I mean, it's we're still I don't expect to see, like, this miraculous recovery. It's just that at that point, that's when our buyer season starts, and sellers in general have a different mindset going into the spring than they do coming in tired after the marathon of twenty twenty two in the fourth quarter.

Steve: Absolutely. Especially, I think maybe this this year might be a little bit heavier. Mhmm. One thing I've read a lot of, and I'm not sure if this is accurate, so I'd like to get your perspective on this. One thing I'm hearing from, the peers that kinda saw this coming, and I thought they were, like, lunatics.

Like, whatever. You know, you're just a conspiracy theorist. Kinda saw this coming. Right? And they're saying, like, the Fed cannot slow down until jobs are lost.

And and the reason why is that the only way to curb inflation is to get people to stop spending money. Mhmm. And the best way to get people to stop spending money Is to

Tina: make them broke.

Steve: To make them broke. So, I mean, is that is that something that you're reading as well? Like, you know, we need to we need more people's jobs to be sacrificed.

Tina: I have read those, those opinions. But then, you know, that's that's when I start coming into just greater Phoenix.

Steve: Mhmm.

Tina: And we look at exactly how greater Phoenix has diversified their employment base, how, if you were to go to any presentation for the greater Phoenix economic council, you can see there is still a lot of business that is moving here internationally and nationally, many from California and New York. So, nationally speaking, I could see employment, unemployment, getting a little bit worse. But the question is, will it be worse or mitigated here? And I believe, and many of the economists here in Greater Phoenix believe that the diversity that we have seen through a lot of the good work of GPAC, means that when we lose jobs in real estate, in lending, in tourism, or anything like that because of of economic woes, there are other businesses that are actually looking for that type of talent to ease the ease the blow of it if that makes any difference. Because back in the day, during the bubble and the crash, all of our jobs were construction industry.

Real estate towards some low end call centers. You know, there was nowhere to go when you when you ran out of business as a realtor. There's nowhere to go.

Steve: For those that are listening, what is GPEC?

Tina: GPEC, Greater Phoenix Economic Council. They are essentially, an independent entity here that they are the salespeople for our city. They they go to other companies and say you should bring your company here and bring your all your jobs here.

Steve: So if there is one particular group of people that I just I I would to target to say stop bringing Californians here, like, that's the group.

Tina: That's Chris Camacho.

Steve: He has a

Tina: and now now mind you, he they've done a phenomenal job. And I would say many of the companies coming from California

Steve: Yeah.

Tina: Are, probably not necessarily of the California mindset. So they are for profit entities. So

Steve: Okay. Got it. So I was thinking this morning, you know, about what's going on today. Because, you know, you got a chance you spoke you presented at ASRIA, which was a phenomenal presentation. Some of the stuff we're talking about here.

You shared a little bit over there. And so we've I started in this business 2007. Right? Probably not the best time to get become a licensed realtor.

Tina: It was great.

Steve: But I remember, like, I can't remember what years exactly. Maybe it was 2010, 2013, sometime around there.

Tina: Mhmm.

Steve: So I I meet with you. You're a homeowner, and I get a listing agreement. Right? Mhmm. I get my 6% commission.

Right?

Tina: Mhmm.

Steve: And then I throw it on the market, and it sells the first weekend.

Tina: Nice.

Steve: What typically happens? What was the what was the homeowner's response?

Tina: Oh, they usually think that they priced it too low.

Steve: Yeah. You sold it too fast. What did you do to earn your commission?

Tina: Right. Yeah.

Steve: Yeah. You you price it too low. You didn't earn that commission, this and that.

Tina: Right. Right. Yeah.

Steve: And today, if you don't sell in the first weekend, what is the feedback?

Tina: The feedback is clearly you're not advertising it enough.

Steve: Why aren't you working hard enough? Right. Like, you what do you mean it takes sixty to ninety days for a house to sell? Yeah. What are you gonna do for the next sixty, ninety days?

So it's just kinda fascinating.

Tina: Yes.

Steve: This one eighty we've experienced.

Tina: Yes. Yeah. And it has, frankly, been the fastest one eighty we've ever seen historically speaking Yeah. In Greater Phoenix. But, you know, this is also the first time in my career, because I was 11 years old in the eighties.

This is the this is the first time in our all of our careers that we've seen interest rates spike to this degree this quickly. So I don't think anybody could have potentially seen this coming, and the effects of it were, you know, by our standards, immediate, maybe not by Powell's standards.

Steve: Yeah. Maybe not by his standards.

Tina: But But for us, it was pretty strong.

Steve: Yeah. Because, I mean, although I did experience, you know, 2001, we didn't have to sell, you know Mhmm. With, between 09:11 and the .com bus. Like, didn't really affect us because we weren't in the real estate industry.

Tina: Mhmm.

Steve: Right?

Tina: Right. Right. Well yeah. And the .coms, a lot of that didn't even affect housing in Greater Phoenix because we were still growing

Steve: Mhmm. As a

Tina: city, and we are also still growing, which means that if you look at just the growth of our labor force, just those numbers, not let alone population, just the labor force growth and the the growth of more companies coming in, you can tell our city's not done growing. Our demand for houses is there. It's being suppressed right now

Steve: Mhmm.

Tina: Because of the times. But when the rates come back down, eventually because in every recession, we've seen rates come down every single recession. So and sharply, oftentimes. So the fact is that most people do believe that rates will eventually come down, maybe sooner than some people think.

Steve: Mhmm.

Tina: But when that does happen, we've already seen demand pop up Yeah. From that.

Steve: Yeah. We saw it for a blip.

Tina: And as long as our employment is still pretty decent, you'll most likely see a a big boost from that. Because even in that 5% time, we saw a big enough response to that that we know they're there. Yeah. We know they're there. It's just a matter of getting through this time.

Steve: Yep. So I have another question for you. Mhmm.

Tina: And you

Steve: might hurt some hurt some feelings with this one. Oh. Who's worse?

Tina: Oh, no.

Steve: The COVID realtor with no experience

Tina: Okay.

Steve: Or the traumatized realtors like myself who made it through the last recession. Who's responding worse in this environment?

Tina: Oh, I think they're both equally they're equally stunned. Yeah. I would say the new agents coming in might actually have an advantage only because think so? Yeah. Only because they don't have a set expectation of what this market is supposed to be like.

Like, the two years, we got people still going through their five stages of grief, mourning the loss of that type of market, even those who hated it. Right? Mhmm. And, and even those realtors who have say say have had their license since 2015, they have the set expectation of what the market should be like. Mhmm.

Steve: But

Tina: if you're coming in new, like you said, you came in 2007, which by many standards would be a horrible time. Yeah. But, yeah, look at you. You're still here. You, like, cut your teeth on on a tough market.

Steve: Right.

Tina: So many agents coming in today, they just get in there. They're excited. They're optimistic. That feeds into the clients. They're gonna be optimistic as well.

And, and you might find that these people are do even even better

Steve: Yeah.

Tina: Possibly or not or not. We don't know.

Steve: I think we should probably if if there's a way that you guys can pull this data. Right? Like Mhmm. You know, who's better? The realtor has been licensed since 2020 or the realtor has been licensed before 2007?

Mhmm. As far as negotiation, right, as far as, like, list prices, sales, sales price, original listing price. Mhmm. I'd be curious to see this statistic because

Tina: Oh, okay.

Steve: Right? Because we have, Matthew Potter. Right? He's here with us over at Real, and he's working with, you know, Tricon.

Tina: Mhmm.

Steve: And he is just steamrolling these agents and getting these What's Tricon? Tricon is the biggest fun, I think, that's still buying right now.

Tina: Okay. Got it. Yeah. Mhmm.

Steve: And he's like they're just kinda, like, rolling over. So and he's Mhmm. In his experience, it's those that have been licensed for less than two years where, you know, this hasn't sold in a week.

Tina: Yes. So I would say that the agents that have only ever seen the last two years probably don't have the experience of all of the different marketing tools and patience of having a listing for longer than a week or two or now a month. And, and maybe not not not have that negotiations because for we've been selling for over list price for so long. They haven't had to deal with negotiations under list price.

Steve: All you had to say was, like, is that the best offer you can make?

Tina: Yeah. Right. Right. Exactly. They're like, you're gonna have to go higher than that.

But yeah. But now they're looking at okay. Now you gotta prep your seller for we're gonna have two price reductions, probably. You're then you're gonna get below you know, right now, we're running at about two to 3% below your last list price

Steve: Mhmm.

Tina: As your final price, and you're most likely gonna have a concession with the median concession right now being $6,000. Yeah.

Steve: So, realistically, we're gonna sell for 90% of our final list price, not the original list price. Just two to 3% less than our final list price and probably 6, maybe 7,000 or more in concessions.

Tina: And pretty much, if you're still listed by February, by December, expect to have a big wave of lowball offers offering to close in a week for way less than you

Steve: want. Alright. So if you're an investor, December is the time.

Tina: Well, yeah. I would say, for those kind of entities that do like to have, you know, fourth quarter results in terms of sales. So you're looking at builders. You might be looking at iBuyers as well that they're I would expect them to have a little bit of a push towards the end of the year to try to get as many property sold as they can. So you may see some incentives, Camille.

Steve: Got it. So right now from the audience, we got our. Gas prices are gonna make it seem like there is inflation. What are your thoughts on that?

Tina: What about gas price? What?

Steve: Gas prices might make it seem like there is there is still inflation. So how much is inflation calculated into the PCE?

Tina: So you mean gas prices?

Steve: Mhmm.

Tina: Gas prices are, which is transportation, because gas is literally in everything. But transportation, if that's what we're gonna focus on, is a lesser weight on this PCE than it is on the CPI.

Steve: Mhmm.

Tina: But, again, if you look at core, which is often what the feds are looking at is core, they take gas and food out to keep the volatility down.

Steve: Seems kinda backwards. Or it seems counterintuitive.

Tina: Well, they look at both of them. But right now, the overall, even with gas and food in there, that hasn't moved for three months. So Yeah. That's, so even if prices for homes or rents for home come down and gas goes up, as long as that index is leveling off, then we're in good shape right now.

Steve: Got it. And then Dustin, rule shares that there are iBuyers all over the Midwest. So Mhmm. I didn't know that. I knew they were in a lot of markets.

I didn't think they'd be in the Midwest. I thought they were in, like, the giant metros.

Tina: They are well, this here's the thing. They started in Phoenix. Many of them did, way back in 2015.

Steve: Mhmm.

Tina: So we've had them probably the longest. Yeah. So yeah. And so we've we have intimate experiences with the iBuying.

Steve: I've got theories as to why people why why they all like to start in Phoenix. I'm curious to hear what your theories are.

Tina: Well, I think that I'm not exactly sure other than, with Phoenix, the analytics are a little bit easier here for one. We have one MLS, instead of multiple MLSs. We have one very large county that has multiple cities with one county recorder's office. That's not normal. Many many areas have multiple county recorders.

And so getting analytics on housing in some of these cities, for both supply and demand is a level 10 difficulty. Here, It's a little easier to, maneuver.

Steve: Yeah. We did try you know, we we've expanded to Albuquerque, New Mexico. We did expand to Oklahoma City. Mhmm. And what we found was that all those other markets, their title or the ones that we expanded into, the title process is a freaking nightmare.

Tina: Mhmm.

Steve: You know, like, to get to figure out who owns the property is, like, months sometimes. Whereas here, if I call my title department Mhmm. I can within twenty four hours, so long as it's not a crazy title Mhmm. Know who's on title.

Tina: We actually have a award winning county recorder's office. Yeah. Nationally renowned recorder's office for the county Maricopa. So, I feel extremely blessed for that as an analyst because they record more information than most recorders do.

Steve: Mhmm.

Tina: And, for us, that was made us very easily able to identify back during the foreclosure crisis how many properties were actually owned by banks. You know, remember that shadow inventory type thing. So we we have a way better, time of trying to filter out, you know, certain types of buyers and owners here.

Steve: I do like that you did the finger quotes for the shadow inventory. Yeah. There was I mean, there was just these constantly, but the shadow inventory. Right? Yeah.

Yeah. That never happened. Mhmm. Jose on YouTube wants to know, is there a link to your service? Like, how does someone, find out how to use your services?

Tina: So the Cromford Report is we have a data license with the MLS. So here's the thing. We have we have a an obligation of that data license to only give subscriptions to our service to their members, so their real estate agent members specifically. We do have a side piece, Conferred Public, that's based off a public record that's not linked to the MLS data license that, a normal individual, like, any individual can get a subscription to that. It is $240 a year.

Steve: Mhmm.

Tina: You're gonna find the data is a little bit lagging because it's public record, and we have to go through a lot of, cleanups and coding and stuff before we release it. So right now, it's up through August. But you will get all kinds of, good information on flips there because those happen often outside of the MLS. New homes, 55 plus communities, distressed properties, all of that will be in Crown for Public. It'll just be lagging a little bit.

The MLS stuff, they have to get through you Right. As a as a realtor.

Steve: Got it. So, I wanna answer some more questions from the audience. But before that, let's go ahead and, roll a quick thirty second break.

Tina: Okay.

Steve: Hey. Steve Trang here. A lot of you have been asking me for sales management training. I didn't feel quite right teaching it, but I found the perfect guy to teach it for us. So, Wren, tell us about it.

Speaker: Steve, we're gonna be introducing some really intense fundamentals and philosophy behind the management of sales teams. Have a ton of experience building really high performance sales teams and really taking a little bit of this and a little bit of that management practices and theories from all over the place and brought them together to create a unique whole person perspective that drives low performers to high performers and elite caliber salespeople into sales champions. And couldn't be more excited to partner with you on it and the sales disruptors brand.

Steve: For sure. So go to disruptors.com/success, and we'll see you at the next event. Hey. Steve Trang here. Alright.

So, again, guys, please ask your questions. So, you know, one thing that we've seen, with Opendoor, and, you know, we keep picking on them. Mhmm. There was a fine that came down Okay. For Opendoor.

So what was that fine that came down for Opendoor? Are you

Tina: talking about the fine from their 02/1819?

Steve: The FTC or whatever.

Tina: I wanna say it was, like, $63,000,000, but I'm it was a while ago, and so I'm not sure if my memory holds. But it was somewhere around there.

Steve: A healthy amount of money for some people.

Tina: Yes. But after you've lost a billion dollars in that insurance or something like that, I I you know, so forgive me if I got the number wrong. Sure. But that class action lawsuit from back then, those active they they didn't have anything to do with the most recent activity. It had everything to do with the fact that they were advertising in 02/1819 that if you were a seller and you sold to them, you would make more than if you sold on the MLS.

Mhmm. And, apparently, that was proven that that was not necessarily true in all cases. Now it was totally true in, probably the last year or so. Yeah. But, but back then, that type of advertising is what they got, dinged for.

Steve: Right. Yeah. And then, they just got another lawsuit. It was a class action lawsuit. Do you what what do you know about that?

Tina: I'm not sure. I I heard some rumblings, but I I think that just came out in the last day or so. Mhmm. So I'm not as up to speed on it. But is that the one that was, put out by their investors?

Steve: Yeah. So, basically, what they're saying is that, Opendoor, Paris, have lost money on 42% of his transactions in August 2022, which is not surprising.

Tina: Actually, I do have the numbers in Phoenix to support that. Oh, where are those numbers? Yeah.

Steve: I'm just Maybe maybe the this, class action studio should reach out to you.

Tina: Because we just updated our August numbers. And, for Opendoor specifically, they're they the difference between their acquisition price and their sale price. Their acquisition price was, like, I wanna say $4.96, and their sale price was $4.66. It's a $30,000 gap.

Steve: So on average

Tina: So yeah.

Steve: There was a delta of $30,000.

Tina: Yeah. Pretty much. That's a that's a pretty that's the first time we'd ever seen Open Doors Analytics cross like that. They'd gotten closed in the last quarter of last year

Steve: Yeah.

Tina: But, that was that was the first time we've seen it.

Steve: Do you know how many houses that was?

Tina: Not off the top of my head. I know right now they only have just under 300 in escrow Yeah. At this point. And last month, they had as many as 400 in escrow just for Greater Phoenix.

Steve: Yeah.

Tina: But, but they had 1,800 listings active at the time.

Steve: So We have do some quick math here. I apologize, everyone. I'm completely violating all my stereotypes here.

Tina: Oh.

Steve: So 300 times 30,009 million dollar loss.

Tina: Well, I would go 400 because they had as many as 400. I don't know their exact closings because, that number, I I I just saw the August number, like, a day or two ago, so I haven't memorized the stats yet.

Steve: So $12,000,000 for one month.

Tina: I'm not gonna be quoted on that, but we'll let you have your estimate. I'll I'll get the math done and tell you whether you're not you're right. But in general, that's, that's a big gap for for, a flip Yeah. Company. And we've stated over and over again that the flip model doesn't work very well in balanced markets.

Mhmm. That was a huge flag. But as as we said before, large corporations often do not respond quick enough to market shifts Yeah. As they should. And I think that's where Opendoor got caught.

Steve: So I know you can't predict the future.

Tina: Mhmm.

Steve: How do you think things are gonna look? I mean, so we got q four. We're in the middle of q four. We're not middle. We're beginning q four.

Tina: Mhmm.

Steve: How are things looking right now so far in October?

Tina: Right now, so far in October, we are seeing a definite response to the 7% Mhmm. Which just hit within the last few weeks. Right? So we've been hanging around there. We are seeing, our contract activity is still on the decline.

Mhmm. So that tells me that we are most likely gonna be sliding into a buyer's market. Yeah. Typically speaking, you know, seasonally adjusted buyer's market, which means it's not just about, hey. This is the fourth quarter.

It's usually down a little bit. We're gonna be down more so than normal.

Steve: Mhmm.

Tina: And some sellers will decide not to sell in this market, and that'll adjust our supply most likely. But the sellers who remain, which allow you know, the one beacon of hope for the ones that remain is that they won't have any, you know, excess, you know, competition.

Steve: Right.

Tina: But I do believe that the ones who do have to sell in the fourth quarter under these circumstances are gonna find themselves trying to, give concessions, buying down interest rates, having more days on market. It's not a bad idea if you have the ability to do so to try out, say, October, try it out for a month, see it up until Thanksgiving.

Steve: Mhmm. If you

Tina: don't get anything but you tested the market out, take it off the market and then try again in the spring if you have the ability to do that.

Steve: Yeah. I know I've asked you this question before, so I apologize. I asked this again. Can you just explain what seasonally adjusted means?

Tina: Seasonally adjusted. Well, for us on the index, we look at what is our when we look at demand, it's everything that's under contract. What's, UCB, which is status, under contract taking backups, you know, everything that's contingent, everything that's under contract plus sold comes into our demand line, and we have demand data going all the way back to the year 2000. And then we do the same thing on our active counts. We look at how much is active, what are we used to seeing active at this time of year going all the way back, you know, twenty years and adjusting for the size of our our city and all of that stuff.

So when we say seasonally adjusted, if you see demand is 20% below normal, we have that normal line, and now we can say what's normal for this month, we are 20% below that.

Steve: Got it.

Tina: Does that make sense? Yeah. So that's a seasonally adjusted.

Steve: Got it. Because I always see that in the news, and I'm like, what the heck are they talking about?

Tina: Yeah.

Steve: So for the people that are listening or watching right now, I mean, what advice would you give, you know, if you were either wholesaling or flipping? What advice would you give that audience?

Tina: Condition is gonna be very important, but maybe not over improving a home for the for the surrounding area. Some people might be going for a home that's clean, slightly outdated, but still clean and in their budget.

Steve: Yeah.

Tina: Right? So cleanliness, you know, curb appeal, all of that. If you have a fixer upper home, this is the dump your junk season is over. There's no more dump your junk season. Yeah.

So those homes won't even see a contract.

Steve: Yeah.

Tina: But just make sure your home is clean, relatively, you know, updated, not super hideous, smells good, all of that stuff. That's gonna be important. I would not test price.

Steve: Mhmm.

Tina: Don't most people are not even going off a comp scenario. You can't go off a comps. You have to go off of what's active. Yeah. And at this stage of the game, we're at about,

Steve: we're

Tina: at about February pricing. So if you do have comps where by the time December runs around, you might be looking at January comps for your your property. But for the most part, you're gonna wanna be taking off, from if you've got a May comp, you're gonna be coming in below those comps or below even August comps at this stage. So we've been dropping it about 2% per month so far. Mhmm.

So you're gonna wanna be be very attuned to what's currently active as to where you're pricing your

Steve: home. Yeah. I remember when you were here last, it was maybe three, four months ago, and you were saying, like, you, anticipate Mhmm. That December to December will be flat.

Tina: Possibly zero. Mhmm. Mhmm. Which basically eliminates all of the appreciation that was achieved from January through May.

Steve: Yeah.

Tina: And that only really affects people who purchased from, you know, this year

Steve: Yeah.

Tina: Essentially. So, here's another interesting stat. 66% of all homes in the MLS that are not new build have been owned by somebody for at least two years or longer. So while this is very sad and it does affect a lot of the people who bought this year, most of those people are not selling Mhmm. Unless

Steve: you're

Tina: flipping, like, Opendoor or somebody like that. Many of the sellers have still 40% equity from the time they bought it. They have the means to supplement buyers and to to shoulder the cost of sort of selling right now.

Steve: Got it. So, Lado on YouTube wants to know, you know, how is the commercial space doing during this time? Are you paying attention to that?

Tina: I am nowhere close to commercial. I am strictly residential housing. That's my superpower.

Steve: Got it.

Tina: But I will tell you this commercial usually follows residential by about two years.

Steve: We have seen that. Yeah. We have seen that. I'm curious, though, like, how, the at least, you know, a lot of the funds in multifamily, they're buying based off of what they can borrow at. Mhmm.

Right? And if what they can borrow at increases, then the value of the property has to go down because they can't qualify as much or the the the loan doesn't go as far towards purchasing power. Mhmm. So I'll be curious to see what happens. But

Tina: Yeah. I've that, I do have if you wanna interview somebody in the commercial space, I can refer you someone.

Steve: Cool. And then anything else, you know, we were kinda joking, like, we were traumatized in the last recession.

Tina: Yeah.

Steve: But you in the business you've been in the business longer than I have. So were you involved after, was it, the 09/11? Were we were we affected badly by nine eleven as a real estate market?

Tina: No. I don't remember. I I was in, I had been in the in the industry by 2001. I had been in it since 1993. So Yeah.

About, you know, a decent amount of time. And I would say that

Steve: it was

Tina: almost in on price for us, no effect.

Steve: No effect.

Tina: No effect for price.

Steve: So is there anything else for people that are, watching this that got to that you've seen that happened in 2007 to 2011, how that might affect things today? Any takeaways from that time period that might translate today?

Tina: The one common denominator that I can find between the past and today is Wall Street. Anytime Wall Street gets involved in residential housing Yeah. They screw it up. Right. Okay?

It's kinda like you're having a party, everybody's having a good time, and then that one crazy friend comes with tequila, and they start every now and then, loud music comes in, and then the police come.

Steve: Mhmm.

Tina: So that's essentially Wall Street comes in, they start spending a lot of money, and they start influencing certain aspects. Back then, it was it was mortgages they were investing in, having the big party there.

Steve: Mhmm. This

Tina: time around, they're having the big party with long term holds and flips and all of that. What what happens is when they start affecting price to where price goes up too much too fast, you get the eyes of the government looking at that going dead. Right?

Steve: Mhmm.

Tina: So first, Wall Street screws it up, and then the government screws it up even more. So it's like the police coming in and shutting down the party.

Steve: So it's Wall Street

Tina: Mhmm.

Steve: Then the government, and then the Fed.

Tina: I know. Yeah. It's the Federal Reserve. So so the the the party from 2005 through 2007 was met with Dodd Frank.

Steve: Mhmm.

Tina: And, and then now this last party has been met with rising interest rates and the Fed funds rate.

Steve: Yeah. So Got it. Dustin rule here again saying that, they love the Sunbelt State. So, as long as it fits nine 1980 and newer than those, my buyers buy. Mhmm.

Lada wants to know, are home builders canceling? So that's an interesting question. I'm not sure exactly what he means. So you you wanna

Tina: Let me

Steve: take a stab at it.

Tina: If I can, let's just address that iBuyer comment. Mhmm. When I say iBuyers, I'm not talking about institutional buyers buy and hold.

Steve: Mhmm.

Tina: I just wanna make that very clear. IBuyer came out as, as a word for Internet buyer, and that was when Opendoor came onto the scene. Yep. And so when I say iBuyer, I'm talking about corporations that are buying and flipping. I'm not talking about institutions, which would make sense.

Some people would think that. Yeah. Institutional buyers that are doing long term holds, that is not, what I'm referring to. So just for the record. Now what was the second question?

Steve: Home builders. Are you how are you seeing this, play out with home builders?

Tina: Home builders actually, they keep they were the ones that started coming out with the two one buy downs right off the bat right around July. And, just recently and, again, I have another analyst if you ever wanna interview somebody on new homes who specializes in that. But, RL Brown, Jim Daniel, I talked with him about once a month, and he said he was starting to see builders were actually doing pretty well with their incentives. So even though we're in the areas that they're in, they're considered buyer markets like Maricopa, Buckeye, those areas. Those are generally pretty slow right now.

The builders actually have been winning the war a bit on that, where they have been selling more than they've been permitting in the recent months. So I think many builders are doing okay, especially those builders that have acquired their land at a cheaper rate. Mhmm. So I I believe most of them will come out of this. You You know, they're just hanging tight.

Steve: Yeah. So as far as we're talking about October, so interest rates being high Mhmm. Definitely affecting demand. Yes. Do we think that's gonna affect the entire quarter?

Because, I mean, is there any good reason why interest rates go mortgage rates go down in the next Well,

Tina: I wish I could predict mortgage rates. That would be so awesome. So that's why I've been watching. It would be so helpful. Right?

If we see any kind of improvement in the inflation rate, you know, potentially. But I I think at this point, with not knowing what the Fed's gonna do and the emotional impact that each one of these are announcements. Every time he's made an announcement, he's made good on it. So now when he says it's like, oh, is it? Another, you know.

Yeah. But, I'd say that until we see any measurable change, I'm gonna wait for September's inflation rate to come out and then we'll see how October's inflation rate comes out. We see any kind of measurable impact on that measure. I think, hopefully, we'll start to see an easing up. But right now, I can't predict interest rates.

They're so they're so volatile. It makes it difficult to do anything past a four to six week prediction on where the market's going. And right now, it's it's only going slow.

Steve: So as an analyst

Tina: Mhmm.

Steve: The things you're paying attention to Mhmm. Are PCE?

Tina: Yes.

Steve: Because that's the one that Jerome's paying attention to.

Tina: Yes. I'm watching whatever Jerome's looking at.

Steve: Yeah. So Jerome's looking at PCE, so you're looking at PCE. Mhmm. And that's gonna give you an indication to what's potentially gonna happen with the rates.

Tina: Potentially of what he's gonna do, and then emotionally, what the rest of us are gonna do. Yeah. But I'm also watching interest rates every day.

Steve: Got it. What, let's say he goes follows through because he's saying 75 bps.

Tina: Mhmm.

Steve: Right? It is 75 bips right now. Some people are speculating maybe 50 and then 25 next time. Right?

Tina: Yeah. I think he's gonna find the law of diminishing returns on that because I think he had the biggest bang once he went over 5% into the 6% range. Now everything after that, you might knock a few more extra people off, but the majority people that are gonna be knocked out have been knocked out.

Steve: Yeah. So So you don't think that that interest rate is going 8% is are is gonna make things any worse?

Tina: No. It's just it's already

Steve: It's already okay.

Tina: It's already bad. Just saying. Yeah. I think, if anything, you're gonna see lenders coming out. I think somebody even said, hey.

Maybe we'll see a three two one buy down. Yeah. You know, all all kinds of tools. And what you might actually see is more creativity coming out in the marketplace where you have these sellers that if you got a 3% loan and you have to sell right now and rates are 8% or 9% or 10 or whatever it is, you're probably gonna see more wraps coming in. You're gonna see more, people are trying to assume loans or do things that you know, if lenders don't get on board with the assumption Mhmm.

Side of things, then you might start seeing some creativity going on there.

Steve: Right. So if you follow us through with the 75 bibs, damage has already been done. Can't really do that that much more damage. So q one, we're gonna see like, how do you think there's gonna how how's the market gonna look in q one?

Tina: Well, like I said, it's very difficult at this stage to look at anything beyond what my data tells me now, which tells us we're probably gonna be moving into, gliding into a more buyer friendly balance part and then possibly into a buyer's market. But I don't expect it to last that long, and I don't expect it to be plummeting like we saw in 2007. We just don't have the inventory for that. Yeah. So I do believe that we're gonna get through what we would call our distressed sellers, if you will, which will be the people who took on the most risk and got caught Mhmm.

Holding a house. Right? Once you get through that inventory and get back to our normal inventory, I think we will see some stabilization at the very least, some stabilization in the first quarter.

Steve: Correct me if I'm wrong. I think at some point in 2022, we were on pace to have a record year as far as transaction volume. And I think 2021 was the was the record.

Tina: 2021, I think we did. We hit, of the record for volume of sales. Yeah.

Steve: And so for us in the real estate industry, right, general public, they're like they might look at us like, what's wrong with these crazy people in the real estate industry? Like, what are they panicking about? Right? Mhmm. Because for them, a percent up, percent down is like, whatever.

You don't have to sell. It's like, whatever. Mhmm. For us, I kinda equate us to, like, sharks where we're not swimming, we're dying.

Tina: Right. And that's that is exactly so when we start talking about panic or despair, there's a big difference between the experience of a seller and a buyer in this market, which is balance. It's like, okay. So I'm on the market a little bit longer. I don't get what I want, but I'm still coming out of it with money.

Mhmm. The buyers are like, I have all these homes to choose from. I mean, I have a higher interest rate. That's terrible. But if you can still buy and you expect to refinance, then your experience as a buyer and seller is not really that terrible.

Yeah. You know? So you're not selling in four days.

Steve: In fact, you might be getting better service because escrow is, like, not busy at all.

Tina: Exactly. But the thing about balance is this, that we're in balance because we are 20% below normal in demand,

Steve: but

Tina: we are also 20% below normal in supply.

Steve: Mhmm. And

Tina: so when you have the least number of new listings coming on the market now that we've seen going way past 2,014 now, we have a trickle of new listings coming in, which means you have a bunch of board agents.

Steve: Mhmm.

Tina: And we have fewer and fewer new contracts being written every week. That just means you have 42,000 realtors in the MLS, and most of them are bored.

Steve: Mhmm.

Tina: And they're not making any money. So Oh,

Steve: bored or panicking.

Tina: Or panicking or, you know, or going and focusing on other streams of income, let's just say. So the thing is that you're gonna have the industry suffers, that's why we're seeing layoffs.

Steve: Right.

Tina: The layoffs in the industry is basically we built because we had a record number of sales, we built this empire of people to facilitate that level of sales. And now that we're not seeing that level, you've got excess people. Right. And that's why we're saying the industry in Phoenix, there are other industries that are growing while real estate is shrinking right now to adjust to this new one. Now what's will happen is this is a you could you could argue that this is a a disruption.

This interest rate thing is a disruption. And then when that disruption is released, we will go back where we would have been anyway. Mhmm. And whoever's left in the industry will probably get pummeled with all of that excess.

Steve: And I've been saying, you know, like, my message has recently been, like, you know, this is the time to survive. Mhmm. And in q one, q two I was saying q one. Now I'm saying q one or q two.

Tina: Mhmm.

Steve: Right? Q one or q two would be the time to thrive because that's when all the competition will be gone. Right? Because, again, this is the weed out class. This is the looking to your left, looking to your right, and, you know, one or two guys aren't gonna be here.

Tina: Yeah. Yeah. And, you know, and this is not necessarily a bad thing. Sometimes people go off, they they do something else, and they become wonderful referral sources for the people who are, you know, still here. And then they keep they might keep their license active and collect referral fees as as they're on whatever whatever path they're on.

Steve: So, what do you think? We can't predict prices. Mhmm. Because We can

Tina: a little bit. They're gonna go down.

Steve: You think they're gonna go down?

Tina: Yeah. In the next four to six weeks. Yes.

Steve: On the next four to six weeks. But 2023, we don't know.

Tina: Oh, no. We can't. Yeah. That's too far off.

Steve: Do we have any way to predict what volume is gonna be like transaction volumes can be like?

Tina: Well, that's when we get into seasonality. Mhmm. So typically speaking, transactional volume is is at its lowest period in in the fourth quarter. Come the first quarter, again, that's when we sellers get hope because that's our buyer season. That's not the nation's buyer season.

That's Greater Phoenix's buyer season. Starts in January. You know, you get the golf tournament. You're gonna have the Super Bowl. You're gonna get the traffic.

And so from about January through May is the the peak buyer season. So I expect to see transaction volume will start to to rise then.

Steve: Will it be anything like we've experienced the last couple years?

Tina: No. I don't expect another twenty twenty. I think hopefully not. Stay well, people. No viruses placed.

So no not another 2020, which was a total anomaly year anyway. 2021 was, here's the big thing. 2021 was fueled by Wall Street investors because we went below normal affordability for the population in June, but yet our prices continue to rise because we had all of this competition with, you know, Open Doors, Zillow at the time, and they were selling to Wall Street firms that were, you know, buy and hold. So they were fueling the last part. If they don't come back in that kind of vigor, you're not gonna see the same 2021.

Yep. In 2023.

Steve: Got it. Let's see. So Mike j is asking. You were saying that in some industries are growing in the Phoenix market. What industries are growing in the Phoenix market?

Tina: Semiconductors. Semiconduct well, we have Taiwan Semiconductor coming here. They've got a bajillion cranes up in North Phoenix. The ripple effect of Taiwan Semiconductor, the largest semiconductor company in the world coming here is that all of their suppliers are coming as well. So you have a lot of high-tech coming in.

They're filtering in at the I 17 and 101 in the North Valley.

Steve: Mhmm.

Tina: They're also coming in and filling in in the three o the gap between a three zero three and the one zero one out by, Goodyear, a guy off the I 10. So we're seeing all of these locates, if you will. That's what the GPEC calls them locates.

Steve: Mhmm.

Tina: All these new corporations that are just dotting up and down the I the I 10 and along the I 17 in Re in relation to that. So we've got semiconductors. We also have health care we've been expanding here in, and a lot of, biotech has been coming here. So all of these high paying, high talent industries coming is is creating a nice balance for us.

Steve: Yep. And, so, you know, Tina and I, we've been in the mastermind, forever, you know, Matt Merritt's mastermind. Mhmm. We've always talked about this. And forever, it seemed like the only other industry we had was memory care.

Tina: Yeah. That's right. We were getting a lot of 55 plus communities there for a while.

Steve: Yeah. So we're expanding even further.

Tina: Well and, you know, to that point, our demographics are changing.

Steve: Mhmm. So

Tina: we used to be the retirement place. And so when you're a place for people to retire, you don't see a lot of income growth because they're all fixed. Right? So, and, you know, you don't have high birth rates that way either. Now we're getting, younger talent in terms of labor force coming in, which means that you're you're peep you're getting people in the middle of their lives, like, you know, families coming in and a younger demographic, and that that definitely changes things.

And we're gonna be getting a more diverse demographic in that, you know, you're getting Taiwan Semiconductor is gonna be bringing more

Steve: diversity into those areas. So Yeah.

Tina: Just think about what Intel did with Chandler, Ahwatukee, then Taiwan Semiconductor is probably gonna have the same effect on, like, Anthem and, North Phoenix, Peoria, and even going out towards Wickenburg.

Steve: Yeah. You know, for the longest time, when people talking about asking about the Phoenix market, it kinda was like, well, you know, like, Chandler and Gilbert, you know, it's kinda like the engineering area. Yeah. Right? And Scott was kinda like the financial area.

Tina: Mhmm.

Steve: Like I

Tina: said And medical?

Steve: Yeah. So I guess it's no longer true. Now it's also gonna have its, semiconductor as well.

Tina: Yeah. Phoenix is becoming and, you know, aside from water issues, we don't really have a whole lot of national disasters. So

Steve: one thing, I've I was reading articles, you know, two, three years ago, how they were saying, like, one day, sun, Sun City is gonna be a disaster. Right? Mhmm.

Tina: We're talking about Yes. I remember that. That was the, the silver tsunami.

Steve: I think

Tina: it's what they called it. Yeah.

Steve: So I guess is it safe to say we were not we don't have to worry about the silver tsunami anymore with Taiwan Semiconductor coming in?

Tina: No. I don't think we need to worry about, our population declining and nobody being there to buy Sun City homes when they all pass away. That was kinda that whole thing where, you know, the those homes were gonna be vacant because everybody's gonna die, and there's gonna be no birth rate or whatever. Yeah. I don't think that's gonna be an issue for us in the short term.

Steve: Alright. So no more concerns about silver tsunami?

Tina: Not not for today.

Steve: Wonderful. A lot of what factors precede an emerging market?

Tina: Oh, so when you're talking about emerging markets, I'm assuming you're talking about the up and coming areas where you can get in early and ride that appreciation. Mhmm.

Steve: Is that

Tina: what you're talking about?

Steve: I would imagine.

Tina: So one example of that would have been, like, South Scottsdale, if you remember. During the foreclosure crisis, nobody wanna live there, but all of a sudden, that became the place to go. Mhmm. And so I do look at about five factors to see if there are any areas that are affordable, but in have all of the factors, if you will, of being in the next five to ten years a really good place. One so one of the factors is, close to an employment center, close to an entertainment district, close to open space, like a park or like, any kind of, you know, preserve area, centrally located close to a freeway so you can get to wherever you need to go within about thirty minutes Mhmm.

And close to the airport. Those are my five things that I look for. And so if I were to pick any area that fits all of those right now, I would say South Phoenix. Yeah. With South Mountain there, you could see Laveen has been going crazy.

It's been doing quite well during this period.

Steve: Well, with the 202 Mhmm. Prepping all the way around.

Tina: Yeah. There's new development in there. You can get a home that would cost well over 1,000,000 in Scottsdale for $708,100,000 down there.

Steve: Yeah. I mean, South Phoenix has always been surprising to me. It just, like, has all those things.

Tina: Mhmm. But they didn't have the freeway. It wasn't until the freeway broke through and actually got completed that they started to see some explosions down there. If I were to pick another area, there's gonna be areas around that, Time Wind Semiconductor that, you know, if they're still affordable now. And, another one I might look at that's kinda how some of it would be Sunnyslope, but I think they're kinda last on the list for right now.

But, again, those would be, like, five, ten year plans.

Steve: So you guys haven't are familiar with Sunny Slope, the way I would look at it is, like, watch Breaking Bad.

Tina: Yeah. Yeah. But, you know, it does they're central. They're kind of they're they have a they have a preserve. They're kinda close to the airport.

But, yeah, they I think they have a ways to go. Yeah. So but those are the things I look at. So right now, I'm focusing on, the gentrification, if you will, of the South Phoenix areas.

Steve: Yep. What surprised you in the last few months with everything that this this, hysteria that we've had? What surprised you the most?

Tina: Oh, gosh. I think I will say I don't know that I thought rates would go all the way up to 7%.

Steve: Mhmm.

Tina: That was that was and so quickly Yeah. To see them go up. It's one thing to go from three to six. I was like, okay. Well, if they just stay here for a bit, I don't think I once they went down to five, to see them go to seven within literally less than two months, that was that was surprising to me.

Steve: Do you think we can get to nine? Mhmm. Because I have people ask me this guy. I I I mean, anything could happen.

Tina: Anything could happen at this stage. Yeah. But whether or not nine percent's gonna have any more of a negative effect that seven percent's had, probably not. But remember, though, that there are still plenty of people out there that have enormous down payments that those extra points might throw some extra dollars on the end, but that's not something they can't afford. Yeah.

It's just mentally, they don't like it, and so you have to they have to feel pretty confident that those rates will come down and they'll be able to refinance.

Steve: We had the rates going up even before the Fed announcement in June. Right? Like, you look at the Crawford index, even, like, March, it was starting to bend, and the interest rates were starting to creep up.

Tina: They were creeping up in January, actually.

Steve: What was what caused that?

Tina: Like I said, it's has something to do with bonds. And so one of the things that you can look at is the credit availability index that's put out by the, Mortgage Bankers Association. I watched that one as well. Those are the that's basically who's buying the loans, from people. You know?

One thing to know about that is it's been getting tighter. And once it gets looser, then you can start to see a little more you know, loosening up.

Steve: Yeah.

Tina: But right now, credit is really tight. And one of the reasons is and you would expect that, you know, at 7%, you think, let's buy that mortgage. Right? That sounds like an amazing return, blah blah blah. But the fact is that these investors that buy those mortgages make most of their money in the first three years, and there's no prepayment penalties now like they were back then.

So if they believe that that mortgage is going to be refinanced within the first three years of that loan, they lose money. And so even at 7%, these mortgages aren't very attractive.

Steve: Yeah.

Tina: And so I'm thinking if they think mortgage rates are gonna come down, then I think I will expect them to come down because Yeah. These are people who are buying these things. So I would be watching that to see if, we see any kind of loosening up in the credit mortgage credit index.

Steve: The one good thing from interest rates going up the way it has this year Mhmm. Is that I've I'm finally right.

Tina: You know? Since

Steve: 2007, I've been saying, like, I don't know how long interest rates are gonna stay this low. It's gonna go up.

Tina: Oh my gosh. It's so funny because, we often joke about, you know, all of the analysts that have been claiming crash since 2014. It's gonna crash or and finally, you know, we're having prices go down. They're like, we told you. But, you know, we made all this money in six years.

Steve: Yeah. So they're finally or I'm I'm finally right after all these years. So that's that's a

Tina: small background. Yeah. I should have listened to you guys.

Steve: So wrapping up here, is there any message you wanna leave the listeners with? Something for them to think about, noodle on as we're kinda, you know, experiencing this market?

Tina: Well, depending on you know, I'm not entirely sure who all your your audience is. If I'm an investor

Steve: Mhmm.

Tina: And I'm

Steve: Predominantly investors.

Tina: And I am hanging on to my cash right now, accumulating it, waiting for the depths of despair for the seller so I can go in. The typically speaking, the best time to buy is at the beginning of a seller's market.

Steve: Mhmm.

Tina: The best time to sell is towards the end of one, but not all the way at the end because then kinda sucks at the end.

Steve: Mhmm. But the

Tina: thing is that if I'm waiting right now, I'm waiting for the Cromford market index to take a turn up

Steve: Mhmm.

Tina: For probably a couple of measures to see if we are now on the way up out of this balance or out of a buyer's market, wherever it is, I would be waiting until that line takes a curve, in the right direction because that will be the beginning of our next round of appreciation.

Steve: Got it. So pay attention to the Cromford index. Yeah.

Tina: Cromford index.

Steve: And if it starts going up

Tina: Back into a seller's market, the beginning beginning of another seller market, that's

Steve: the time. As the as the demand exceeds supply, that is the time. Mhmm. Got it.

Tina: And that's our leading indicator.

Steve: Leading

Tina: indicator. See it reflected in price for about usually three to six months after.

Steve: Yep. So, guys, if you got value today, please like, subscribe, share, comment. I always ask for this because it helps us reach more people. If someone wanted to get a hold of you, what is the best way for them to do that?

Tina: They have to hunt me down like an animal, really. I mean, how long did it take you guys to get me on the show? I think

Steve: lots of efforts. We had to track you down at Azria, actually.

Tina: I know. You had to grab me on the way out. I'm not the I'm gonna be the first to say I'm not the easiest person to get a hold of. Mhmm. I would say if they somebody really wants to ask me a question, go through you.

Yeah. Because, I'm I'm overloaded on email and on text and, I mean, Facebook. It's a it's a little much for me. So if that email is fine as long as just don't don't think I'm blowing you off if you don't get a response right away.

Steve: But Yeah.

Tina: I'd say go that route.

Steve: Got it. Do you feel brave to share your email, or are they gonna have to find it? Alright. Perfect. So you really want to find

Tina: online. You can find it online. I mean, it

Steve: makes me really excited, though. You gotta look her up online.

Tina: It's just tina@crownfordreport.com.

Steve: There you go.

Tina: That's it.

Steve: Awesome. Thank you guys all for watching. Thank you, Tina. Pleasure as always. See you guys all next week.