In December 2019, Eric Smith found out he and his wife, Janelle, were expecting their first child, so they wanted to move out of their apartment and into a home.
Then the pandemic hit in March 2020. Smith, a bartender at midtown seafood restaurant Kingfisher, was soon out of work. Smith and his wife decided to hunker down instead and wait out the
In April of this year, they renewed their house hunt, feeling optimistic about their chances of finding a good home at a fair price. Despite having heard about the “crazy market,” Smith thought the process would at least be fun.
Instead, it was stressful.
Smith had only returned to work full time in Feburary after being out of work for most of the past year. He struggled to get pre-approved for a loan.
In April, the loan broker told them they were pre-approved for up to $300,000 and with the help of their friend and real estate agent Akala Jacobson, the couple felt excited about starting the process of buying a home.
But that optimistic attitude wouldn’t last.
“I’ve lived here for 30 years, but going and seeing these houses and all these different little neighborhoods is supposed to be fun. It ended up really stressful,” said Smith. “I don’t know what I was expecting. I was expecting it to perhaps be a little bit more
Smith and his wife were looking for a three-bedroom, two-bathroom home at no less than 1,100 square feet. They found nothing available below $200,000.
“I don’t feel like we’re looking for a lot,” said Smith. “That for me was kind of shocking to me. I had lived in a house that I was renting that sold three years ago. It was three bedrooms, two bathrooms, approximately 1,400 square feet. It sold for $140,000.”
Not only were the homes less affordable, but in a highly competitive market, they lost out to several offers way above the price point.
His craziest experience came when the couple put in an offer $25,000 over list price for a midtown house near Rosemont and Broadway boulevards that was less than 1,200 square feet and listed at roughly $265,000. They were told someone came in at $335,000 and waived the appraisal fee, offering to cover anything the appraisal would not cover with cash. In another case, a house they put in an offer for had about 25 other offers.
At that point, Smith said they considered calling it quits and renewing their lease.
“We feel like we’re in a pretty good position financially but it gets dispiriting,” Smith said. “It’s hard to keep looking. Homeownership, it’s this goal. It’s this thing that you want to get to that helps set you up for later in life and then something like that happens and you’re like ‘God, are we ever gonna be able to buy a home?’”
Despite the high price of homes, they were still motivated to continue the hunt because they didn’t know how much longer the current low interest rates would last.
“We could wait. We could re-sign a lease but are we going to be able to get a 3.25% interest rate next year? Who knows? And at a higher interest rate, obviously we would be able to afford less house,” said Smith.
With a pre-approved loan, little debt and $44,000 in Jeopardy winnings Smith took home after winning two shows back in September 2019, Smith felt he could be competitive in the market.
“That’s what allowed us to offer concessions to the seller, to offer to cover a low appraisal. That all rests on the fact that I won on Jeopardy,” said Smith. “Without that we would have either had to borrow money from parents or we wouldn’t have gotten the house that we have that we had an offer accepted on, that’s for sure.”
They saw hundreds of houses and made seven offers before finally finding a home and having their offer accepted on June 1.
“When your agent calls you up and is like, ‘They accepted your offer,’ it’s just joy and then it’s terror at all the things that could happen after the offer is accepted,” said Smith.
Smith found a home that the owners had bought in February for $166,000. Smith’s offer was $280,000. They ended up offering $5,000 in seller concessions and offered to cover a spread on the appraisal of $11,000. While they wait for the appraisal of their home, Smith estimates they would have to pay an additional $33,000 if they receive a low appraisal, plus the down payment and closing costs.
Additionally, Smith said the house and yard need some sprucing up. Including the mortgage, the principal, the interest, mortgage insurance, homeowner’s insurance and property taxes, Smith expects to pay roughly $1,400 a month.
“We’re fortunate to be in a position where we can do that, but I know there’s a lot of people out there (for whom) that would be a non-starter,” said Smith.
Smith is hardly alone in struggling to make a house purchase in Tucson’s bonkers market. While the pandemic has been rough on bars, restaurants, performing arts venues and other sectors, the housing market has seen prices skyrocket.
The surge in housing prices has been partly driven by more people moving to Arizona and a lack of housing inventory, according to University of Arizona’s Economic and Business Research Center Director George Hammond.
“As a segment of the workforce finds itself allowed to work from home by and large—and it looks like a significant segment of those who are allowed to work from home during the pandemic will be allowed to do that on a more permanent basis—that frees them up to move around the country,” said Hammond. “Significant numbers of people are looking to move out of the high-cost, Western metropolitan areas, particularly those in Southern California, where Arizona draws most of its migrants, and are choosing to move to Arizona.”
The migration into the state is increasing the demand for housing, which is relatively affordable compared to high-cost Western metro areas, but not enough houses are being built to fill the demand.
“We’ve also seen a big decline in the housing inventory. It was trending down before the pandemic and it really declined rapidly during the pandemic,” said Hammond. “So we have increased migration into Arizona, which is increasing demand for housing. People are looking for houses and at the same time that fewer people are selling their houses and that’s a recipe for really rapidly rising house prices.”
The Tucson Association of Realtors did see a dip in listings through 2020, but it only lasted for a few months before they began to see a rebound effect, said CEO Randy Rogers. Aside from increased net migration, he said people began to feel more comfortable to move.
“People that were holding it off because they couldn’t find another house, so they said, ‘Well I’m just gonna hang tight, because I need to live somewhere,’ and rentals were hard to come by. New houses were hard to come by. They didn’t want to act that quickly, so they held tight. Now they’re feeling better about it,” said Rogers.
Also, lower interest rates have given people more buying power.
“If you’re paying 8% on interest, you could buy ‘X, if you’re paying 3% interest or less you can buy ‘X plus,’” explained Rogers. “I think that is allowing homeowners to get into these homes that they, maybe in a higher interest rate market, would not be able to get into.”
Home sales are up and existing houses on the market are also selling incredibly fast. Rogers said their pending sales are up by 35% for the month of April and almost 18% for the year. He remembers a time when houses would stay on the market for a month or more. For the month of April, time on market was down to 15 days and for the year through the end of April it was down to 21 days on market, said Rogers.
“It’s not like there aren’t houses selling,” Rogers said. “There are a lot of houses selling, more houses selling. We’re almost back to where we were, just shy of 2019 and 2019 was a very strong year. We just don’t have the inventory out there. We don’t have new home inventory. We don’t have existing inventory that sits for any period of time.”
Since the Great Recession, the number of houses built in Pima County significantly declined, with fewer than 4% of homes built after 2009, according to the Making Action Possible (MAP) Dashboard Housing Market Study, a regional housing market study conducted in partnership between the City of Tucson, Pima County and UA’s Economic and Business Research Center.
“We’ve had a five- to almost 10-year lag time of new home building, and that’s not that they’re not building,” said Rogers. “Our partners at the Southern Arizona Home Builders Association, and all of their members are doing a great job of building. We just had a lag here, and we didn’t see the growth in Tucson that we saw in Austin or Dallas or some of those cities.”
The severe shortage in inventory, coupled with increased lumber, concrete and copper prices, makes building homes more expensive as prices for the construction industry rapidly increase.
“They’re off the charts, practically,” Hammond said. “Copper prices are up significantly, really pretty much across the board. Input prices for construction are rising
Construction firms also face continued difficulties in attracting workers. Hammond said this is a long-term trend for Arizona since the end of the Great Recession, with the huge employment declines.
“We’re not going to see a break from that anytime in the near future,” Rogers said. “We’re probably two to five years away from catching up on some of those things. I’m not sure things like lumber, or concrete will come back down. I think it’s just the material costs to build a home. It’s not the builder jacking up the price just to jack up the price. The builders’ costs are going up, so they have to in order to maintain profit.”
Because of the low inventory and high demand, homes are selling at list price or above list price, according to Rogers.
“If you list your home at $100 it’s definitely gonna sell at $100, and in most cases it’s going to be higher than that,” Rogers said. “Somebody needs your house, they can pay $20, $30, $40,000 more, because they need a house.”
The short time that houses remain on the market means not only paying at the listed price or more, but also buying a home without
“If you go back in time, you would put an offer on a house and you would say, ‘I would like them to fix the carpet and leave the washer and dryer and maybe do one or two other things.’ Today that’s not even an option,” said Rogers. “It’s not unusual for a home to have 10, 20 or more offers on that house, sometimes cash offers.”
If a seller can decide between a cash offer with the house as is, a cash offer with a buyer seeking concessions, or a financing offer, the seller will choose the cash offer with no requests, explained Rogers. He said buyers should be pre-qualified and prepared to purchase.
“Be ready to move and be ready to move on quickly and make decisions fast. It’s not a time to wait,” said Rogers.
Hammond cannot say for sure how much of the current market is caused by ongoing trends or the pandemic, but expects net migration surge and supply chain issues caused by the pandemic would gradually subside.
“I think that the increases that we’re seeing in construction inputs, some of what’s driving that are essentially supply chain problems and adjustment problems that are caused by trying to come back to full production after a pandemic, it’s just hard to do. So I think things will gradually subside,” said Hammond. “More homes will start to come on the market. Once you get to the end of the pandemic they’ll start making more longer-term decisions and more of those homes will come on the market.”
Hammond noted that both single family and multifamily house permits are up to just over 60,000 permits this year, the highest level of permit activity since 2006.
“The new homes coming on the market will increase over the next couple of years as well and that will help to slow the growth in house prices,” said Hammond.
Overall, Rogers believes the growth will continue, but different segments of the market will balance out.
“Your higher-end Foothills, Oro Valley, Marana homes, those will still maintain, but I think we’ll start to see some moderately priced homes will begin to balance a little bit more if things stay the same,” said Rogers.
Higher interest rates would also cause the market to balance, but after speaking with an economist, Rogers said while they anticipate a slight rise in interest rates, he expects they will still be in the 3% range at least through 2022 “unless there is some major world issue similar to what we had, be it a war, be it an economic event in the world or within the nation.”
While housing prices increase creating a booming market, housing affordability continues to decline in Arizona, trending down from where it was five or 10 years ago.
“We reached a peak in affordability not long after the Great Recession when house prices hit bottom, but since then house prices have been rising at a fairly rapid pace, generally faster than the income growth and certainly over the past year house prices have risen at a faster pace than overall wage growth,” said Hammond.