Another small crack...

There was a change in the nature of the demand during March. We can see this by examining the intended use recorded on the affidavits of value. For Maricopa County single-family and townhouse / condo sales:

• unit sales were 29.3% higher than in March 2020
• sales for owner occupancy as a primary residence were up 12.7%
• sales for use as a rental property were up 52.1%
• sales for use as a second or vacation home were up 36.2%

March 2021 had 4.5% more closing days than March 2020, so all of these high numbers should be shaded by that fact.

It is clear that compared to last year, far more sales are going to investors and those buying second homes. The primary residence buyer seems to be the segment that is losing out. Perhaps the rising prices and interest rates are having a greater impact on these buyers (who probably have less financial resources than investors and people buying their second or third home).

By itself, this is not a huge development, but it is a new sign that the market may be starting to get a little frothy. Primary residence purchases are the backbone of the market and we do not want to see a market dominated by other buyers when we are looking for signs of good health. In other words, we do not want enthusiasm to morph into euphoria.

This small crack in the "legitimacy" of the market is worth noting.  Investor/Second home purchases are riskier and often leveraged higher than owner-occupied.

Some questions to ponder.

Did owners refinance cash out of their primary house to purchase a second home/rental?

What appetite do borrowers have these days to hold property if a decline is seen?

These questions will play a part in how this market proceeds.  After the 08' crash, very little moral attachment is seen to the obligation of a negative equity house.  If buyers are over-leveraged how quickly do they "walk away" given how the last crash went.  If these numbers continue we could have a huge inventory of property owners with no shame or "need" to keep a house with any sign of pull-back.  That could be the snowball people are worried about.  

It's still very early to make any prediction.  We are at least a year from any crack gaining traction but keep your eye on this one.