You might be asking yourself, why has there been such a huge reduction in inventory levels here in Tucson, and even across the country for that matter, we’ve got a huge inventory shortage. But before we dive into the COVID-related issues, I just want to talk about pre-COVID. So a lot of people don’t know this, but pre-COVID, Arizona had one of the hottest economies in the country. And so prior to COVID hitting, we were already at lower inventory levels and a shortage and upward pressure with prices.

So pre-COVID, there were less than 2000 active single-family homes listed in all of Pima County. And a healthy supply and demand, in my opinion, is about 2,800 active single-family homes listed, upwards to probably about 3,500, which is a nice, healthy, equilibrium supply and demand market here in Tucson. And a lot of people, too, prior to COVID, and even when COVID hit, people were flooding to Arizona just because of the economy, low cost of living, the weather, so people were coming here, and then COVID hit and it just accelerated a lot of the things that we were seeing prior to COVID hitting. And then COVID hit, people didn’t want to sell their homes, they wanted to stay put, they were just nervous and they didn’t want people in their homes, so there was just a lack of new inventory on the market, which started to drive down inventory levels.

And then the other big thing is, builders are trying to keep up with demand and cost of materials, lumber, cement, all the custom materials started to go through the roof just because COVID hit and you couldn’t get materials and supplies. And there’s a lot of things too that the builders are having a hard time even getting, just because of the shortage of certain materials because of COVID, which has slowed down the builders from being able to complete homes quick enough and keep up with demand, and also it’s putting upward pressure on new builds, just because the cost of materials have gone through the roof, and new builds and preexisting, in terms of home values, which I’m going to be talking about, really start to increase, home values start to increase just because the cost of materials is going up.

And the other big thing that you don’t hear a whole lot of people talking about, and that is investors. So prior to COVID, I think one of the big reasons as to why we were seeing inventory shortage is because investors have been flooding our market, buying single family homes, and then keeping them as a long-term buy and hold rentals. So in a normal market, about 10% of the single-family homes sold are sold to investors that keep those homes for a longer period of time. But as the baby boomers are beginning to retire, it’s caused a lot of them to want security in their money and their investments, and they’re pulling money out of the stock market, and other types of vehicles because, it scares the heck out of them because they don’t want to deal with the volatility, and they’re moving that money into real estate, which is a more stable type of investment. That’s more predictable in terms of cash flow.

And so what’s happening, and this is the big thing that people don’t know about, usually in a normal market about 10% of the time home sold are sold to investors that keep those homes as rentals, but now that number is upwards 20 to 30% of all single-family homes sold are sold to investors, and what then happens, from an inventory standpoint. So a normal, when an in user buys a home, the average person stays in a home for five years, whether it’s, they’re buying a home because they need a bigger one because they have a family and kids and they need a bigger home, or the kids have now gone to college and out of the home and somebody’s downsizing and they need a smaller home. So on average, somebody stays in a home for about five years. But the challenge with the investors, they buy a home and their whole time is far greater than five years, it’s probably 10 to 20 years so that inventory now doesn’t circulate back into the market, which creates less inventory, and another big reason as to why our inventory levels are as low as they are.

But I’m going to dive into the numbers here and talk about where we’re at in terms of the inventory. Let’s dive into the numbers. So pre-COVID, before COVID hit, there were 1,997 active single-family homes listed. And as of this recording, March 2021, for the numbers that just came out, there were 682 active single-family homes in the Tucson MLS, which is all of Pima County, and that number is down from pre-COVID, homes listed for sale in the MLS is down 1,315 homes, which is a 66% reduction in home inventory levels here in Tucson. And in the 30 years of real estate, I’ve never seen anything like this. We’ve never, ever, ever had inventory levels this low. And even pre-COVID, where we were at below 2000, we just weren’t even at those levels either. So right now we’ve got a huge inventory shortage, which is driving up prices, and it’s a seller’s market.

The next number I want to talk about is average days on market. So pre-COVID, the average days on market, and that is from the time you list a home to the time it goes under contract, from the time that it’s listed until it’s sold. So the average days on market here in Tucson pre-COVID was 31 days from the time that you list to the time that it goes under contract, on average. And as of this recording, March 2021, the average days on market is 20 days, which is down 11 days to get your home sold, from the time you list until the time it goes under contract.

The next number I want to talk about is one that you don’t hear people talk about all that much, but it’s what is called months of inventory, which is a number that I like to look at. And months of inventory, what that means, if you take the previous months number of homes sold, and then you take the active number of listings and you divide that into how many homes sold in the previous months, it gives you how much inventory there’s out there in terms of months, meaning if no more homes went on the market today, how long would it take for all that inventory to be sold.

And pre-COVID, we had 1.7 months of inventory, which was already low. Under two months is typically low in our market, normally it’s anywhere from two to three months of inventory. And so pre-COVID we’re at 1.7 months, and then COVID hit, and right now, as of this recording, we are .5 months of inventory that we have available for sale or call it 15 days. So if no more homes hit the market today, within 15 days, all the homes in the MLS would be sold. So think about that. I mean, that’s just crazy, and again, it’s a number, in terms of being so low in terms of months of inventory, that I have not seen. So again, if no other listings were to hit the market, homes would be all sold within 15 days.

Okay, so the number you’ve been waiting for, and that is, because of the inventory shortage, what has it done to home values? And over the last a little over 12 months, home values have gone up dramatically. And so pre-COVID, the average sales price was $319,691 pre-COVID. And as of this recording, the average sales price is $399,694. So year over year, pre-COVID to now, homes, the average sales price has gone up $95,905, which is a 24% appreciation rate year over year as a result of low inventory and lack of supply, but high demand driving up prices.

So let’s talk solutions if you are a buyer, and maybe you’ve been at it for a little bit of time, you’re getting frustrated because you’ve been getting beaten out, or you’re looking at properties and by the time you get there, they’re under contract. I get it, I feel your frustration. As a buyer’s agent, I’m frustrated as well. As a buyer’s agents, agents are frustrated because representing a buyer correctly, in terms of negotiating price, inspections, and repairs, and seller concessions, sellers are in the driver’s seat, so it’s really hard for them to do a whole lot of anything, so buyer’s agents are just not able to represent buyers the way they should. So I feel your frustration.

Some of the things when writing the contract you can do are, obviously cash is king, a seller is much more likely to take a cash offer because they don’t have to deal with the appraisal, they don’t have to deal with financing. But again, the nice thing about cash buyers, sellers are willing to give up maybe a little bit of repairs, or even price, if it’s a cash buyer. They want speed and convenience in exchange for a cash deal, just because they know it’s a done deal. So cash is king, but if you don’t have cash some of the things you can do in writing in the contract is number one, you can waive the appraisal contingency clause, and it just says if it doesn’t appraise, and right now properties are having a harder time appraising because the market’s gone up so quick, appraisers are just having a hard time keeping up with that. So you can waive the appraisal, and you may be put some protection in up to a certain amount, and you’ve got to be able to show that money, the difference, that you can cover it should it not appraise.

The other thing you can do in the contract is put in an escalation clause to be able to compete with other offers that say you’ll pay above and beyond other offers up to a certain amount, which will protect you up to an amount. The other thing you can do is you can put, I like this strategy, you can put a bigger earnest money deposit, and that goes towards your down payment and your closing costs, and you make it what is called hard non-refundable. After the inspection period is done and after you know your financing is solid. I wouldn’t do this if you don’t know your financing is solid. So once you get through all the milestones in terms of the inspections and contingents, and things like that, that money would go hard, and it protects the seller. Should the deal fall out of escrow, now they’re protected because they pulled their house off the market and wasted that time being off-market and they could add it sold to somebody else. So you could make that money hard, that it would be nonrefundable.

So those are just a few things, there’s a huge laundry list, and we would love to help and guide you through that process. The other thing that I would do, if it were me, is saving up more money, put more money down, put at least 20% down, because you don’t want to be over-leveraged if this market does turn. And I would say, if you don’t have enough money in reserves to weather a storm, should we get a turn in this market, I would sit on the sidelines. The nice thing about putting 20% down or more is you don’t have mortgage insurance, which is going to lower your monthly payment.

And this is my favorite, this is what I’ve always done, it’s worked well for us, and that is buying on a 15 year fixed mortgage. You got to have enough money in terms of a down payment to be able to get your payment where you need it to be from a debt to income standpoint, and financially your budget where you feel comfortable. But the nice thing about a 15 year fixed mortgage is if we do get a pullback in the market, the principal amount that you pay every single month can keep up with a declining market, and you can actually build equity quicker, and outpace a downturn in our market so at the end of the day you’ve got equity and you’re building equity.

And lastly, again, and this one just scares the heck out of me. I was in the mortgage business in 2006, seven and eight when this thing melted down, and the people that bought an FHA, VA loans, low money down, they got hammered to where they were upside down, and they either became a statistic in terms of getting foreclosed on, or they had to do a short sale. So I would encourage, you if you’re FHA, VA low, money down, I would sit on the sidelines and save up more money to be able to at least come in with 20% down. And could end up being a good thing, because at the end of the day this market could correct, and for me, it’s not a matter of if, it’s a matter of when. So those are some things you can do, take them for what they’re worth, not wrong or right, just some suggestions.

Well, that wraps it up. I hope you liked this video as to better understanding our Tucson housing market and our inventory shortage, and what that’s doing to prices. If you did like this video, please like it, comment, subscribe, love to stay connected, love to get your thoughts. You can also head over to TucsonHomesandLots.com, and every month I put up the market report there so you can stay connected about the Tucson real estate market. And also over there I do a lot of stuff about Tucson, Tucson real estate, and living in Tucson. So again, hopefully, you liked this video, if so, please like, comment, subscribe, love to get your thoughts.