Walt Danley Christie’s International Real Estate offers marketplace insights
By Terrance Thornton | Digital Free Press
While the news of interest rates and postulations of value are the talk of the American real estate industry — the buying and selling of luxury real estate plays by a different set of rules.
All recent reports and commentaries come on the heels of the Federal Reserve’s June 15 decision to raise interest rates by 0.75% — which Walt Danley of Walt Danley Christie’s International Real Estate says was meant to slow down the rapid increase of property values.
Not only did it accomplish that task it has provided a need for a new view on both the economic rules of supply and demand as well as the metrics for property valuations, Arizona real estate professionals say.
Aside from the typical metrics, both luxury real estate buyers and sellers say there are several factors aside from interest rates that play a role when — and if — they move on a property. To better understand this facet of the business, the Arizona Digital Free Press & Scottsdale Daily Beat reached out to Mr. Danley to learn more. This is what he had to say:
1ON1 with Walt Danley:
•There are certain variables outside of traditional metrics that can help determine the health of a luxury real estate marketplace. At Walt Danley Christie’s International Realty, what are key factors you watch aside from the typical metrics?
There are several different metrics we track on an on-going basis to keep track of the market. Historically, we have tracked these on a monthly basis, but we started tracking them on a weekly basis at the beginning of the pandemic to ensure we kept up with any trends that COVID-19 was creating.
We shifted gears again at the end of April and we’re now tracking the market on a daily basis due to how dynamic things are right now.
It’s critical to track leading indicators like how many days a property is on the market before a contract is accepted, the number of active listings, the number of accepted contracts. We also track the contract ratio, which reflects how many properties are under contract for every 100 active listings. The ratio in the million-plus market in the Town of Paradise Valley and Scottsdale is typically between 15 and 25, which means for every 100 active listings, there are 15-25 listings that are under contract. The ratio went ballistic over the last 18 or so months and it peaked in March of this year at 140. It has fallen over the last four months and now sits at about 47, which is still very high when compared to the average over the last 10 years.
Price is a lagging indicator. Prices continue to increase — albeit more slowly — even after the leading indicators show a shift in the market. We are very lucky to have The Cromford Report in our market. It is an indispensable tool for us. We have the best local real estate data in the country due to the information that Mike Orr and Tina Tamboer provide to the real estate community.
•What role does Wall Street have in the luxury housing marketplace here in Scottsdale and Town of Paradise Valley?
There are two different dynamics when it comes to Wall Street. Institutional investors have been buying real estate in our market for years. They typically pay cash for the properties and then turn them into long-term rentals. This is not particularly common in the luxury market, but it has been a big part of the buyer demand over the last two years. A lot of institutional buyers have hit the pause button on acquisitions right now due to the volatility in the sub-million-dollar market.
When it comes to Wall Street’s impact on luxury real estate, instability in the stock market will often make wealthy buyers hold off on purchases. One of the positive aspects we have in the Phoenix metro area is the explosive growth we’re seeing in significant companies moving their operations into Arizona. This growth continues to help with a steady stream of buyers.
•I have also heard the bond markets play a role. Can you explain to me what folks are talking about?
The bond market’s role in real estate is primarily tied to the 10-year treasury bill and its correlation to interest rates. The higher the 10-year goes, the higher the interest rate goes. We spent much of the last two years with the 10-year treasury below 2%. We’re currently at 2.92%, which is down from a recent high of 3.2%.
Higher rates on the 10-year treasury results in higher interest rates for home loans, which dampens demand and cools the market. This is precisely what the Fed said they wanted to accomplish. Their goal is to control inflation and not bring the real estate market to a screeching halt, but the Fed in in uncharted territory right now.
•What is happening today in the stock market that is having an ancillary effect here in the housing markets?
Everyone feels better and more secure when there is stability in the financial market. Volatility in one market can create volatility in other markets, including real estate.