Phoenix housing market begins slow 'return to normal'
The Phoenix-area housing market – hit especially hard during the recession – appears to be starting its slow march back to normal. The W. P. Carey School of Business at Arizona State University reveals the latest data for Maricopa and Pinal counties, as of July:
• The median single-family-home price rose again to $194,150, up slightly over 30 percent from July of last year.
• Townhome prices are soaring and the luxury market continues to bounce back.
• Other significant factors now point to the beginning of an overall slow return from extremes to normalcy in the Phoenix housing market.
Phoenix-area home prices have risen dramatically since hitting a low point in September 2011. From just last July to this July, the median single-family-home price rose 30.3 percent – from $149,000 to $194,150. Realtors will note the average price per square foot went up 24.3 percent. Perhaps the most startling boost was in the median townhome/condo sales price, which shot up 50 percent – from $82,000 to $123,000 – as the low-end supply of townhomes dried up.
“The Greater Phoenix housing market has been dominated by supply constraints for the last two years,” says the new report’s author, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “The shortage has applied to both houses and townhomes for purchase, as well as homes for lease, but it is most severe for low-priced homes for sale.”
The overall supply of available area homes is finally starting to rebound somewhat. The number of listings not already under contract went up 26 percent from last Aug. 1 to this Aug. 1. Orr says he’s starting to see some inventory improvement in the middle range from $150,000 to $500,000, where almost all new construction is focused.
Also, he says increased access to jumbo loans is helping to boost the luxury market. Orr expects the high end to keep improving as long as the stock market performs well. The rate of single-family-home sales over $500,000 has already grown a whopping 64 percent from July 2012 to this July.
Still, the amounts of overall sales activity and month-to-month price movement were pretty stagnant this summer. Orr says that’s normal for this time of year.
“We predicted prices would rise significantly during the first half of the year and then upward pricing pressure would ease during the summer, which is exactly what happened,” says Orr. “The upward pressure is likely to return once temperatures drop below 100 degrees and the snowbirds return, around October. However, I expect less dramatic price hikes than we’ve seen over the past two years.”
Rising interest rates have discouraged many people from refinancing existing home loans this summer, while others rushed to lock in rates and complete home purchases in July. Orr expects an August/September pause for those who may be reconsidering their options now that loan payments could be higher than expected. Then, he expects activity to pick up again in October.
Orr adds, “Change is in the air. Several factors are pushing the market away from extremes and back toward normality and balance.”
Orr lists the following significant changes:
• Investor purchases represent a falling share of the market, having already dropped from a peak of 39.7 percent last July to 27 percent this July.
• Owner-occupiers are gaining more share, as investors look for bargains in other parts of the country.
• Arizona residents are gaining market share, with out-of-state purchasers completing only 18 percent of this July’s transactions in Maricopa County, the lowest percentage since February 2009.
• Financed transactions are gradually replacing all-cash transactions.
• Demand is falling to be more balanced with the low existing supply, and supply is gradually rising.
The rate of foreclosures also continues to subside from the peak levels of spring 2009. Foreclosure starts – owners receiving notice their lenders may foreclose in 90 days – dropped 61 percent from July 2012 to this July. Completed foreclosures went down 56 percent.
One continued challenge is the lack of new homes being built, though. Current new-home sales rates are less than a third of what would normally be needed to keep up with current area population growth.
“We have been through enormous turbulence since 2002, and it will be a relief to many to be operating in a normal, healthy market,” says Orr. “We are not there yet, but the direction is becoming clear.”
Orr’s full report, including statistics, charts and a breakdown by different areas of the Valley, can be viewed and downloaded at www.wpcarey.asu.edu/realtyreports. A podcast with more analysis from Orr is also available from knowWPCarey, the business school’s online resource and newsletter, at http://knowwpcarey.com/index.cfm?cid=13.