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Investors appear to be returning to the Phoenix-area housing market. The latest monthly report from the W. P. Carey School of Business at Arizona State University examines that new trend, as well as the possibility of a future supply problem. Here are the highlights of the new report on Maricopa and Pinal counties, as of November:
After the housing crash, Phoenix-area home prices shot up from September 2011 to summer 2013. Then, the median single-family-home price rose just another 5.5 percent from November 2013 to November 2014. Realtors will note the average price per square foot went up about 5 percent. The median townhome/condo sales price actually dropped 2 percent.
“Prices in the Phoenix-area housing market remained relatively flat in 2014, when you take into account the general level of inflation,” says the report’s author, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “When you look at the change in the mix of sales – with more expensive luxury homes being sold – there is not much real upward price momentum.”
Orr adds there also isn’t much downward price momentum because both supply and demand remain relatively low. The number of single-family-home sales dropped 9 percent from November 2013 to November 2014. The low demand has largely been masking the fact that the market also has a low supply of homes – a situation that appears to be getting worse.
“The rate of new listings has dropped significantly since April, and active listings even dropped slightly in November, which is unusual and signals a weakening supply,” explains Orr. “It would not take much of an increase in demand to overwhelm the current level of supply, and if this occurs, we should expect prices to start rising once more. We will have to wait and see how first-time home buyers react to the new lending environment in 2015.”
Orr’s concern about the potential supply problem stems from a number of things meant to stimulate housing demand:
Orr weighed in on the president’s new housing initiative by saying it may help middle-income renters buy their first homes. However, he also doesn’t think the overall impact will be that great.
“By the government’s own numbers, it will only add 250,000 sales nationally over the next three years – increasing sales only about 1.6 percent,” Orr says. “It’s a step in the right direction, but only a small step. A resurgence in home buying will probably occur anyway.”
Meantime, foreclosures remain well below long-term averages for the Valley. Completed foreclosures were down 39 percent from November 2013 to November 2014. Earlier, the loss of these bargain properties prompted a trend of investors leaving the Phoenix area for cheaper areas of the country, but now, that’s changing. The percentage of residential properties bought by investors was up to about 16 percent in November, the highest level since May. All-cash purchases are also back on the upswing.
“While investor purchases are still below the peak levels we saw in the Phoenix area after the housing crash, the levels have started to recover over the last four months,” says Orr. “However, we may see fewer international buyers in the market now because of the recent dramatic rise in the value of the dollar against most foreign currencies.”
Rental-housing demand in the Valley remains strong, partly because many people had their credit damaged during the housing crash and because millennials are waiting until later in life to enter the home market. Rents rose 4.8 percent in the Phoenix area from November 2013 to November 2014.
Those wanting more Valley housing data can subscribe to Orr’s monthly reports at www.wpcarey.asu.edu/realtyreports. They can also hear directly from Mike Orr about his latest housing report at an event co-hosted by The Arizona Republic and the W. P. Carey School of Business tomorrow morning at Arizona State University. More information and tickets are available at tickets.azcentral.com.
W. P. CAREY SCHOOL OF BUSINESS
The W. P. Carey School of Business at Arizona State University is one of the top-ranked and largest business schools in the United States. The school is internationally regarded for its research productivity and its distinguished faculty members, including a Nobel Prize winner. Students come from about 100 countries and include about 50 National Merit Scholars. For more information, please visit wpcarey.asu.edu and http://research.wpcarey.asu.edu.