Mixed bag: Investors spark local recovery
A market overview from a longtime Phoenix
real-estate expert, who recently became an analyst, Mark Stapp, director
of the Master of Real Estate Development program at Arizona State
University's W. P. Carey School of Business.
Question: Is metro Phoenix's housing market recovering?
Answer: When you look at the statistics, it's obvious the housing sector is recovering. My concern lies specifically with how it has recovered. It is investors who dug us out of the hole, not homeowners. We currently have a single-family housing stock that is about 30 percent renter-occupied. Normally, we are at about 10 percent. Our full recovery will come when homeowners can buy existing homes, and that requires more appreciation at all price levels, and more importantly, the ability for homebuyers to get a mortgage.
Q: Are you concerned the low supply of homes for sale has made bidding wars among investors and regular buyers the norm now?
A: Yes, this puts upward pressure on prices, which is good and bad. It is good because it helps resolve the "underwater" home-value issue that persists. It is bad because it impacts affordability. Unless we see significant wage growth, appreciation at current rates will not be sustainable. It's impossible to separate regional economic development from the health of the housing market.
Q: Do you think the 30 percent-plus increase in home prices since last year is sustainable?
A: No. But, this type of appreciation will continue for a while, especially in certain sub-regions. It is important that appreciation does continue. As prices rise, as long as demand persists, new homebuilding will become more feasible, and volumes will increase, and that will start to dampen some of the appreciation.
Q: Are there now too many investor-owned homes in metro Phoenix?
A: I'm concerned about the reason why there are so many renters. Many are not renters by choice. For every foreclosed home, there is a family that has faced stress. That impacts the entire community. We cannot afford, as a community, to be seen simply as a place to buy cheap real estate. In the long run, we need to build on community infrastructure that makes the Phoenix metro area a highly desirable place to live.
Q: What about all the vacant homes? Are they finally filling up?
A: Yes. Homes that were marginal in quality and location become more desirable as prices increase. Some houses may never be desirable again or have physically deteriorated to the point they may need to be demolished. However, I don't see that problem as much in this metro area as in others.
Q: Do you think the real-estate industry has changed since the boom and crash?
A: The industry has been dealing with a down cycle for six years. The shift resulting from socioeconomic and demographic changes in our population is very significant. Now we need to pay closer attention to how these changes impact what we do, how we communicate about what we do, the value proposition we offer and the design of our products. You can't simply pick up where we left off six years ago. The market is more competitive, and buyers' attitudes have shifted. Demand has changed, so the developer, to be successful, must better understand how buyers have changed and what they want and need.
Question: Is metro Phoenix's housing market recovering?
Answer: When you look at the statistics, it's obvious the housing sector is recovering. My concern lies specifically with how it has recovered. It is investors who dug us out of the hole, not homeowners. We currently have a single-family housing stock that is about 30 percent renter-occupied. Normally, we are at about 10 percent. Our full recovery will come when homeowners can buy existing homes, and that requires more appreciation at all price levels, and more importantly, the ability for homebuyers to get a mortgage.
Q: Are you concerned the low supply of homes for sale has made bidding wars among investors and regular buyers the norm now?
A: Yes, this puts upward pressure on prices, which is good and bad. It is good because it helps resolve the "underwater" home-value issue that persists. It is bad because it impacts affordability. Unless we see significant wage growth, appreciation at current rates will not be sustainable. It's impossible to separate regional economic development from the health of the housing market.
Q: Do you think the 30 percent-plus increase in home prices since last year is sustainable?
A: No. But, this type of appreciation will continue for a while, especially in certain sub-regions. It is important that appreciation does continue. As prices rise, as long as demand persists, new homebuilding will become more feasible, and volumes will increase, and that will start to dampen some of the appreciation.
Q: Are there now too many investor-owned homes in metro Phoenix?
A: I'm concerned about the reason why there are so many renters. Many are not renters by choice. For every foreclosed home, there is a family that has faced stress. That impacts the entire community. We cannot afford, as a community, to be seen simply as a place to buy cheap real estate. In the long run, we need to build on community infrastructure that makes the Phoenix metro area a highly desirable place to live.
Q: What about all the vacant homes? Are they finally filling up?
A: Yes. Homes that were marginal in quality and location become more desirable as prices increase. Some houses may never be desirable again or have physically deteriorated to the point they may need to be demolished. However, I don't see that problem as much in this metro area as in others.
Q: Do you think the real-estate industry has changed since the boom and crash?
A: The industry has been dealing with a down cycle for six years. The shift resulting from socioeconomic and demographic changes in our population is very significant. Now we need to pay closer attention to how these changes impact what we do, how we communicate about what we do, the value proposition we offer and the design of our products. You can't simply pick up where we left off six years ago. The market is more competitive, and buyers' attitudes have shifted. Demand has changed, so the developer, to be successful, must better understand how buyers have changed and what they want and need.
