Saturday, February 15, 2014

Has the Phoenix housing market finally balanced out? 2014 could provide the answer


Arizona Property Management & Investments
(888) 777 6664
Las Vegas Property Management &; Investments
(855) 855 8182
CLICK HERE TO A GET A FREE PROPERTY MANAGEMENT QUOTE


Has the Phoenix housing market finally balanced out? 2014 could provide the answer

Reporter- Phoenix Business Journal
Feb 14, 2014, 2:42pm MST 
 
 
When it comes to home prices, supply and demand, the pendulum has been swinging from one extreme to the other in Phoenix since the housing boom of a decade ago.

The metro Phoenix housing market went from a pre-recession sellers’ market to a buyers’ market amid the foreclosure crisis. Then it went back in the sellers’ favor again these past two years when inventory levels and interest rates were at all-time lows.

During these shifts, the Valley saw prices peak, plunge to record lows and then, finally, pick up the pace again at a staggering rate in recent years. But now in 2014, the pendulum could swing yet again. 

Despite the fact that there were 36 percent more homes on the market Valleywide in December than a year earlier — thanks to double-digit boosts in home prices all last year that pulled many homeowners out of negative equity — demand has continued to fizzle since July. That’s according to the latest Arizona State University housing report released today.

In fact, single-family home sales were down 17 percent year-over-year, the report said. Even with a 12 percent increase in listings priced below $150,000 — where the supply shortage had been most severe and demand highest — sales in that range plunged by a whopping 47 percent.

For buyers, this has meant more to choose from and less competition. But for sellers, it means fewer showings, longer wait times for offers to show up — and cutting prices.

The median Phoenix-area single-family home price in December stood at $205,000 — up a sharp 25 percent year-over-year, but only a 2.5 percent increase from November.

 Despite the fact that there were 36 percent more homes on the market Valleywide in December than a year earlier — thanks to double-digit boosts in home prices all last year that pulled many homeowners out of negative equity — demand has continued to fizzle since July. That’s according to the latest Arizona State University housing report released today.

In fact, single-family home sales were down 17 percent year-over-year, the report said. Even with a 12 percent increase in listings priced below $150,000 — where the supply shortage had been most severe and demand highest — sales in that range plunged by a whopping 47 percent.

For buyers, this has meant more to choose from and less competition. But for sellers, it means fewer showings, longer wait times for offers to show up — and cutting prices.

The median Phoenix-area single-family home price in December stood at $205,000 — up a sharp 25 percent year-over-year, but only a 2.5 percent increase from November.

“We have been through enormous turbulence since 2002 and it will be a relief for many to be operating in a more balanced market,” Michael Orr, the report’s author and housing expert at ASU’s W.P. Carey School of Business, said in the report. “However, if the current cooling trend that started in July continues for much longer, 2014 could easily see average and median home prices move a little lower than they were at the end of 2013.”

Demand has been falling for several reasons. Rising interest rates and poor consumer confidence, largely ignited by the government shutdown, are among them. On top of that, many wannabe buyers don’t have the money for a down payment or have poor credit from a previous foreclosure or short sale. This comes as lending standards remain tight.
Additionally, Wall Street-backed investors have been losing their interest in the Valley as home prices rebound and foreclosures lessen. Institutional investors made up 19.3 percent of Valley home sales in December — less than half their peak market share in July 2012, Orr said.

Household formation is also working against the market. Orr pointed out the nation had negative household formation last year for 205,000 homes, according to the U.S. Census Bureau.

“A larger portion of the population is simply choosing to rent, instead of buy,” Orr said. “That includes much of the millennial generation and those who lost their homes to foreclosure or short sale. They either prefer the rental lifestyle, don’t feel that secure in their jobs, or don’t have the credit history or down payment needed for a purchase.”

Orr noted that the Phoenix luxury market — homes priced above $500,000 — is the only sector that hasn’t seen this slowdown. Luxury sales in December were up 21 percent year-over-year as access to jumbo loans is much more accessible than lower-end financing, and will stay that way should the stock market continue performing well.
Patrick Jones is CEO and designated broker of Carefree-based Better Homes & Gardens Real Estate — Sonoran Desert Lifestyles, and also is past chairman of the Scottsdale Area Association of Realtors.

Jones said Orr’s analysis of the luxury market is the only aspect of the report he disagrees with, at least in the North Scottsdale/Cave Creek/Carefree area in which he mostly works and where many individuals own second homes.
“I think the luxury market’s struggling too,” he said. “You can talk to any Realtor in that area. The luxury market is not as hot as that report says.”

Jones described his area of the market right now as a direct contradiction to Economics 101: prices continue climbing as demand is falling.

He thinks part of the reason is because sellers operate on what they read in the news, which is always based on data that’s one or two months old. Buyers, on the other hand, know what’s going on in real time because they’re out there every day, he said.

Overall, Jones is glad the market has lost its momentum. “I was hoping it was going to slow down because I was starting to get nervous ... I think this year we will sort of find our norm,” he said.