Phoenix-area home prices stable: Supply up, investor presence down
Phoenix-area home prices stabilized from August to September, but we’re now seeing some other types of movement in the market. A new report from the W. P. Carey School of Business at Arizona State University shows the following numbers for Maricopa and Pinal counties, as of September:
• The median single-family home price stayed at $150,000 from August to September, but prices are expected to start rising again this fall.
• The overall supply of houses for sale in the market is finally going up – already 24 percent over just the past three months.
• Big investors are showing less interest in the market, as the bargains here become tougher to find and some other cities’ housing markets become more attractive.
Though the median single-family home price in the Phoenix area remained at $150,000 from August to September, it is still up more than 27 percent from last year. The median last September was at a low of just $118,000, but it has risen sharply since then. Realtors will note the average price per square foot went up 23.3 percent from last September to this September, and the report’s author, Mike Orr, expects the upward price movement to continue this fall.
“Prices are firming here as we enter the season when snowbirds return to the Valley,” says Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “Now that cooler weather has returned and the normal summer lull is over, prices are resuming their advance with greater speed, though on weaker sales volumes.”
The amount of sales activity has been down, with many homeowners reluctant to sell at low prices. Specifically, single-family home sales were down more than 12 percent this September from last September. However, the situation may change as prices rise, attracting more sellers. Over the last three months, housing supply has already gone up 24 percent.
“Though supply was still down 15 percent from last September, it increased 9 percent just from this August to this September,” explains Orr. “We’re now in a strong growing trend. For example, the number of homes for sale under $150,000 with no existing contract is up to 35 days’ worth, from just 15 days’ worth in May.”
In spite of this, the lower price range remains very unbalanced, with more buyers than sellers. Ordinary home buyers who need financing face tough competition in the form of both multiple bids and investors’ all-cash offers, which are typically more attractive to sellers. At the lower end of the spectrum -- homes priced under $150,000 – 50 percent of the transactions are still all-cash. However, the frenzy of investors in the market is beginning to slow, moving on a downward trend.
“The percentage of homes acquired by investors rose significantly between 2011 and 2012, but declined from August to September of this year,” says Orr. “Investor purchases are down from the peak in July and August and will probably decline further.”
Orr also has some news for those who worry about another bursting bubble in the market.
“This market is relatively well behaved,” he says. “Investors are risking their own money, rather than borrowed funds, so risk is being more carefully managed than in the previous boom. Also, ordinary homebuyers drawn into the market now are less likely to regret their actions than those who did so in 2005 and 2006.”
Meantime, foreclosures continue their downward trend in the Phoenix market. Foreclosure starts – homeowners receiving notice their lenders may foreclose in 90 days – went down 18 percent from August to September. Completed foreclosures dropped 31 percent at the same time. Short sales are also becoming less common.
“Lenders are aware of how much prices have increased for the post-foreclosure homes they have sold recently, so they have been requiring higher prices for short sales before they will agree to them,” says Orr.
The most expensive types of transactions -- new-home sales and normal resales – are on the rise. In fact, the number of normal single-family home resales jumped 76 percent from last September to this September. At the same time, the number of investor flips, short sales, and sales of bank- and government-owned homes are all falling, and bargains are becoming tougher to find. Orr says the gap between the pricing of “distressed” and “non-distressed” properties has been closing.
Most areas of the Valley are showing double-digit percentage increases in price year over year. However, those with mostly expensive homes or active adult communities are showing only relatively modest annual gains.
Orr’s full report, including statistics, charts and a breakdown by different areas of the Valley, can be viewed at http://wpcarey.asu.edu/finance/real-estate/upload/FullReport201210.pdf. More analysis is also available from knowWPCarey, the business school’s online resource and newsletter, at http://knowwpcarey.com/index.cfm?cid=13.