Phoenix housing market sees normal spring bounce but what comes next?

The Phoenix-area housing market is experiencing a normal seasonal spring bounce in activity and prices, but what will happen next? A new report from the W. P. Carey School of Business at Arizona State University talks about the waves of consumers that will likely start returning to the housing market next year, for the first time since the recession.

Here are the latest details about Maricopa and Pinal counties, as of March:

• The median single-family-home sales price recovered from two months of drops and is back to a level similar to December.

• However, demand and sales activity are still dramatically lower than at this time last year.

• The report’s author examines why certain waves of consumers may start returning to the housing market over the next several years.

Phoenix-area home prices quickly rose from a recession low point in September 2011 until last summer, when the jumps slowed down. Then, this January and February, we saw the first two back-to-back monthly drops in the area’s median single-family-home sales price. This March, we saw that dip erased, but probably not for long.

“The bounce is a normal effect of the busy spring sales season, combined with a lot more high-priced homes in the current sales mix,” 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. “The period from March to May is almost always the strongest part of the year for demand, and it is highly probable we will see pricing fade again during the summer months, when the luxury, snowbird and active-adult markets go relatively quiet. We may still be looking at little to no annual price appreciation by the end of the year.”

The median single-family-home sales price was up about 17 percent from last March to this March – from $175,000 to $204,520. The average price per square foot was up 15.5 percent. The median townhouse/condominium sales price was up 16 percent. We no longer have a tight supply of homes for sale like we did at this time last year. Supply stabilized in March, with 64 percent more listings this April 1 than last April 1.

However, low demand continues to be a problem. Single-family-home sales activity was down 20 percent this March from last March. Some of the drop comes from regular home buyers, but also institutional investors are just not as interested in Phoenix, now that better bargains can be found in other parts of the country with more foreclosures. The percentage of residential properties purchased by investors in the Phoenix area this March was down to 17.4 percent from the peak of 39.7 percent in July 2012.

“The institutional investors are doing very little buying or selling in the Phoenix area at the moment,” says Orr. “Their focus has turned to property management, rather than acquisition or disposal.”

The areas doing especially well right now in Phoenix?

• Luxury homes priced at more than $500,000 represented 11 percent more of the market’s sales activity this March than last March. High-end demand for homes above $1.5 million was greater in the first quarter of this year than in any first quarter since 2007.

• Rental homes are experiencing very strong demand. Interest is so robust that only a one-month supply is currently available on the market.

• Multi-family construction permits are on a strong upward trend. In fact, Orr says the first quarter of 2014 was the second-highest quarter for multi-family permits in 12 years.

Meantime, single-family construction permits were down 18 percent this March from last March. New-home sales were down 15 percent.

Orr says, “A key underlying problem for current housing demand is lack of household formation due to many factors, including unemployment, falling birth rates, lower net migration and greater home-sharing, especially among millennials. However, we could see lenders become the most influential decision-makers in this situation. Many lenders are hurting for business, with mortgage applications at their lowest level since 2000, and some may become more forgiving, accepting lower credit scores for loans.”

Orr also predicts we’ll see the first major waves of consumers who lost their homes through foreclosure during the recession coming back into the market, starting next year. He says those who lost their homes at the beginning of the downturn will have spent their required seven years in the “penalty box,” and they’ll reemerge from 2015 to 2019. He adds it’s just a question of how many of them want to try again at home ownership.

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.