Phoenix-area housing market officially in slowdown
Expect those big price increases we’ve seen for Phoenix-area homes to slow down, possibly even stop or reverse a little this year. A new report from the W. P. Carey School of Business at Arizona State University predicts two-plus years of large gains to come to an end in 2014. The latest data for Maricopa and Pinal counties, as of December, reveals:
• The median single-family-home sale price was still up 25 percent from December 2012.
• However, demand was already falling sharply, with home and condo sales activity down 16 percent from the previous December.
• Investors are showing less interest in the market, and construction-permit numbers remain small by historic standards.
Phoenix-area home prices have been going up since they hit a low point in September 2011, but the increases have been slowing down in recent months. The median single-family-home sale price was up 25 percent – $164,000 to $205,000 – from December 2012 to December 2013. Realtors will note the average price-per-square-foot went up about 20 percent. The median townhouse/condo price rose 20 percent, to $120,000. However, those annual gains don’t accurately reflect the cooling pattern that started in July.
“We are seeing a big drop in demand compared with the last two years, and there are ominous indications of a softening market when we dig deep into the numbers,” 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. “Sales of single-family homes were down 17 percent from December 2012 to (December 2013). Townhome/condo sales were down 11 percent.”
The supply of homes available for sale also fell in a normal seasonal pattern in December. However, the number of active listings was still up 36 percent from Jan. 1, 2013 to Jan. 1, 2014.
Orr says one other bright spot is the luxury market – homes priced over $500,000. That end of the market is doing well, with activity up 21 percent from December 2012 to December 2013, as jumbo loans are readily available and the stock market is still near historic highs. At the low end of the spectrum, sales activity for homes priced under $150,000 is down an incredible 47 percent.
“Overall, buyers are enjoying less competition in bids for homes, but sellers should be prepared for possible cuts in asking price,” says Orr. “A larger portion of the population is simply choosing to rent, instead of buy. 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 says there’s more competition to get rental homes than homes for sale. He also says this could lead to rent increases over the next two years, especially since more owners are now institutional investors who will have less hesitation in raising rents than traditional mom-and-pop landlords.
Investors continue to lose interest in buying more in the Phoenix area, as better bargains can be found in other areas of the country. The percentage of residential properties purchased by investors was just 19.3 percent in December, down from the peak of 39.7 in July 2012.
Foreclosed homes aren’t plentiful anymore. Orr says Maricopa County was 19 percent below its normal, historic foreclosure-notice level in December. Foreclosure starts – owners receiving notice their lenders may foreclose in 90 days – were down 43 percent from December 2012 to December 2013. Completed foreclosures dropped 53 percent.
New-home sales had an excellent month, increasing their market share to 16 percent in December 2013 from 13 percent in December 2012. However, Orr says this was a normal seasonal bump. Construction-permit numbers remain low by historic standards.
Orr adds, “We’re seeing growing evidence the housing slowdown is also being experienced in other parts of the country, including southern California. If current conditions persist in the Phoenix area for several months, downward pressure on pricing will become hard to resist.”
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.