The Phoenix-area housing market is unlikely to see a significant boost until next year, according to the latest monthly report from the W. P. Carey School of Business at Arizona State University. “Demand has been much weaker since July 2013 and still shows little sign of recovery,” 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. “Supply is also fairly limited. We anticipate pricing will continue to move sideways over the next few months, and a significant increase in demand will be required to change things.”
The median single-family-home sales price was up 5 percent from last September, but, according to the report, that is largely just because fewer sales are clustered at the bottom end of the market, not because individual home prices are rising much. The area has been experiencing sluggish demand and low sales activity for more than 14 months. The rental market, however — because there are fewer people buying — is hot, showing an increase in both rents and construction permits for new multi-family housing. According to Orr’s report, the Phoenix area has already seen a 5.7-percent boost in rents over the past 12 months, and construction permits to build new multi-family housing to meet the demand are also on a strong upward trend.
After the housing crash, Phoenix-area home prices shot up from September 2011 to last summer. This year, prices leveled off and then rose somewhat. The median single-family-home price went up 5 percent from last September to this September — from $198,997 to $209,900. The average price per square foot rose 7 percent. The median townhome/condo price went up 15 percent.
Orr says the median increases happened primarily just because fewer sales are now clustered at the lower end of the market, with fewer foreclosures and short sales available. Only luxury homes above $2 million are seeing stronger-than-normal demand.
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“The ultra-high and luxury market for custom homes are still retaining the best demand relative to historic data,” says Howard Lein, owner of Scottsdale-based franchise RE/MAX Excalibur Realty. The average days on market for luxury currently hover at 153 days, compared to about 142 days last year. The immigration issue seems to be affecting the housing market due to the lack of a competing work force — not enough workers to meet the demand. As predicted last year, Lein says, the shortage of labor and the increased cost have helped cause the appreciation in the luxury home market. “The increased value of Phoenix-area housing has been helped due to the lack of cheap immigrant labor.”
Luxury properties span the Valley in gated and non-gated communities, and include horse properties and golf properties. Looking at the metro Luxury market, Lein shares that the average list price is about $1.99 million, with a sales price around $1.39 million. “This shows a trade range of 5 percent off list price or 95 percent list-to-sales price ratio. Compared to last year, the average list price for luxury locally was $1.79 million, with a sales price around $1.32 million. Interestingly, the trade range was 5 percent or 95 percent list-to-sales price ratio,” Lein says.
According to Lein, the $2 million to $2.999 million price bracket has seen an 18 percent increase in sales from last year, and the $3-million-and-up price bracket is up 32 percent in sales from last year. “Arizona’s climate, low property tax and more affordable quality of life are determining factors — as well as the fact that the affluent have had good gains in the stock market for the past two years,” Lein observes. “Compared to other cities in the U.S., the Phoenix metro market is affordable luxury.”
For the housing market overall, investors are unlikely to bring the increase in demand needed to boost prices. According to Orr’s report, they’ve largely lost interest in the Phoenix area, now that better bargains can be found in other parts of the country with more foreclosures. Investors accounted for only 14.4 percent of residential-property purchases in September — way down from the peak of 39.7 percent in July 2012. But Lein relates that the institutional buyers have not disposed of their rental properties. And he notes, “Lately, in Quarters 3 and 4 of 2014, we are seeing more Canadians re-enter the market, and Chicago buyers are coming back to the market as well.”
“To get the market back to what we would consider normal will require a major recovery in demand from local first-time home buyers,” explains Orr, noting the last quarter of the year is rarely one in which first-time home-buyer demand takes off without some unusual stimulus.
Contrast that with the luxury home market. “Despite the fact that the overall real estate market in Phoenix appears to be a bit sluggish, it does not look like the luxury market is feeling the effect,” Lein says. “Average prices are up from last year, partly because replacement costs continue to rise and there is a growing feeling of confidence now that the elections are over. Even the mid-range homes in Scottsdale that have languished over the summer are now picking up significant traction in the past few days.”
