Research

Real estate market lifts, but recovery still a year away

According to March data, the median sales price of a single family home in Phoenix returned to the December level after a two-month long dip. Michael Orr, director of the Center for Real Estate Theory and Practice and author of the W. P. Carey School’s monthly housing report, had predicted the March price increase. But don’t read too much into it, he says. It’s a seasonal effect.

2014-05-06

According to March data, the median sales price of a single family home in Phoenix returned to the December level after a two-month long dip. Michael Orr, director of the Center for Real Estate Theory and Practice and author of the W. P. Carey School’s monthly housing report, had predicted the March price increase. But don’t read too much into it, he says. It’s a seasonal effect. Listen: [podcast] Read: KnowWPCarey: According to March data, the median sales price of a single-family home in Phoenix returned to the December level after a two-month long dip. Michael Orr, director of the Center for Real Estate Theory and Practice and author of the W. P. Carey School’s monthly housing report, had predicted the March price increase. But don’t read too much into it, he says. It’s a seasonal effect. Michael Orr: Prices really haven’t been going anywhere very fast since July. W. P. Carey: The raw numbers appear to be going up, however there are fewer foreclosures and more luxury homes in the mix. This means that for an individual homeowner in the mid-range, pricing has not changed much at all. Orr: I don’t think it’s too significant. Generally March, April, May and June are going to be the best months for pricing and after that it goes a little bit flat. I’ve been encouraging people not to get too excited that it bounced up; any more excited than the fact that it went down in Christmas and January. These little fluctuations from month to month don’t mean an awful lot. W. P. Carey: With demand growing sluggishly, the relative low supply of homes for sale is actually adequate right now, Orr says. That means sellers still need to market their homes if they expect to attract buyers. The super luxury end is the most remarkable characteristic of the market. Strong performance in the stock market is driving these sales. Orr: This is the best year we’ve had for homes above $2 million dollars. I’d say $1.5 million dollars is where the break is, below that is not doing so great this year, but above really good and above $3 million — extremely good. W. P. Carey: Orr says, that in this respect the market reflects what’s going on in the overall economy. Orr: The middle class is still struggling to make any progress at all. But, those who’ve already got all of their money are making lots of money out of it because the stock market has been doing so well and businesses are making profit. But not necessarily by creating jobs and in not creating jobs — doesn’t help the rest of the economy improve. You can see that reflected in the housing market, which is struggling at the bottom and middle but doing well at the top right now. W. P. Carey: The large number of families who went through foreclosures or short sales and are now unable to buy homes, may represent some pent up demand, Orr says. There’s another group, one that may benefit from a developing shift in the banking industry concerning the credit worthiness of buyers. Orr: There is a change of foot in terms of how good your FICO credit score has to be to get a loan. Last year if you were below 700, then your chances were pretty slim, unless if you went FHA. This year some lenders are looking at credit scores 600-700, and gradually more and more of them are starting to do that. I’ve not seen a great deal of impotence behind that, but as it starts to accelerate that could definitely increase demand. W. P. Carey: Increased demand — yes, if those people are interesting in owning a home once again. Orr: One of the striking headlines in the last couple of months has been the Mortgage Bankers Association announcing that mortgage applications are at their lowest level since 2000. It’s not just loan approvals but the actual applications aren’t coming in. You can understand why people are not refinancing much because interest rates are now a little bit higher, so a lot of people are not refinancing at a higher rate. But, applications for purchased money loans are not looking too great. W. P. Carey: The main traunch of foreclosures was between 2008 and 2011. Add seven years to that and you come up to 2015 through about 2019. Orr: That’s when those people would come out of the penalty box and could get themselves a decent loan again and get back into homeownership. Those are people who’ve already owned homes, so they know some of the benefits. It’s not like the young people who’ve never experienced it. So that’s when I think we’ll see a surge in demand. W. P. Carey: If that happens, the Phoenix market could face supply shortages, again. Housing construction has been very low since 2007 — seven years of almost no construction. The upshot of strong demand in a market with low supply is of course rising prices. Orr: At the moment we’ve definitely got it low, but I’m thinking next year is when it’ll start to have more of a likelihood of getting back to normal.

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