Research

Although sleepy, housing market shows signs of health

The housing data for April paints a picture of a quiet market, in sharp contrast to April of a year ago when buyers outnumbered sellers. And, the March rise in single family house prices did not hold for April, when prices were virtually stable. And demand remained weak, especially among first-time homebuyers. Think of it as a holding pattern until those who are recovering from foreclosures and short sales can qualify for mortgages again.

2014-06-11

The housing data for April paints a picture of a quiet market, in sharp contrast to April of a year ago when buyers outnumbered sellers. According to the monthly housing report from the W. P. Carey School of Business, single family house prices went up in March, but the pattern did not hold for April, when prices were virtually stable. And demand remained weak, especially among first-time homebuyers. Think of it as a holding pattern until those who are recovering from foreclosures and short sales can qualify for mortgages again. Mike Orr, director of the Center for Real Estate Theory and Practice and author of the report, explains that although quiet, the market is showing signs of health. Listen: [podcast] Read:  KnowWPCarey: The housing data for April paints a picture of a quiet market, in sharp contrast to April of a year ago when buyers outnumbered sellers, according to the monthly housing report from the W. P. Carey School of Business. Single family house prices went up in March, but the pattern did not hold for April, when prices were virtually stable. And demand remained weak, especially among first-time homebuyers. Think of it as a holding pattern until those who are recovering from foreclosures and short sales can qualify for mortgages again. Mike Orr, director of the Center for Real Estate Theory and Practice and author of the report, explains that although quiet, the market is showing signs of health. Michael Orr: April wasn’t that different from March; the drop in sales compared to last year wasn’t severe. If you only look at normal sales they are actually up compared with a year ago, but every other type of sale was significantly down. This includes new homes, flips and older distressed sales. So, I feel like it’s a healthier market but it’s a slower quieter market. KnowWPCarey: Low supply, a feature of the current Phoenix market, is a problem when buyers are plentiful. But in this case, it’s a plus. Orr: The other thing that could have been making it worse would be if there was a buildup of supply. Actually, supply has been falling and people might say ‘Well, it always falls in March and April.’ That is true but it’s still reassuring when it doesn’t grow, when sales are so low. It appears that the market is really still just sort of running in second gear, not really appearing to have a lot of sellers or buyers. KnowWPCarey: Indeed, there are a large number of people who are just not participating in the market. Orr: We can expect for quite some time that those people who went through foreclosures will not to be coming back in large numbers. Those people who went through a short sale can get refinanced much sooner, so there are some ‘boomerang buyers’ as they’re known — who went through short sale and are coming back, and applying for loans and getting approval. I think the people who got foreclosed generally have longer to wait in the penalty box, and they’re probably going to start to arrive next year. KnowWPCarey: First-time homebuyers — notably the millennials — are conspicuously absent from the market. Across the country, first-time buyers normally account for about 40 percent of sales. Right now they account for around 25 — that’s a big drop, says Orr. Orr: And that’s not unique to Phoenix. The millennials are saying ‘Hey guys, we’ve got a lot of things to sort out. We haven’t necessarily got the jobs we want.’ A lot of them have student loans that are bigger than they expected and it’s taking longer to pay them back, so there’s all sorts of reasons why things are coming along later. KnowWPCarey: With temperatures solidly in the triple digits, summer has arrived in Phoenix and along with it the annual seasonal drop in demand. In an ordinary year, fewer buyers means supply builds and prices drop. But Orr thinks that the classic cycle may not happen in Phoenix this year. Orr: I’m getting less concerned about that because I think sellers are saying ‘If I’m going to have to leave it on the market a long time and not get the price I want; maybe I’m not that anxious to sell, I’ll put it off until next year.’ KnowWPCarey: So Orr’s projection is for a slow summer — although the Phoenix market is known for surprises. Orr: You’ll never know. If interest rates drop down and lenders start to lend to people with less good credit than before — that could spark some extra demand. KnowWPCarey: A sudden return to normal demand would almost certainly create a shortage. Orr: I still say for the last several years we’ve built so few new homes and yet we’ve not really stopped growing the population. Those people who’ve got their own place to live generally are sharing with other people to keep the cost down. You can understand why, but it means if we ever get back to a roaring economy again and everyone starts to get their own place, construction would have to move very fast to compensate. KnowWPCarey: Orr says that’s not going to happen, however. Orr: I’m seeing a quiet period, and no end to that in sight. I don’t think it’s going to cause prices to move around dramatically in either direction, I think we’re going to see some stability at last. Probably the best that I would I expect for the rest of the year would be an increase of 5 percent from a year ago. The worst could be down 2 or 3 percent.  

Arizona Real Estate Market Real Estate