Research

Slow and holding: Autumn in Phoenix real estate market

In the subdued Phoenix real estate market, demand continued weaker than normal, supply was tight and sales transaction volume well below normal. In contrast, the rental market is busy with construction projects in the works to increase supply. And, demand at the very top of the market remains stronger than usual.

2014-11-18

A subdued Phoenix real estate market crept through September in low gear, with demand continuing weaker than normal, supply fairly limited and sales transaction volume well below normal. In contrast, the rental market is busy and many construction projects are in the works to increase supply. And, demand at the very top of the market — for properties priced at $2 million and above — remains stronger than usual. That’s the overview of the September Greater Phoenix Housing Market Study, released in November by Mike Orr, director of the Center for Real Estate Theory and Practice. Transaction volumes tell the story. Listen: Read: Research and Ideas: A subdued Phoenix real estate market crept through September in low gear, with demand continuing weaker than normal, supply fairly limited and sales transaction volume well below normal. In contrast, the rental market is busy and many construction projects are in the works to increase supply. And, demand at the very top of the market — for properties priced at $2 million and above — remains stronger than usual. That’s the overview of the September Greater Phoenix Housing Market Study, released in November by Mike Orr, director of the Center for Real Estate Theory and Practice. Transaction volumes tell the story. Michael Orr: Below about $175,000 the volumes are way down. Above $175,000 up to around $2 million they’re kind of flat. And then above $2 million they’re up quite a bit. So, this reflects what people are talking about in the economy. The wealthy are doing pretty well, spending money. Obliviously, a few wealthy people buying a few luxury homes does not compensate for thousands of people at the other end not buying homes. Research and Ideas: Among the missing are the starter home buyers. Orr: Without the first-time home buyer at the bottom end, the rest of the market gets a little unhealthy because you need those people coming in for the people moving up to sell their homes so they can move up. Research: The homeowners who went through foreclosure will not be eligible for mortgages until 2015, but many who are still living in their homes may be underwater and cannot sell and move up. Orr: It wasn’t necessarily that they bought during that period, they may have refinanced, because there were an awful lot of mortgage brokers using lots of very high-pressure tactics to get people to refinance — take money out, spend it on something. Many of the people who aren’t necessarily in financial difficulties, who haven’t done a foreclosure or a short sale, still owe more on their home than it's worth. And until that gets fixed, they’re probably not going to move because that means bringing money to the close of escrow, which is never a popular option. Research: It’s hard to know how many people are in that situation, because the balance of what people owe is not public record, and in order to determine whether they are underwater you would need to do appraisals. But housing experts have made educated guesses. Orr: The estimate that we get from national firms like CoreLogic is about 18 or 19 percent of the mortgaged homes in the Phoenix area are still underwater. That’s not a percentage of the total homes, because we have quite a lot of homes that are free and clear. A lot of homes were bought with cash over the last 5 years. Research: Even if they’re not buying, people have to live someplace. As a result, the rental market has been lively, although Orr is beginning to see this sector backing down too. Orr: It’s probably cooling off a little bit. I’m seeing the number of homes listed for rent on the MLS  going up a little bit. Prices are still going up but not quite as fast as they were 6 months ago. And the amount of supply is enough for it not to be quite as frantic. But it’s still very competitive in a popular area if a nice rental comes on the market. You will probably get more than one family trying to rent it. Research: It’s not easy to be a tenant, Orr says. Renters have to look quite hard to find a place to live and then they often have to pay more than they expected. Orr: This is the first time we’ve had rents going up significantly since I moved here in 2002. Rents were fairly stable and very cheap compared with most parts of the country, but now they’re starting to move. Research: The market has responded to the demand for apartments with a surge in construction. Orr: Yes, there’s quite a few permits for multifamily, especially large blocks. We’re not seeing a lot of duplexes or fourplexes. New developments are very often hundreds of apartments in one place. But it’s very volatile — one month might be much bigger than the previous month. But, if you take a sort of 12 month rolling average — the number of permits is still creeping up and up. Research: A lot of these projects are clustered along Rural and Scottsdale Road. These are big, high rent projects. Orr: So we’ll have to see how many of them get easily rented, because a lot of the current rental demand is not necessarily for places that are really as expensive as that. Well, the question is ‘how many people have we got who really want to rent something for maybe more than $2,000 a month?’ Research: It is now 14 months since the Phoenix market settled into a sluggish pattern, but Orr commented that the year-over-year comparisons are getting better. With the year drawing to an end, all eyes are focused ahead, hoping that in 2015 the city’s typical energy returns.

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