Phoenix real estate market closing 2014 on a slow note

There has been little change in the Greater Phoenix real estate market for the last year, and the October numbers show a continuation of the trend, according to Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. The median single-family-home sales price went up just 4 percent from last October to this October – from $200,000 to $208,000. Demand remains lower than last year, with sales of single-family homes down 5 percent from last October. With the New Year just days away, we asked Orr what it would take to give the market a strong start in 2015.

There has been little change in the Greater Phoenix real estate market for the last year, and the October numbers show a continuation of the trend, according to Michael Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. The median single-family-home sales price went up just 4 percent from last October to this October — from $200,000 to $208,000. Demand remains lower than last year, with sales of single-family homes down 5 percent from last October. With the New Year just days away, we asked Orr what it would take to give the market a strong start in 2015.

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Research and Ideas: There has been little change in the greater Phoenix real estate market for the last year, and the October numbers show a continuation of the trend, according to Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. The median single-family home sales price went up just 4 percent from last October to this October — from $200,000 to $208,000. Demand remains lower than last year, with sales of single-family homes down 5 percent from last October. With the New Year just days away, we asked Orr what it would take to give the market a stronger start in 2015.

Michael Orr: There is a number of possible things that are cause for hope, but there’s not much proof yet. First of all, we’ve got the start of a big wave of people coming out of the penalty box; the ones who were foreclosed on in 2008. They’ll have done their seven year time starting in January or February, whenever they were foreclosed.

Research: Foreclosures on Fannie Mae and Freddy Mac mortgages disqualify buyers for seven years, and those mortgages comprise 60 to 65 percent of the market. That means, beginning in January quite a few people will at least be eligible for a mortgage, although we don’t know whether they will dive in or continue to rent — or if they’ve moved away. In addition to those boomerang buyers there could be new buyers entering the market if Mel Watt has his way. The director of the Federal Housing Finance Agency is trying to get Fannie and Freddy to relax their rules.

Orr: They don’t originate mortgages, but they tell people ‘if you write one like this, we’ll accept it.’ They’ve introduced a three percent down program, which is considerably less than what people have had in the past. Five percent was the best that you’d get and often it would need to be 10 or even 20 percent. Three percent down is a little bit more achievable for people who’re struggling to get the down payment together.

Research: Watt is also proposing that the qualification rules be streamlined and simplified. Orr says that industry watchers are divided on what effect these measures may have. Some think they would enliven the market, but others say there will be no effect. More important may be gradually shifting demographics.

Orr: There’s always the millennials and they’re getting older so they haven’t participated like previous generations. It’s not that they’re not participating at all, it’s just that we’ve only got like 25 percent of sales going to first-time homebuyers. And we’d only have about 40 percent. So, if that went back to normal, we’d have a big uptick.

Research: Full recovery goes back to demand, and demand relies on jobs.

Orr: As I’ve said before, if demand went back to normal, everything would suddenly be transformed. We’d actually be short of homes, we’d be short of construction workers. You can see this happening in certain places around the country, for example in San Francisco. There’s a big labor shortage of construction workers because there’s just a shortage of homes and lots of jobs are being created in Silicon Valley. People with decent earnings are wanting to buy them and the cost of construction is rocketing up.

Research: If that happened in Phoenix, Orr said, the market would feel the absence of construction workers immediately.

Orr: We’ve got enough labor here at the moment for the current for the current level of construction, which is really quite small, especially in single-family (homes). But if it doubled overnight, we'd suddenly have a shortage.

Research: Orr says that the market will continue to chug along at its current low speed for at least a few more months.

Orr: There’s probably not going to be any change until we get to February, which is likely when we’ll see something to talk about. It’ll be too quiet of a Christmas and early January to tag anything as really happening.

Research: For more information see research.wpcarey.asu.edu.