Townhouse and condo sales jump in Phoenix

Surging interest in attached homes has the potential to change the character of the city, adding urban density to the sprawling metro area.

December produced the first good news for sellers in the Phoenix real estate market since June 2013 as the townhouse/condominium market heated up. Real estate expert Mike Orr said that if this is a trend, it could signal a shift away from single family housing to a more urban model for certain buyer groups.

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Research and Ideas: December produced the first good news for sellers in the Phoenix real estate market since June 2013 as the townhouse/condominium market heated up. According to Mike Orr, author of the Monthly Housing Report from the Center for Real Estate Theory and Practice, more attached homes were sold in December than anticipated, and for higher prices. Orr said that a trend may be forming shifting demand away from single family homes and toward those smaller homes that are easier to maintain. We asked Orr where he thinks this new demand may be originating.

Michael Orr: First of all you’ve got a lot of baby boomers, they’ve always been active in the market and they didn’t get put off by the (Great) Recession because they’re strong believers in the benefits of owning real estate. We’re seeing a few of them move into apartments that they rent because we’ve seen a lot of people put up apartments in luxury condition in prestigious areas. We haven’t had much for them to buy and the few that have come on the market for them to buy, have sold very quickly. Probably the most recent example of that is Envy in Old Town Scottsdale, which opened for sale only a short while ago and sold out really quickly.

Research: Those baby boomers are reaching a point in life where they don’t need as much room as they did before, and a home where someone else takes care of the maintenance is appealing. Recently constructed luxury apartments have absorbed some of this demand, Orr said. Part of the appeal is the close proximity of good restaurants and fancy shopping, Orr said, and coincidentally, that’s exactly what appeals to another demographic: those home-ownership-averse millennials.

Orr: Then of course at the other end of the scale you’ve got the millennials, mostly renting, but when they do start to buy I think the sort of thing they’re looking for is something small, something more central. Great locations for condos around the Valley are really Phoenix, Scottsdale and Tempe.

Research: The missing demographic is the Gen-Xers, who took the brunt of the 2008 real estate market collapse. These folks are beginning to emerge from the penalty box and are becoming eligible for mortgages again, but Orr said this group still has large families at home and thus are less interested in condos. Even so, the increase in popularity of condos in a city that has not historically taken to them is worth watching.

Orr: It is an interesting development that’s only really emerged in the last couple of months and if it continues, it could change the character of Phoenix real estate going forward. You might see things get a bit more urbanized and dense.

Research: In the single-family home market, demand continues for the middle and high end homes, but at the low end, supply remains skimpy and demand weak. This is where the first-time homebuyers should be found.

Orr: We’ve seen action from the government to try to stimulate that demand with the lowering of the mortgage insurance premium for FHA which was announced by President Obama in Phoenix. That’s definitely aimed at the first-time homebuyer. It really came into effect at the end of January, so we’re not going to see it in the December numbers — but it could definitely have an impact on demand this spring. We’ve also got Fanny and Freddie reducing the requirement for down payment to 3 percent for people who qualify. And again, I think that’s aimed at well-qualified first-time homebuyers.

Research: Up to now, the low supply of homes in the lower end of the market has not been an issue, but the return of first-time homebuyers would create a very different scenario.

Orr: Demand can grow much faster than supply can because there’s nothing stopping people. You can’t go and construct new homes overnight.

Research: This could mean that 2015 will be a much better year for sellers than 2014.

Orr: Generally sellers were unexpectedly short of buyers in 2014, particularly the new home builders — they were really quite disappointed with the year. Specifically the spring season never lived up to its hopes and now as we’re in mid-February, it looks like this year’s spring season is going to show some improvement over last year.