ASU Greater Phoenix Housing Report – March 2013

Michael J Orr, Director
Center for Real Estate Theory and Practice
W P Carey School of Business
Arizona State University
May 1, 2013
MONTHLY REPORT –GREATER PHOENIX HOUSING MARKET – MARCH2013
Headlines:
• Single family home prices continued their upward trend between February and March, and are
dramatically higher when compared with thistime last year:
o The median sales price is up 29.7% from $134,900 to $175,000
o Average price per square foot is up 23.6% from $90.92 to $112.41
• Townhouse/condo prices also show substantial gains over the past 12 months:
o The median sales price is up 43.2% from $81,000 to $116,000
o Average price per square foot is up 18.5% from $96.55 to $114.37
• Active listing supply (excluding homes already under contract)fell 5% over the last month but it
was falling at a much faster rate of 13% per month at this time last year. Distressed supply is
down 27% from 12 months ago.
• Foreclosure starts on single family and condo homes rose by 1% between February and March
but were down 60% from March 2012.
• Recorded trustee deeds(completed foreclosures) on single family and condo homes fell 8%
between February and March and were down 53% from March 2012.
• Sales of single family homes were 8% lowerthan in March 2012 while sales of
townhouse/condos dropped by 13%.
• The percentage of residential properties purchased by investors dropped from 29.2% in
February to 27.1% in March,the lowest percentage in several years.
• Single family home sales increased year on year forthese sectors:
o New homes(up 37%)
o Normal re-sales(up 67%)
o HUD sales (up 2%)
• Single family home sales reduced year on year forthese sectors:
o Investor flips (down 59%)
o Short sales and pre-foreclosures (down 47%)
o Bank owned homes(down 67%)
o GSE (Fannie Mae, Freddie Mac, etc.) owned homes (down 47%)
o Third party purchases at trustee sale (down 54%)
Unless otherwise stated all the statistics shown are for Maricopa and Pinal Counties combined.Introduction
Home sales in March (single family, townhouse & condo) were 20% above February’s total, which is a
typical increase for the season. However they were 9% below the total for March 2012 showing us that
sales volumes have fallen significantly since last year, primarily because of the huge drop in the supply of
inexpensive homes. In the sections below we compare March 2013 data for Maricopa and Pinal County
with that for March 2012. We analyze volumes and pricing for 8 different transaction types as well as for
the overall totals. Individual statistics are also provided in the attached tables by county and city. This
report concentrates on single family homes but detailed statisticsfortownhouse/condo properties are
shown in the attached tables.
Demand
Single family home sales grew 20.5% compared with February. At the top end of the market sales are
higher than last year with demand for luxury homes picking up steam. The substantially higher prices
for lower end homes have caused buyer interest to ease a little in some areas, but we still seemultiple
bid situations as the norm for a large percentage of resale listings.
Real estate investment companies were still busy during March, with the Blackstone Group by far the
largest single buyer. Howeverthe percentage of purchases by investors is noticeably lower than in 2012.
Foreclosures are dramatically down froma year ago, and so far fewer foreclosed homes have been
added to the REO inventory. These changes are illustrated in the chart below:
Note: ‘Reverted’ homes are excluded from ‘All Sales’.Sales for townhouse / condo properties showed similar trends except that new construction sales for
these propertiesremain extremely low compared with historical levels. We did see a tiny sign of
recovery in townhouse / condo construction with sales up from 44 in March 2012 to 55 in March 2013.
More townhouse/condo properties revert to lenders than are auctioned to third parties,the opposite of
the situation for single family homes.
Supply
Our local Multiple Listing Service (ARMLS) had 19,580 active listings on April 1 across Greater Phoenix
including listings under contract seeking backup offers. Nearly 22% of these listings already have a
signed contract, typically waiting for the lender’s short sale approval before they stop soliciting backup
offers. This percentage has fallen from 37% sixmonths ago but has been rising slightly over the last 3
months.
The number of active single family listings without an existing contract was 11,957 for the Greater
Phoenix area as of April 1. This is down 4.0% since March 1. However 80% of this supply is priced above
$150,000 and 24% is priced over $500,000, so the scarcity of homes for sale remainsmost severe in the
lower price ranges. The inventory of single family homes for sale under $150,000 that have no existing
signed contract hasfallen to 29 daysfrom 39 days last month. Thisis far below a normal supply level,
but is much higher than the extreme low of 18 days that we measured in June 2012. The lower price
rangesremain unbalanced with far more buyers than sellers, but it is the low number of sellers that is
unusual, not the number of buyers which is only slightly above normal. At the higher price ranges over
$500,000 supply remains adequate to meet demand, but is by no means excessive.Pricing
We can see that overall prices reached a low point in September 2011 and have risen dramatically since
then. However the picture is more complex than that simple statement suggests. The gap between
distressed pricing and non-distressed pricing has been closing. When we look at the individual
transaction types we find the following:
Single Family
Average Sales Price
Average $
Mar 2013
Average $
Mar 2012
%
Change
New Home Sales $305,397 $245,136 +24.6%
Normal Re-sales $251,739 $239,926 +4.9%
Investor Flips $171,485 $159,281 +7.7%
Short Sales & Pre-foreclosures $171,351 $151,744 +12.9%
Bank Owned Sales $198,034 $165,134 +19.9%
GSE REO Sales $162,380 $129,343 +25.5%
HUD Sales $118,724 $81,312 +46.0%
Trustee Sales to 3rd Party $143,548 $125,953 +14.0%
All Sales $230,047 $183,222 +25.6%
Single Family
Median Sales Price
Median $
Mar 2013
Median $
Mar 2012
%
Change
New Home Sales $267,099 $218,970 +22.0%
Normal Re-sales $187,700 $166,650 +12.6%
Investor Flips $146,000 $132,000 +10.6%
Short Sales & Pre-foreclosures $140,000 $115,000 +21.7%
Bank Owned Sales $154,938 $110,000 +40.9%
GSE REO Sales $152,000 $119,000 +27.7%
HUD Sales $116,000 $76,100 +52.4%
Trustee Sales to 3rd Party $125,001 $96,950 +28.9%
All Sales $175,000 $134,900 +29.7%
Single Family
Average Price per Sq Ft
$/SF
Mar 2013
$/SF
Mar 2012
%
Change
New Home Sales $119.17 $102.85 +15.9%
Normal Re-sales $124.46 $116.47 +6.9%
Investor Flips $94.31 $83.00 +13.6%
Short Sales & Pre-foreclosures $85.80 $75.33 +13.9%
Bank Owned Sales $93.90 $80.90 +16.1%
GSE REO Sales $84.06 $67.72 +24.1%
HUD Sales $68.70 $49.44 +38.9%
Trustee Sales to 3rd Party $79.52 $66.40 +19.8%
All Sales $112.41 $90.92 +23.6%We believe that average price per sq. ft. gives the most useful guide to price changes in the market.
For the sixth time since we hit bottom in September 2011, every measure in the tables above is showing
a positive percentage change.HUD sales are stillthe segment showing the largest percentage increase
over the year, but they remain the cheapest homes based on average $ per sq. ft., median sales price
and average sales price.
The following table ranks the cities by the percentage increase in monthly average price per sq. ft. over
the last 12 months(March 2012 to March 2013).
Rank Last
Month
City % Change in
Monthly $/SF
1 1 Tonopah 60%
2 34 Youngtown 51%
3 3 El Mirage 39%
4 8 Laveen 37%
5 5 Phoenix 36%
6 21 Maricopa 36%
7 7 Glendale 35%
8 22 Avondale 35%
9 33 New River 33%
10 13 Florence 32%
11 16 Peoria 32%
12 17 Goodyear 29%
13 6 San Tan Valley 29%
14 31 Tempe 28%
15 20 Waddell 28%
16 14 Tolleson 27%
17 41 Gold Canyon 26%
18 23 Apache Junction 24%
19 18 Mesa 23%
20 15 Fountain Hills 23%
21 25 Chandler 22%
22 10 Buckeye 21%
23 27 Queen Creek 20%
24 32 Gilbert 20%
25 9 Coolidge 19%
26 19 Casa Grande 19%
27 38 Anthem 18%
28 28 Surprise 17%
29 36 Sun City 17%
30 35 Litchfield Park 15%
31 29 Arizona City 14%
32 11 Paradise Valley 13%33 4 Wittmann 13%
34 24 Scottsdale 12%
35 2 Rio Verde 12%
36 40 Sun City West 11%
37 39 Carefree 6%
38 37 Sun Lakes 4%
39 26 Cave Creek 3%
40 12 Eloy 2%
41 30 Wickenburg 2%
Because the above table is based on monthly sales, we see a lot of volatility in the numbersfrom month
to month, especially for locations with a low number of sales. To address this, we have added a table
below which is based on annual sales. This table will be much more consistent from month to month,
although it will be less responsive to recent market changes.
Rank Last
Month
City % Change in
Annual $/SF
1 1 El Mirage 38%
2 2 Tolleson 36%
3 5 Youngtown 34%
4 3 Phoenix 34%
5 4 Maricopa 32%
6 8 Glendale 29%
7 9 Avondale 29%
8 6 San Tan Valley 28%
9 7 Apache Junction 28%
10 11 Laveen 27%
11 10 Buckeye 26%
12 12 Florence 26%
13 16 Arizona City 24%
14 14 Tonopah 24%
15 18 Peoria 23%
16 15 Mesa 23%
17 17 Queen Creek 22%
18 21 Tempe 22%
19 13 Coolidge 22%
20 20 Waddell 21%
21 19 Surprise 21%
22 22 Casa Grande 20%
23 24 Goodyear 20%
24 23 Wittmann 18%
25 25 Gilbert 18%
26 27 Chandler 18%
27 26 Carefree 18%
28 29 New River 16%29 28 Litchfield Park 15%
30 34 Gold Canyon 13%
31 30 Cave Creek 12%
32 32 Anthem 12%
33 31 Scottsdale 12%
34 33 Paradise Valley 12%
35 35 Sun City 10%
36 36 Fountain Hills 10%
37 39 Rio Verde 6%
38 38 Sun City West 6%
39 37 Sun Lakes 4%
40 41 Wickenburg -1%
41 40 Eloy -2%
There are a few other small areas of Maricopa and Pinal counties where prices have not shown
appreciation on an annual price per sq. ft. basis. These are mainly outlying and rural places such as Gila
Bend, Winkelman, Aguila, Oracle and Saddlebrooke.
The large fall in transaction volumes among the lowest priced segments (trustee sales to third parties,
HUD sales, bank owned sales and GSE REO sales), and the increase in volumes among the higher priced
segments (new home sales and normal re-sales), has significantly amplified the change in prices over the
last 18months.
In the single month that elapsed between February and March, average prices rose 2.1% from $225,400
to $230,047, while average price per sq. ft. climbed 1.8% from $110.44 to $112.41 and the median sales
price increased 2.9% from $170,000 to $175,000. These substantial increases were predicted in our last
report and are almost certainly going to continue in April. Pricing typically strengthens between January
and June each year.
We must remember that a percentage increase in average or median sales price is not the same as a
percentage increase in home values, because of the changesin the transaction mix.
Foreclosure Starts
Foreclosure starts for single family and condo/townhouse homes increased by 1.0% in March 2013 from
the level of February. This rise is entirely due to the fact that March contained 21 working days
compared with February’s 19 and actually represents a drop in the foreclosure rate per working day.
Foreclosure starts were 59.7% below March 2012 levels. The breakdown by county is:
Foreclosure Starts Single Family Townhouse / Condo Total
Maricopa County 1,450 239 1,689
Pinal County 229 3 232
Total 1,679 242 1,921Foreclosure levels are far below the peak levels of March 2009, which were 10,099 in Maricopa and
1,256 in Pinal. For comparison with “normal” levels of foreclosure notices, in 2002 we averaged 1,160
per month for Maricopa County. Since the population has grown by about 20% since 2002, we would
consider 1,400 foreclosure notices per month a normal level for Maricopa County, so we were 21%
above the normal level in March. By the end of 2014 it lookslikely that foreclosure notice rates will have
fallen close to or below long term averages.
Foreclosure Completions
We see a large drop in completed foreclosures when we compare March 2013 with March 2012.
• The number of completed trustee deedsis down by 53%
• The number of single family homes reverting to lenders is down by 54%
• The number of single family homes purchased by third parties at the auction is down by 54%
This source of supply is continuing to dry up, although it still has some months to run. The number of
pending foreclosures continues to fall each month and is now only slightly elevated over normal levels.
We expect reversions and third party purchasesto fallfurther overthe next 12 months.
New Home Sales
Newly builtsingle family homes rose from 831 recorded salesin February to 949 in February. This total
looks much more impressive when compared with the 693 of March 2012, showing a 37% increase (33%
for Maricopa County and 71% for Pinal County).
Among the cities, Gilbert is still out in front of the pack for new home sales with 146, butseveral other
cities are now catching up, including Goodyear (86), Phoenix (83), Peoria (81), Mesa (67), San Tan Valley
(62), Buckeye (59), Queen Creek (58), Chandler (46) and Surprise (45). Among the larger cities, Tempe
and Avondale are the only ones not participating significantly in new home sales. Scottsdale is starting
to see an increase in new homes again after many years of negligible sales – 14 closed escrow in March.
New construction purchases in Maricopa County during March were on average about 30% larger in sq.
ft. of living space compared with the average for normal re-sales.However new homes in Pinal County
were only 9% largerthan re-sold Pinal County homes. Either way, the theory that new home buyers are
looking for smaller homes seems to be completely untrue in Greater Phoenix. This may be partly due to
an increase in multi-generational home use.New home sales have increased their market share from 7%
to 11% of sales units over the last 12 months.Despite this, they still have a very long way to go to
recover their normal percentage of the overall market. Current new homes sales rates are less than half
of what would normally be needed to keep up with the current population growth rate in the area.
Normal Re-sales
Normal single family re-sales grew 67% from 3,064 in March 2012 to 5,114 in March 2013. Pricing
recovery occurred later than for other sectors, but normal re-sales have now joined in the overall price
increases. The average sales price is up 5%,the median sales price is up 13% and average price per sq. ft. is up 7% over the year.Normal re-sales have increased their market share to 58% from 32% a year ago
and are now by far the most numerous type of sale.
Investor Flips
These are similar to normal re-sales in that there is no distressed owner, but we count them separately
when the property was previously purchased with the obvious intent to resell at a higher price within a
short period. Often the investor obtained a distressed property at a trustee sale (sometimes through a
wholesaler), as an REO or as a short sale. The investor usually refurbishes and renovates the property
and then sells the home somewhat below the price for normal sales in order to ensure it sells quickly.
Volume for investor flips is declining very fast due to lack of supply of bargain properties. Flips represent
about 6% of total sales, down from 14% in March 2012.
Short Sales and Pre-foreclosures
Most lenders are encouraging homeowners facing financial hardship to use short sales as a preferred
alternative to foreclosure. However many have been insisting on higher contract prices before they will
approve the sale and these increased prices have dampened buyer enthusiasm, resulting in fewer sales
being completed than last year.
Short sales are down 47% in volume (57% in Pinal County), but average $/SF has risen by 14% since
March 2012.
Short sales and pre-foreclosures represent about 11% of single family home sales, sharply down from
19% in March 2012. Short sales and pre-foreclosures are still priced slightly lower than bank owned
homes but they have remained above the average pricing for GSE-owned properties.
Bank Owned Sales
Often referred to as REO sales, these are properties owned by commercial lendersfollowing a
completed foreclosure. If there are no bidders at the trustee sale the trustee issues a deed in favor of
the beneficiary, i.e. the foreclosing lender, who subsequently liquidates the asset by marketing the
property as a “bank owned home”. Sometimes the lender receives the property after a “deed in lieu of
foreclosure” from the borrower.
Between March 2012 and March 2013 REOsales have declined in number by 67%. Sales $/SF pricing for
bank owned single family REOs is up by 16% over the last 12 months. Bank owned REOs now represent
only 3% of the market, down from 9% in March 2012.
Fannie Mae / Freddie Mac / VA REO Sales
Similar to Bank Owned Sales except the entity receiving the foreclosed home is a government sponsored
enterprise (GSE) rather than a commercial lender. Between March 2012 and March 2013 these REOs
have fallen 47% in volume. Sales $/SF pricing for GSE single family REOs is up by 24% over the last 12
months. GSE REOs now represent 4% of the market, down from the 7% we saw in March 2012.HUD sales
If a bank receives a property through foreclosure where the loan had been insured by FHA, the lender
will usually deed the property to HUD for disposal. Average price per square footfor HUD homes has
increased by 39% over the last 12 months, but at an average $68.70 per sq. ft. they remain priced lower
than other sources of single family homes.Unfortunately for bargain hunters, HUD homes are not
numerous and they currently represent just 2% of sales, though this is slightly higherthan March 2012.
Third Party Purchases from Trustee Sales
Foreclosures used to provide a significant supply of homes for those willing to bid at the trustee auction,
butthe number of homes auctioned has dropped significantly. During March 2013, there were 485
single family homes purchased by third parties at trustee sales, 426 in Maricopa and 59 in Pinal.
Competition for auctioned homes is intense. Average price per sq. ft. hasincreased 20% from $66.40 to
$79.52 per sq. ft. over the last 12 months. They now represent 5% of the market, down from 11% in
March 2012.
Reverted to Lender (i.e. Beneficiary)
If the lender sets an opening bid which is too high to attract any bids then the property fails to sell and it
becomes the lender’s property to dispose of. The outstanding loan debt is removed usually with no
recourse (under Arizona law) to the original borrower. Most other liens (but not necessarily all) are also
eliminated at this time.
When the lender is not interested in disposing of the property through the trustee sale, the opening bid
is often set to be the outstanding loan balance plus expenses, so this will usually be well in excess of the
current market value. As such the bid has little to no relevance to us and we do not record it as a sale.
However if the lender wishes to liquidate the home at the trustee sale, an opening bid is set which is low
enough to attract the interest of third parties.
Over the last 12 months, the number of reversions to beneficiaries has dropped by 54% for single family
homes. There were 870 in February 2012 and only 401 in March 2013.
New Construction Permits
Permits reported by the US Census for single family home construction in Maricopa and Pinal Counties
fellfrom 958 to 929 between January and February then recovered to 1,220 March. The March total is
up 32% from a year earlier but is still very small by historic standards. For example the total for March
1996 was 3,071 and March 2004 was 5,490.
The number of permits reported trended lower between May and December last year and March’s
1,220 represents something of a recovery after weak numbers between September and February. It
certainly exceeds the number of new single family homes that closed escrow in March. We will have to
wait and see if the usual increases during the spring are enough to create some improvement in the
chronic housing supply shortage that Greater Phoenix is currently experiencing.Out of State Purchasers
The percentage of residences in Maricopa County sold to owners from outside Arizona was 22% in
March 2013 by unit count, the same as in February but down substantially from the peak of 29% that we
saw in April 2012. Californians increased their market share from4.7% to 5.1% over the last month and
strengthened their normal position asthe largest group of out of state buyers. Canadians fell once again
from 3.2% to 2.9% to take second place. Washington, Colorado and Illinois were once again the next
most numerous locations for home buyers in March, unchanged from January and February.
Cash Buyers
For some considerable time, cash purchases have been running at an unusually high level due to the
volume of investor activity,most sellers’ preference for cash offers over financing, and extreme
reluctance among most lenders to market jumbo loans. In Maricopa County the percentage of
properties recording an Affidavit of Value and purchased without financing was 33.4% in March 2013,
down from39.8% in March 2012. For comparison, in June 2007 we saw 8.3% of sales being completed
by cash buyers. Cash purchases are most dominant at the lowest end of the market, but have been
important at the high end too, where jumbo loan availability is significant. The largest percentage of
financed purchases occurs in the mid-range:
• Under $150,000 47.4% cash (50.1% last month)
• Between $150,000 and $500,000 24.6% cash (26.3% last month)
• $500,000 and over 27.9% cash (35.1% last month)
We note that jumbo loans appear to be becoming more common as cash purchases of properties of
$500,000 and over saw the largest percentage reduction. It would be a mistake to assume that all cash
purchases are by investors. Many owner occupiers pay cash too, especially at the highest price points.
The analysis above excludes bulk sales between investors. It also excludes HUD sales and third party
purchases at trustee sales because these do not generate Affidavits of Value.
Investor Purchases
When someone buysreal property in Arizona, an Affidavit of Value is usually recorded by the county.
The new owner indicates whether the property will be occupied by the owner or a family member, or
instead will be rented to someone other than a family member. An owner occupier may also indicate
whether or not it is their primary residence or a secondary home. Studying this information gives us a
good idea how many homes are being acquired by investors.
However affidavits are not required for HUD sales or trustee sales. HUD sales are usually oriented
towards owner-occupiers while investors dominate trustee sales. We have therefore combined HUD
sales with the owner-occupied purchases and combined trustee salesto third parties with the investor
purchasesto estimate the percentage of the total market represented by investors.The percentage of individual single family and townhouse/condo parcels acquired by investorsin March
2012 and March 2013 are as follows:
Mar 2013 Mar 2012 Mar 2013 Mar 2012
Maricopa Maricopa Pinal Pinal
Investor % 27.5% 33.9% 23.6% 27.8%
These percentages are higher than the historical norm and indicate that investors are still very active
acquiring homes to rent to tenants, many of whomhave lost their former homes to foreclosure or
through a short sale. The percentage of homes acquired by investors rose significantly between 2011
and mid 2012 in both counties but the overall percentage for the combined counties has declined from
39.7% in July 2012 to 27.5% in March 2013. This appears to be a significant downward trend.
Lot Sales
Now that homebuilders are ramping up production we aremonitoring their purchases of finished and
partially improved lots. For several years since 2007 these properties have mainly been purchased by
investors but since May 2012 the homebuilders have been scrambling to provide themselves with more
lots on which to manufacture their products. In parallel,several have started to purchase raw land with
the intention of subdividing.
During December 2012 we saw a large number offinished and partially improved lot purchases by
developersrecorded at the county. However this volume dropped off dramatically in January and
recovered only slightly in February. March’ssales were as follows:
County City ZIP Lots Subdivision Developer $ per Lot
Maricopa Buckeye 85396 4 Verrado K Hovnanian $32,500
Maricopa Buckeye 85396 100 Sienna Hills Richmond American $55,000
Maricopa Cave Creek 85331 38 Lone Mountain Richmond American $173,890
Maricopa Chandler 85249 3 Avian Trails T3 Homes $128,667
Maricopa Chandler 85249 1 Barcelona at Valencia Weekley Homes $100,000
Maricopa Fountain Hills 85268 1 Fountain Hills AZ FP Desert Custom Homes $54,000
Maricopa Gilbert 85298 3 San Tan Estates K Hovnanian $75,000
Maricopa Gilbert 85295 9 Cooley Station T3 Homes $40,000
Maricopa Gilbert 85295 5 Casa Rica T3 Homes $142,000
Maricopa Gilbert 85298 2 Acacia Weekley Homes $152,975
Maricopa Gilbert 85297 1 Stratland Shadows K Hovnanian $168,356
Maricopa Gilbert 85298 99 The Bridges at Gilbert Shea Homes $57,375
Maricopa Gilbert 85298 88 The Bridges at Gilbert Lennar $72,875
Maricopa Gilbert 85295 106 Cooley Station Ryland $53,000
Maricopa Glendale 85302 1 Beacon Heights Garrett Walker $44,300
Maricopa Goodyear 85395 9 Palm Valley Maracay $79,333
Maricopa Goodyear 85395 43 Palm Valley Gehan $91,000
Maricopa Goodyear 85338 6 Montecito Village Maracay $35,000
Maricopa Goodyear 85338 78 Travis Park Richmond American $66,000
Maricopa Litchfield Park 85340 4 Village at Litchfield Park Shea Homes $60,000
Maricopa Litchfield Park 85340 28 Bethany Estates South Richmond American $62,000
Maricopa Mesa 85207 3 M&B VIP $32,000
Maricopa Mesa 85212 66 Eastmark Meritage $75,000
Maricopa Peoria 85383 1 Ventana Picachos Shea Homes $150,000Maricopa Peoria 85383 2 Blackstone at Vistancia Taylor Morrison $102,000
Maricopa Peoria 85383 7 Travata K Hovnanian $40,853
Maricopa Peoria 85383 5 Blackstone at Vistancia Weekley Homes $120,000
Maricopa Phoenix 85083 20 Gold Mountain Preserve Camelot Homes $88,700
Maricopa Phoenix 85041 51 Veneto K Hovnanian $38,000
Maricopa Queen Creek 85142 1 Ash Creek Fulton $69,000
Maricopa Queen Creek 85142 1 Crismon Heights Mint Construction $137,284
Maricopa Queen Creek 85142 113 Sossaman Estates Richmond American $107,150
Maricopa Scottsdale 85255 1 Pinnacle Peak Place K Hovnanian $275,000
Maricopa Sun City 85373 11 Rio Sierra K Hovnanian $57,988
Maricopa Surprise 85379 13 Greer Ranch North Courtland $55,000
Pinal Maricopa 85139 4 Alterra South SKR Construction $38,000
Pinal San Tan Valley 85143 2 Circle Cross Ranch Highland $40,000
Pinal Florence 85132 12 Magma Ranch LGI Homes $26,000
March’stotal of 942 is far higher than February’s 341 but still looks meager compared with the 2,272
lotssold in December. It is balanced with the number of homes that closed escrow in March.
The average price per lot paid by developers was $72,980. Prices have risen substantially in the last year,
particularly in the most desirable locations. Although there are still some purchases being made by
investors, they now tend to be the sellers rather than buyers in the majority of finished lot transactions.
There was a very strong concentration geographically last month with more than half of the purchased
lots in a tight area around Southeast Gilbert, Southeast Mesa and Queen Creek. This is clearly going to
be a hot area for new home building in the forthcoming years.
Outlook
The housing market remains dominated by a chronic supply shortage. The total number of active listings
has declined still further since last month and the shortage continues to get more severe among the
most affordable sectors. Price rises caused by the shortage exacerbate the situation for first time home
buyers making even fewer properties available within their target price range.
During March we hit the peak of the buying season that usually lasts until the end of June. In the January
report we predicted that prices would rise significantly during this period. In the two months of February
and March average price per square foot has indeed risen 6% for single family homes. In the coming few
months this upward pricing pressure is likely to continue.
Strong demand from investors is slowly subsiding to be replaced by increased demand from owneroccupiers and second-home buyers. Investors are increasingly looking elsewhere to find the bargain
properties they seek. However demand is not the unusual factor here. Demand is only slightly elevated
froma normal level forthe market. It is the unusual lack of adequate supply that dictates what will
happen next.
Normally we would see a supply of newly constructed homes sufficient to keep pace with the increase in
population. But the construction industry remembers all too well the period from 2003 through 2007,
when homes were built in excess of population needs. This contributed to the disaster that struck in 2008 and resulted in many lay-offs and even bankruptcies for some developers. As a result the
construction industry refuses to risk that happening again. For now, it looks like developers will probably
build fewer than half of the homes necessary to keep pace with current population trends. In any case
too many of the prospective buyers are unable to qualify for the loans they would require or come up
with the substantial down payments, so they remain as tenants keeping the occupancy rates for rental
homes high.
Higher prices would normally encouragemore ordinary home sellers to enter the market. But it seems
many potential sellers are either locked in by negative equity and/or are on the sidelines waiting for
prices to rise further. At some point we will reach a pricing level where re-sale supply will free up, but it
seems clear we are not there yet.
In the current market, most homes below $600,000 that are priced realistically attract multiple offers
within a short time, and for homes under $250,000 those offersmay exceeded the asking price. When
the bottom end of the market increases markedly in price, the market above it has to rise to maintain its
price differential. There is far more supply available in the market over $800,000 and in the active adult
sector, but confidence is improving and demand is increasing so these prices are also joining in the
general trend upwards.
Although large price increases have been occurring for well over a year now, appraisals remain a
significant problem area, preventing some transactions from completing. The appraisal industry has a
difficult time allowing for 2month price changes of 6% as we just saw in February and March. Appraisals
based purely on the prices of homes sold more than one month ago will sometimes lead to appraisals
well below today’smarket levels. Many appraisals do nottake the current upward trend into account.
This is understandable given the criticism they received for doing that in 2006. However this is a very
different market from 2006.
In certain areas, supply has increased a little, but this ismostly additional supply at the top end of the
market and of no help at all to first-time buyers. Each month there are fewer and fewer distressed
homes among the available inventory, so sellers are firmly in control.
The number of active new home subdivisions has crept up slightly in the first fewmonths of 2013, but
we remain in the mid 300’s(334 as of April), still way below the 600 or so we would see in a normal new
home market.Homebuilders are seeing traffic levels at their highest since 2007, but new home contract
signings, while as strong as last year, are not meeting their higher expectations. There are clearly plenty
of people who wish to buy homes, but for a significant proportion of them, increased pricing means they
face an affordability challenge. With all the recent talk in the media about “another bubble”, perhaps
they believe (or hope) prices may come back down if they wait. This is an ill-advised strategy. Given the
balance between supply and population growth in Phoenix, prices are unlikely to fall below today’s level
and are more likely to continue to climb for a very long time.
Building land, materials and construction labor costs are all rising as subcontractors struggle to attract
additional people into their workforce. The resulting increase in new home costs will create a vacuum
which will tend to pull resale pricesstill higher while the inventory shortage prevails.Anyone who needs to buy a home in Greater Phoenix would probably be better advised to do so now
rather than wait, since waiting will almost certainly mean a higher purchase price and possibly a higher
loan interest rate too.
Source & Acknowledgement
The sales and foreclosure transaction data used in this report was compiled by the Information Market
LLC (www.theinformationmarket.com). ASU wishes to thank them for their extensive cooperation in
creating this report. We would also like to thank ARMLS Inc. for permission to use the active listing
statistics from their monthly STAT report and Belfiore Real Estate Consulting for data related to new
home construction and sales.