Phoenix Real Estate demand for listings is up…demand is not the problem in Metropolitan Phoenix, as homes attractively priced are selling quickly as demonstrated by an average of 66 days on the market before Sold. Our issue is low supply and the imbalance between the two is clearly reflected by continued price appreciation. The monthly median sales price rose 2.9% from $175,000 to $180,000. The year-over-year increase in the median sales price for all ARMLS Phoenix sold listings showed a dramatic 27.7% increase. The median sales price is $39,000 higher than last year at this time, up from $141,000. WOW!

The average sales price for June was $236,954 which is down from $237,000 in May. The modest decline in the average price in June is not indicative of softening prices, but instead is reflective of fewer sales on the high end. With the current shortage of supply, 19,511 listings in total, upward pricing pressure will continue for Phoenix Real Estate.

ARMLS is currently showing 15,725 Active lisgins and 3,786 UCB listings, 30,000 total active listings is considered typical. UCB listings are down 45% to 3,186 from 6,859 this time last year, which is a significant change. UCB listings are comprised almost entirely of Phoenix Short Sales. Pair dwindling short sale numbers with active notices declining 55% year-over-year(17,910 to 8,027) and we have a rapidly declining distressed inventory market in the valley. While distressed sales still account for 21.5% of our total sales, one year ago they accounted for 46.8%. ARMLS defines distressed sales as a combination of short sale, preforeclosure and REO properties. If we look at the median price by category in June, the median price for a normal sale was $210,000 and the distressed median was $142,000.

As the level of distress continues to decline in Phoenix, prices will gravitate to the higher price point. New inventory in June was at 9,246 compared to 9,271 a year ago. With the current shortage of supply, and no significant changes coming with new inventory, upward pricing appreciation is inevitable. The Pending Price Index projects an increase in July in both the average and median sales prices.
Phoenix Real Estate Investors who are willing to get their hands dirty with fix up properties are doing well in a market like this. There are still distressed homes available for purchase and with some cosmetic repairs investors can really capitalize. The fact that the rates are staying low is also a good indication that buyers will be out there looking to get into their new home before the kids go back to school in August/September.

Why are so many Real Estate Investors rushing to the Arizona Investment Property Market?! Rental households comprise 34% of the housing stock, and are growing at the incredible rate of 1.6 million per year, while owned occupied households are actually declining in number. This is an incredible surge in demand. Some may say that the new American Dream is going to be “Renting”.

In a summary of the U.S. housing market, only 20% of renters live in large buildings or so called Mutli-Family Housing (20+ units), and the remaining 80% of renters live in alternative types of housing such as Single-Family Homes and Townhomes.

Approximately 55% of new renters are renting single-family homes, while 45% are renting apartments. The single-family rental markdet, which is already larger than the institutional quality apartments, is booming. Unprecedented levels of distressed home sales, at home price/rent ratios that are the lowest in decades, is driving the boom.

With some much demand for newer homes in Arizona, the supply diminishing and more and more investors coming into the valley with Big Money it is difficult to win bids out there. If you are an FHA buyer or even Conventional financing with 10 to 30% down, you are left on the back burner as cash offers of above asking price are what is dominating the market. More and more privately owned homes are becoming available on the market as opposed to just about 1 year ago when REO (Lender Owned) homes and Short Sales ruled the Multiple Listing Service.

Seems as though our market is changing for the better…although if you are an agent representing buyers, you are probably having a hard time getting your clients into something in today crazy market.

In 2011 we experienced a relatively stable and predictable Arizona Real Estate market with very little price movement. In 2012 we have a very different and dynamic market in which dramatic change is not only to be expected, but is already happening. Prices have moved in the single month of March 2012 more than they did in the whole of 2011. In these circumstances it is very difficult to appraise homes accurately, and in many cases appraisals are coming well below current market pricing. Normally this would act as a brake on price movement, but as so much of our market is cash-based, with the buyer waiving the appraisal contingency, the braking effect is less than normal.

Let us look at some basic numbers for March 2012 relative to March 2011. So for all areas & types we record the following:

Active Listings (excluding AWC): 14,175 versus 30,230 last year – down 53%
Active Listings (including AWC): 21,841 versus 37,246 last year – down 41%
Pending Listings: 11,964 versus 12,923 – down 7.4%
Monthly Sales: 8,782 versus 9,952 – down 11.8%
Monthly Average Sales Price per Sq. Ft.: $93.06 versus $82.13 – up 13.3%
Monthly Median Sales Price: $129,900 versus $110,000 – up 18.1%

So we can conclude that supply is down dramatically year over year, while pricing is clearly well up over last year at this time. It is no longer possible to measure demand freely since it is now heavily constrained by the lack of supply. Sales volumes are nearly 12% down on last year, so this suggests at first sight that demand has fallen. However we know that sales numbers would be much higher if more homes were available. That is why multiple bids have become the norm for most properties under $450,000 and this supply shortage means the upward pricing pressure is continuing.

We have a confirmed market price bottom during the third quarter of 2011 and we are now a comfortable 18% above that low point when measured by average $/SF, and 21% above when measured by monthly median sales price. The average Arizona home has a price per square foot for pending listings on Apr 1 of $91.68. The improvement in pricing is due to two separate factors:

Prices are increasing when comparing like with like properties
The sales mix is changing in favor of higher priced normal sales and flips and against distressed sales (especially lender-owned homes)
With annual appreciation now in highly positive territory we repeat our analysis of which cities are looking strongest from that perspective. Here’s a ranking table which shows the change in monthly average sales $/SF between March 2011 and March 2012 for single family detached homes:

Coolidge – up 33.5%
El Mirage – up 23.5%
Maricopa – up 22.8%
Florence – up 20.7%
Buckeye – up 20.6%
Queen Creek / San Tan Valley – up 19.2%
Eloy – up 16.8%
Casa Grande – up 15.5%
Waddell – up 14.7%
Tolleson – up 13.8%
Phoenix – up 13.8%
Avondale – up 12.7%
Apache Junction – up 12.4%
Chandler – up 11.9%
Mesa – up 11.6%
Cave Creek – up 11.2%
Peoria – up 10.7%
Glendale – up 10.0%
Laveen – up 9.0%
Surprise – up 8.0%
Gilbert – up 7.5%
Wittmann – up 5.7%
Scottsdale – up 4.9%
Youngtown – up 4.9%
Anthem – up 4.7%
Litchfield Park – up 4.0%
Arizona City – up 2.5%
Goodyear – up 1.4%
Fountain Hills – up 1.2%
Sun City – up 1.2%
Tempe – up 0.8%
New River – down 0.7%
Paradise Valley – down 6.3%
Rio Verde – down 6.9%
Carefree – down 8.4%
Sun Lakes – down 8.4%
Sun City West – down 11.9%
Wickenburg – down 12.5%

It is surely encouraging that we have 18 cities showing double digit appreciation rates, including the giant cities of Phoenix and Mesa. Scottsdale is now well into positive territory but is held back by its relatively slow super-luxury segment, as are Paradise Valley and Carefree. The active adult cities are also much weaker than average.

There is another obvious pattern here. Those cities least affected by foreclosures are seeing the least improvement in pricing (with several still showing negative appreciation). Those with a history of very high foreclosure rates and huge price collapses in 2006 through 2009 are seeing the fastest price improvement as distressed properties start to become a much smaller part of the market this pertains to high investment property areas of Laveen Tolleson, Avondale and Buckeye. So for example we have Coolidge, one of the most devastated cities where developers pulled out and abandoned their subdivisions, and prices fell by 79% from April 2006 to February 2011. Coolidge has seen average monthly sales $/SF jump by over one third in 12 months. Now it has to be admitted this is a jump from an eye-wateringly low $27.45 to a still very low $36.65 per sq. ft., but 33% is still a healthy percentage growth in value in anybody’s book.

We also note that Pinal County is extremely strong, and much of the west valley and southeast valley is doing well. One exception is Tempe, where appreciation is a modest 0.8%. Tempe saw fewer foreclosed homes because it had very little new construction and therefore fewer problem purchase-money loans issued during the crucial bubble period of 2004 to 2007. Its pricing therefore stayed higher for longer than most of its neighbors.

So what we are seeing so far is primarily a strong bounce back for the over-corrected areas. We are still a long way below the long term trend line for Greater Phoenix pricing. So despite the increases so far, housing is still very cheap by any historic measure and relative to our surrounding states. The recovery is still in a very early phase and the supply shortage is yet to have a big impact on normal (non-distressed) transaction pricing.

The Maricopa County foreclosure statistics are:

New Notices of Trustee Sale: 4,487 versus 4,584 in February – down 2.1% for the month
Trustee Deeds Recorded: 2,091 versus 2,219 in February – down 5.8% for the month
To put the current levels of foreclosure in proper context we need to compare March 2012 to March 2011:

New Notices of Trustee Sale: 4,487 versus 5,693 – down 21.2%
Trustee Sales: 2,091 versus 5,173 – down 59.6%
Since fewer than half of the trustee deeds were issued in favor of the beneficiary, we have a lower supply of REO properties coming onto the market than we have seen since 2007. There is still much talk of a “shadow inventory” supposedly manipulated in a conspiracy by the banks, but no sign whatsoever of it actually coming onto the market any time soon. Anyone attempting to buy a residential property in Greater Phoenix would love to see some of that mythical “shadow inventory” emerge in volume to relieve the severe shortage of homes currently offered for sale. My advice is: don’t hold your breath!

If you are looking to build a Phoenix Investment Property Portfolio, don’t put it on the back burner. Get in on this market, bid strong and still obtain newer built housing which can bring positive cash flow.

Article courtesy of: The Cromford Report

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