Housing Market of 2018
While the overall Housing Market is hot, some cities are blazing. One market we wanted to point out is Phoenix, Arizona.
We took our upon ourselves here at National Cash Offer to do the research to show what the housing market looked like for 2017, and where its’ heading in 2018.
Phoenix, Arizona was one of the hardest hit cities in America during the housing collapse. This is partly the result of housing speculation and overbuilding. Thousands and thousands of homes were constructed during the heyday of the housing boom, many of which ended up vacant. We know the rest of that story.
But this market could finally be normalizing after a prolonged period of boom, bust and recovery. One recent forecast for the Phoenix housing market suggests that home prices will rise at a more modest, but historically average, pace of around 3.5% over the next year.
Housing Market | Real Estate Market | Phoenix Housing Market
Home Price Forecast Through Summer 2018
House prices in the city rose by 9.5% over the previous 12 months, according to the company’s report. That’s much higher than the average annual appreciation for the U.S., going back 30 years or so. Those above-average gains were a response to the tremendous home-price appreciation that occurred after the housing crash.
In short, this market fell a long way after 2008, and then rebounded sharply with above-average annual returns for house values.
But home prices in the Phoenix housing market now appear to be rising more slowly. The economists at Zillow recently forecast that they would rise by a more modest 3.5% between now and the summer of 2018. That’s a more sustainable level of appreciation, compared to what we’ve seen over the last couple of years.
In June, the median home value in Phoenix was around $268,000.
Phoenix Housing Market Still Below Peak Levels
Despite the significant price gains of 2016 and 2017, the Phoenix housing market is still well below the peak price level reached during the last housing boom. But that’s because prices were over-inflated at the time.
According to David Blitzer, managing director at S&P Dow Jones Indices, which publishes the long-running Case-Shiller home price index:
“It should be no surprise that it would take them a long time to get back there [to pre-recession peaks], if ever. There are things that don’t come back, or don’t come back in less than a generation.”
The bottom line here is that homeowners in the Phoenix area probably shouldn’t expect home values to return to those peak levels anytime soon.
Inventory Remains Tight, Fueling Competition
While the 2018 predictions and forecasts for the Phoenix real estate market suggest that prices are slowing, there is still a high level of competition among buyers. This is the result of limited inventory across the metro area.
The supply of homes available for sale in the Phoenix real estate market is currently falling short of demand. And even though there is quite a bit of construction happening right now, it probably won’t be enough to satisfy demand.
“We don’t really have enough new homebuilding going on to satisfy the population increase that we’re seeing,” said Phoenix-based real estate economist Michael Orr.
Given the current inventory situation, home buyers entering the Phoenix real estate market during the latter half of 2017, or in 2018, should be prepared for stiff competition. This is particularly true for choice properties located in desirable areas. The supply of homes in Phoenix is currently falling short of what’s considered to be a balance real estate market. This means home buyers are competing for limited inventory.
With these kinds of conditions, it’s best to enter the market with a solid game plan and pre-arranged financing. Cash buyers should have sufficient funds in the bank with statements to prove it. Home buyers using mortgage loans can benefit from being pre-approved by a lender, before entering the market. Sellers expect these things.
- New Listing had Decreased 2.6% from a year ago
- 2017 September Average Sold Price for Single Family Home in Phoenix AZ was $293,085
- Median Sold Price in September 2017 was $240,000
- 98% of Single Family Detached Homes sold in September 2017 are Traditional Sale
- Most expensive homes sold in September 2017 was sold for $2,725,000
Number of Homes Sold in Phoenix AZ in September 2017
Based on 2017 September statistic, we saw 1,342 single family homes sold in Phoenix AZ compare to 1,348 of last year. That’s about 40.4% decreased from September 2016. In September 2017, we saw 57 days on Market (DOM), compare to 66 in a year ago. It took average about 57 days to sell your home in Phoenix in September 2017.
Median Sold Price of Single Family Homes Sold in Phoenix AZ in September 2017
The median sold price for single family detached home in Phoenix AZ in September 2017 was $240,000. Compare to last year, median sold price in September 2016 was $238,950. That’s about 0.4% increased in a year.
Average Sold Price of Single Family Homes Sold in Phoenix AZ in September 2017
September 2017 average sold price in Phoenix AZ was $293,085 compare to $283,529 a year ago. That’s about 3.4% appreciation from a year ago.
The statistic indicate that Buyers are paying more for a home compare to 1 year ago.
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‘Growth’ or ‘Bubble’?
Michael Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business at Arizona State University, believes the Metro Phoenix real estate market is healing and stabilizing. “The idea that there is another bubble in the real estate market is absurd. We are just seeing a normal reaction to lack of supply. Prices are still below the long-term trend line and none of the conditions that define a bubble are currently in existence.”
While noting that bubbles rarely occur in the same market where they just burst, he observes that “it is fallible human nature to be over-sensitized to them.” But his view is the Phoenix market has not plateaued and will continue to rise until more sellers are tempted to sell.
What we’re seeing is a response to years of constraint, not the beginning of a bubble, according to Mark Stapp, Fred E. Taylor Professor in Real Estate and director of the Master of Real Estate Development program at W. P. Carey. “I think lending and the slow addition of supply will keep this moderated.” Stapp believes that lenders will bear the present state of the economy and people’s ability to pay. Pricing, he says, is driven by tight supply, and once supply is adjusted accordingly, percentage increases should slow down.
Economist Elliott D. Pollack, CEO of Elliott D. Pollack and Company and guest editor of this issue of In Business Magazine, also dismisses the idea of another real estate bubble brewing in Phoenix. If anything, Pollack sees a modest housing recovery. “In 2005, if you could breathe, you could probably qualify for a loan. Today, it’s very difficult to qualify,” he says. He goes on to explain that what was investment in 2005 is now a place to actually reside, and he notes that even those who are investors are renting homes and therefore not adding to the overextended supply pool.
Attorney John T. Lotardo, who covers the industry nationally as “Ask the Titleman” in addition to being senior vice president and general counsel for Stewart Title & Trust of Phoenix, Inc. and state underwriting and claims counsel for Stewart Title Guaranty Company, doesn’t speak of a housing bubble at all. He calls it a housing bounce — and a market correction — that’s definitely moving in the right direction.
There seems to be an increase in employment that enables people to re-enter the housing market, observes Greg Bielli, western regional president of master plan developers Newland Communities and board chairman of Urban Land Institute Arizona. He sees normal growth process returning. “We just don’t have the unbridled development going on because of the last four years. We went from 62,000 permits at the real estate peak to 7,000 permits, for single-family homes,” Bielli says.
Acknowledging that some believe the cost of inventory is too high in certain submarkets, Bielli says scarcity in inventory is nothing to panic about. “It’s just a little bit of a scarcity, because there really isn’t development behind in the pipeline that says there’s more inventory coming online.”
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Foreclosures’ Mark on the Market
Helping the comeback is the decline in foreclosures. So what’s behind that decline? Bielli believes the banks worked through all the foreclosures and returned homes to the market. With additional capital in Phoenix, investors purchased the homes and created business models, which included rentals. “Property management companies that are built near the foreclosed homes put renters in those homes. In Phoenix there’s been a definite correction of earlier problems,” Bielli explains.
And capital groups setting up shop in Phoenix is not a bad thing, Bielli says. “These groups bought a lot of inventory that had no buyers at the time, worked through returning capital to the banks, and I think it was a progression that actually helped to stabilize the Phoenix market.” It’s just a matter of time before these investor groups are led back into the market, but, in the meantime, they have a business model of rental homes and multi-family projects that provide housing stock for the community. “We’re gradually coming out, and a lot of us in the industry feel that’s the appropriate way,” Bielli says.
There will always be foreclosures, Stapp observes, but lenders have learned a lot from mistakes of the past. “Simply moving to foreclosure because they can isn’t the best solution, especially in a falling market.” He notes that lenders probably lost more through the foreclosure process than if they had allowed owners to remain in their homes. “Part of the issue is that the mortgages were bundled and sold into very big pools, and investors bought interest in these pools,” Stapp says. When loans fail, resolution is managed by servicers in other states, which creates a marked disconnection from the homeowner and his or her particular situation.
Other options that lenders can avail themselves of, which are less stressful to the market than mass foreclosures, are short sales, legitimate homeowner workouts and loan modifications. Stapp explains that foreclosures often damage neighborhoods whereas with the other choices, homes are not abandoned.
Forecast for the Future
Stapp believes the Phoenix real estate market is on a steady path to recovery. His forecast is cautiously optimistic, and he admits that permanent health is primarily based upon employment. “The outlook for the next several months is more of the same, but likely to include a moderation in the rate of price increases. Gains will be based on specific locations, but the Phoenix area is definitely the most desirable sub-market,” he says. But job growth is critical, and the price of homes must be tied to what is affordable; prices cannot continue to escalate without higher-wage jobs being added to the market. New home construction will add necessary new inventory, and will create a healthier supply and demand system. “But we can’t yet build enough homes to create an absolute balance. We need new homes built to help create a fluid market again, but the cost of building a finished lot and a house has to be aligned with what buyers can afford,” he reiterates.
As to whether the appraisal process will work under the present employment and other conditions, Stapp admits matters are complex. “Another factor is healing personal balance sheets and [that] relates to lenders’ comfort in lending. This is still underway and will take a few years to fully resolve,” he explains.
“The scarcity of supply is also a controller on what is now in the market place,” says Bielli. “Now, you have a situation of contraction. There hasn’t been a lot of new development in the last five years. There’s also a market stabilization put in place with regard to foreclosures — homes on the resale market — and you’re starting to see price increases. … People are starting to see a gain, and are coming back into the market,” he says.
Phoenix is two years shy of a full recovery, says Stapp — presuming the economy at large remains stable, as do federal regulations, and there are no major global catastrophes. “What is done with mortgage lending, mortgage interest deduction and the secondary mortgage market is still somewhat unclear, and the resolution over the next two years will have a big impact. We still have a broken system, and it’s not being fixed rapidly, or at all in some cases,” he says. Still, Stapp believes Phoenix is headed in the right direction, and that, in itself, is hopeful.
Pollack is also cautiously optimistic about the future, and agrees that job growth and higher employment will help, as will credit availability. “The outlook for single-family housing, in relative terms, is quite bright. Commercial markets will continue to slowly improve. Both have a long, long way to go before they are near ‘B’-word territory. No bubble here, just a recovery,” Pollack says.
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