Mike Orr from the Cromford Report wrote this concise appraisal of the Phoenix real estate market. He touches on a lot of important point. Definitely worth a read, if you are have any interest in real estate at all.
Looking Forward
I was recently sent a list of questions about what changed in the Greater Phoenix residential real estate market during the first and second quarters of 2009 and the outlook for the rest of the year.
Here are the Cromford Report’s responses:
1. What changes are you seeing in real estate trends now compared to first quarter?
The first quarter saw a rapid run up in demand that started to reduce supply levels from March onwards. However prices fell quite sharply across the board. The demand strengthened even further in the second quarter resulting in a large reduction in active listings, especially of lender-owned properties. Overall pricing in Greater Phoenix ceased its long decline in April and rose through the rest of the second quarter. However several important sectors are still seeing price declines – including properties over $350,000, condos, and mobile homes.
2. Are these different in Arizona compared to the rest of the country? What trends are specific to just our area?
Since we don’t track the rest of country, or even Arizona outside the Maricopa/Pinal area, we are not really in a position to answer this question fully. However the demand level in Greater Phoenix is clearly unusually high due to the dramatic fall in pricing between mid 2006 and 1Q 2009. Phoenix is once again one of the most affordable areas of the country. We are seeing unusually high buying interest from Canadians while Californians are under-represented compared with historical levels
3. Are there any trend differences across major Arizona cities – Phoenix, Scottsdale, Mesa, Tempe?
Scottsdale is seeing only a moderate increase in demand and prices continue to fall unlike most other major cities. This is due to the predominance of luxury homes and condos, both sectors with excess supply that are not yet in the recovery phase. The 2009 recovery has been strongest in the areas which were most dominated by the glut of lender-owned homes in 2008. These also suffered the most severe price declines prior to 2009. They include West Phoenix, South Phoenix, Glendale, Avondale, Queen Creek & Maricopa. In general the trends are defined by price range more than geography right now.
4. What are the biggest challenges for real estate agents right now?
The biggest constraint on sales volumes (and hence realtors’ incomes) that we see is the tight availability of finance which is constraining most buyers ability to get the homes they want. Credit approval guidelines are stricter than at any time in recent history and the lenders’ procedures during escrow are often onerous and slow. The lack of attractive finance above $417,000 is an important reason why the high end of the market continues to suffer. The absence of appropriate lending controls was the single most important cause of the housing bubble. The strict controls we now see are extending the recession’s damaging effects. As a result, buyers paying with cash dominate sales and the situation heavily favors liquid investors when competing for the attractively priced lender-owned homes. Investor loan terms are deeply unattractive at the moment, so would-be investors without capital are largely on the sidelines. If investors were able to get attractive financing or the incentives that first time buyers receive, the market would be even stronger. We also see appraisals coming in too low for the new market conditions with prices increasing in the lower price ranges. Some appraisers are still acting as if we were in a declining market. For agents, short sales are becoming a way of life so learning how to conduct these efficiently and successfully will be a key challenge.
5. What do you predict will change in third and fourth quarter?
We see a period of consolidation. Prices will not go up quickly from the current levels. There will still be a strong supply of foreclosed homes and the current price levels seem to have found a balance between demand and this supply. REOs will continue to sell quickly and their pricing will probably continue to rise though more slowly than in the second quarter. Short sales will become the dominant type of transaction and their pricing will probably stabilize. Luxury home volume will improve as their prices come down faster. The November cut-off for the $8,000 tax credit will drive demand from first time buyers trying to beat the deadline. This will probably make the buying frenzy for properties under $200,000 even more frenetic. We expect to see a strong fix-and-flip market turning lender owned properties into attractive starter homes. Landlords buying and renting out single family detached homes are likely to continue to steal market share away from the multi-family sector.
