Phoenix Metro Real Estate Check-Up

The health of a residential real estate market can be written about in many ways, often depicting(or spinning) the author’s own viewpoint or opinion. Certainly as real estate professionals we’re prone to do this as much as anyone, so it’s best just to let the facts speak for themselves.

Home Prices Running Steady

In 2004, our local Phoenix Metro area began an upward rise in the median sales price that reached a frenetic peak in July of 2006. In January of 2001, the median sales price in the Phoenix Metro area was $128,000. Three years later it had risen to $151,000, a robust increase of 18%, or 6% per year. Then it went up 14% the next year (2005). Then it soared to its peak in July of 2006 at $260,000. I think we all agree that this price rise was NOT HEALTHY. Just as dramatically unhealthy was the market collapse that saw the median sales price drop to $110,000 in October of 2011, a frightening 58% in 5 years with most of that decrease happening in just 18 months during 2008-2009.

Since 2011, prices have been steadily rising. I realize that “steadily” is not very sexy but in fact, it beats the heck out of two up and down market flings that ruined millions across the country and hundreds of thousands in Arizona. Perhaps steadily should be the new sexy. Prices are again rising, as are rental rates, Arizona’s population is increasing again, jobs are being created, and new home construction is heading up. This is evidence (see below) of our states residential real estate health.

Foreclosures Have Virtually Disappeared.

Foreclosures, which saw hundreds of families lose their homes weekly, have swung to an amazing,almost nation leading, basement rate of .05%. Arizona ranks 43 out 51 states (including DC) for non-current loans and 49 out of 51 for homes in foreclosure. Considering that just a few years ago we were leading the nation in foreclosures, this is an amazing turnaround.

Michael Orr (Cromford Report/ASU) details how the Black Knight Financial Service Mortgage Monitor report for March shows a dramatic fall in mortgage loan delinquency over the past 2 months. There is something of a seasonal pattern in these numbers and January to March is the time of year when the delinquency rate tumbles almost every year. However, it is significant that the total delinquency rate for the USA is now at pre-housing crisis levels and the 30-day delinquency rate is the lowest in well over 15 years.

To provide some perspective, these states have the highest rate of foreclosures compared to AZ’s .05%:

  1.      New Jersey 4.3%
  2.      New York 3.7%
  3.      Hawaii 3.5%
  4.      Maine 2.7%
  5.      Florida 2.6%
  6.      New Mexico 2.4%
  7.      Delaware 2.3%
  8.      District of Columbia 2.2%
  9.      Rhode Island 2.2%
  10.      Connecticut 2.1%

New Construction Permits Highest in 9 Years

For the first quarter of 2016 there were 4,436 single family permits in total, up 33% from 3,333 last year and the highest number since 2007, when there were 8,710. Mesa and Chandler are the two cities with the fastest growth in new home construction while Goodyear and Gilbert are decelerating.

The top locations so far in 2016 are:

  1.         Phoenix 656 – up 47% from 445 in Q1 2015
  2.         Mesa 478 – up 76% from 271
  3.         Gilbert 468 – down 1% from 475
  4.         Peoria 374 – up 22% from 307
  5.         Unincorporated Pinal County 358 – up 37% from 261
  6.         Chandler 340 – up 73% from 196
  7.         Buckeye 314 – up 64% from 191
  8.         Queen Creek 239 up 24% from 192
  9.         Scottsdale 212 – up 13% from 187
  10.         Goodyear 200 – down 17% from 242
  11.         Maricopa 200 – up 36% from 147

So without exaggerating, based on these stories anyway, we’d have to say this checkup went pretty well.

Reverse Mortgages. A Risk? A Strategy? Or a Risky Strategy?!

Well, now that I’ve turned 62, more senior financial options are presenting themselves to me even besides being able to take Social Security payments, though I won’t just presently. Since this is a real estate column, I’ll discuss one of these options as it relates to your home sweet home; the “Reverse Mortgage.”

Many seniors today own their homes free and clear or very nearly free and clear. Quite a few of them are also living on Social Security alone, or close to it. By leveraging some of their home equity to receive monthly payments, their quality of life could substantially improve. Using their equity in that way however, is also one of the downsides as there could be less inheritance for family members down the line.

Reverse Mortgages have been around since the 80’s and originally they did not have such a great reputation. Nowadays most folk don’t even know they exist. If they knew more about them, they might want to consider checking into the program. It has its advantages. But first,what is a Reverse Mortgage?

A reverse mortgage is a type of home equity loan for homeowners who are 62 or over. It does not require monthly mortgage payments. The loan is repaid after the borrower moves out or dies.  It is also known as a home equity conversion mortgage, or HECM. People who can benefit from a reverse mortgage include people that:

  • Don’t plan to move.
  • Can afford the cost of maintaining their home.
  • Want to access the equity in their home to supplement their income or have money available for a rainy day.

To qualify, borrowers have to be at least 62, own their home outright or carry a mortgage small enough to be paid off by the proceeds. There are no income or credit qualifications, although homeowners are responsible for paying the annual taxes, property insurance and maintenance. No loans have to be repaid until the owners move or die, in which case the bank takes its share and anything left goes to the heirs. However, if the owner fails to pay insurance and property taxes, the reverse mortgage is deemed in default and the owner is in danger of foreclosure.

Disclosures and protections are much better than they were back in the 80’s. Like any financial product, it’s a good idea to get wise counsel from an attorney, family member or trusted friend. As always, the best advice often comes from someone who isn’t financially remunerated from their advice.

To learn more about Reverse Mortgages and their benefits and risks, check these links:

Buyer Desire for More “Move-in Ready” Homes

When my family relocated to the Valley in 1994, it was a hot new-home sales market. North Scottsdale in particular was building incredible communities such as Grayhawk, McDowell Mountain Ranch, Scottsdale Mountain, Scottsdale Ranch ad infinitum. These brand new communities also provided top notch amenities, and certainly qualified as move-in ready at the time.

Fast forward 20 years. The communities are still a huge draw, but the new home newness has worn off. These upscale homeowners have discovered that roofs leak, heating and A/C units fail and need replacement, hot water heaters were probably replaced 2-3 times, and exteriors need attention/painting, again.  In short, they are no longer “move-in ready.”

And that’s just the outside.

Inside, that wonderful Corian hard surface countertop is still in great shape, just not what HGTV is serving up in 2016. Slab Granite is still popular, but 10 year old granite counters look like, well, 10 year old granite counters. Quartz (engineered stone) and newer designed slab granite are the new popularity winner. Even the wonderful Travertine tile that was so “in” ten years ago is now showing its age susceptibility. Hardwood (always in), and wood-design tiled floors are the new (old) kids on the block. Here’s a good website to check out:            

It’s no accident that flippers are again starting to experience a lot of success in the Phoenix Metro real estate market. They are providing a finished product much in demand, especially with the rise and success of HGTV cable TV programs, such as “Love it or List It,” “Fixer Upper” and “Property Brothers” among others.

“Local sellers are taking quite the hit on price if they’re not updated, and if the updating was ten years ago, that’s ancient, design-wise. Buyers want new and now…”

Local sellers are taking quite the hit on price if they’re not move-in ready, and if the updating was ten years ago, that’s ancient, design-wise. Buyers want new and now, which is a big reason why new home sales are taking off again in the valley. Though many buyers would love to remodel new, very few buyers have the additional cash required to accomplish that expensive feat. In the financing heydays of not that long ago, but before the crash, banks were so happy when you closed on your home they gave you a $50,000 line of credit at closing which you didn’t even have to spend on your home. Hey, new car, vacations, you name it. Spend it. Well, no more.

For someone who has the financial resources, there are very good buying opportunities availing themselves right now, because these outdated but well located homes are not getting decent offers, if any at all. They’re lagging on the market if not priced aggressively. Prices for homes over $500,000 are slipping.

It’s now apparent that we are in a difficult market for homes that are not “move-in ready.” What’s an owner to do if they’re thinking of selling? Here are some options:

1)     Price it aggressively

2)     Rent it out if you’re relocating

3)     Stay, fix it up and enjoy it

4)     Stay, don’t fix it up and enjoy it

On the positive flip side, if your home is “move in ready” or fairly close to it, you will do well. Best neighborhood price, shorter market time.

Will Larger Expensive Homes Go Away?

As we’ve been reporting fairly regularly, price matters. The more expensive a home is, the fewer the buyers who can afford even looking at a home. Yes, this would seem to be obvious to even a casual market observer, but if that’s so, we could actually be in a long term national trend that’s worth pondering, at least for someone whose profession is to sell homes.

According to Stephen Kim of Barclays, and several other national analysts, ‘a long term trend is currently underway that theorizes that a wave of empty nesters is seeking to downsize, and now that the market has recovered from the crisis of 2006-2009 they are planning to do so in greater numbers. If a large number of boomers want to sell their suburban expensive home at the same time, we are going to see an imbalance of supply and demand. Today’s younger buyers appear to prefer density and proximity to urban facilities like shops, restaurants and entertainment. Far fewer of them are playing golf. In any case, can enough of the younger generations afford to live in suburban luxury even if they wanted to? The “boomers” are the ones with the equity. Gen X (early 60’s to early 80’s) was badly hit by the foreclosure wave and many of the millennials are still deciding what they want. We are seeing a rise in discretionary renting, where older homeowners sell their large homes and move into smaller rental homes. They appear to prefer upgrades and amenities to square footage. They are probably using their home equity as a source of funds to enjoy their retirement.’

” ‘…We are seeing a rise in discretionary renting…’ “

If the above is true, it certainly makes for interesting discussion. I think it could definitely have an impact on builders in their consideration of the size of homes to build in their communities. I think one possibility is that the large suburban luxury home becomes at least tri-generational that will fit boomers, boomer’s parents, X, and maybe even Y (1982-2004) generations. In order to accomplish that, major remodeling will need to happen, which will reinvigorate the construction industry from new to re-new.

In the Phoenix metro area, we’re currently seeing many active listings above $500,000 with (according to Michael Orr of the Cromford Report) an average sales price per square foot of $232, down from $237 in August. Unlike the median price, the more expensive homes affect the average sales price more than the median sales price. This, according to Orr, reflects the oversupply in the higher price ranges. If the higher priced homes don’t fetch higher dollars, owners may keep reducing the price to get it sold, or rent it out living in smaller accommodations or retirement oriented communities.

In order to afford the more expensive homes, higher incomes are needed, be it with those moving to Arizona, or higher paying jobs that are created in the state. We’ve certainly seen the latter occur, but not so much the former.

The March Toward a Sellers’ Market

Over the last few weeks, some positive trends have given sellers’ encouragement.  If you follow our market index you’ll notice that over the last couple of market updates it has been ticking upwards, whereas over the last month or so it had been doing the opposite.

It seems as though the pace of new residential listings hitting the market has slowed, which is of course favorable to sellers as they have less competition to deal with.  At the same time, demand does not seem to be slowing.  This is particularly true in parts of the valley where the $250k and under homes are to be found.

Phoenix, Avondale, Glendale, Mesa, Gilbert, Surprise, Peoria, and Buckeye have all seen 2-7% rise toward a seller’s market over the last month.

Unfortunately, a few areas have seen the opposite trend and are actually, contrary to the metro area averages, pacing downward towards buyer markets, and quickly at that.  Tempe, Fountain Hills, and Paradise Valley have seen slopes of 11-16%.

All real estate is local, and the market is always moving.  For personalized info for your home in your neighborhood, we are always here!