Is the Arizona Real Estate Market Balancing Out?
WPCarey: The numbers are in for real estate activity in the Greater Phoenix area in November, and they show that the cooling that began this summer continued through the first of December. Michael Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School and author of the monthly market report said that the median sales price for a single family home was unchanged between October and November.
Michael Orr: The market is pretty much balanced as of November between buyers and sellers, so there’s no real upward pressure. I’m not really expecting a lot of change in pricing in the near term because we’ve now gotten to a balanced market.
WPCarey: Supply was growing, but not as quickly as it was in October, Orr said. Demand, however, was down in November, especially if you compare it to November 2012.
Orr: Part of that, I think, is because of the disruption in October and actually early in September as well; because by the government shutdown and all of the fuss going on about potential default, that tends to put people off home shopping. And if they’re not shopping in September, October then sales don’t happen in November. So, a significant drop, disappointing to those people who work in the industry and base their income on volumes, but it’s probably more of a short-term effect than any serious, long-term issue.
WPCarey: The greatest activity in the market continues to be at the high end — a 180-degree turn from the recent past, when luxury homes weren’t selling and modest properties were hot.
Orr: The bottom end of the market is suffering from a lack of investor interest. Prices have gone up a tremendous amount and it’s no longer so obvious that you’re going to make money if you can actually find a home to buy. The problem for investors in 2012 is there just wasn’t enough to go around, so they were bidding each other up. Now the investors have decided Phoenix is expensive enough and there is far less investor activity. So, good news for buyers at the low end and they’ve got less competition. But the transaction rate has gone down quite dramatically there.
WPCarey: It’s a whole different story if you’re selling or shopping for a luxury property.
Orr: In the higher end of the market, we’ve still got a relatively healthy situation because we’ve got a stock market that’s doing well. That tends to make wealthier people feel well off and more likely to either upgrade their home or buy an extra one. Also, the financing situation in the high end of the market is a much easier situation than it was last year. So, if you don’t want to buy cash, you can get finance much more easily.
WPCarey: It’s difficult to predict what will happen next because the market is balanced. The signs are subtle and sometimes contradictory, Orr said. Between September 2011 and summer of this year when the market was roaring ahead, it was easy to see that the momentum would carry for quite some time. Not so anymore.
Orr: So we’ve now reached a sort of delicate balance point and I’m looking for signs of which direction the government gets weaker still or does it start moving ahead. Seasonally, we’re usually into a growth period once we get over the year-end. So as we’re talking now, the beginning of January, I’m looking to see how fast contracts get signed, how fast new listings come along.
WPCarey: Orr says he thinks the market will get slightly better from a seller’s perspective without taking anything away from the buyer.
Orr: But it’s still a good time to be a buyer because there’s plenty of choice, not so much competition, prices are not moving up but they’re sort of stabilized and therefore the only obstacle really, is financing. Are you going to be to get financed with all of the changes that have been going on with the implementation of the Dodd-Frank Act and all these other things? Quite a lot of new rules around in financing, which is probably the thing that is going to confuse most people.
WPCarey: The calm market can be unnerving in a city that’s gotten used to boom and bust cycles in real estate.
Orr: I think people are starting to get adjusted to this sort of new situation. So, people are only putting more effort into marketing homes now, they don’t sell in the first couple of days after they’re listed. You’re actually going to have to try hard if you’ve got a listing, to get it marketed and actually attract an offer, instead of fending off the buyers. What’s been challenged in the last two years has been deciding which of the five or six offers or more that you’ve got to deal with.
WPCarey: The Greater Phoenix Housing Market Report comes out monthly. The analysis and data may be found at wpcarey.asu.edu/realtyreports