Phoenix Metropolitan Area Market Information First Quarter 2013
One of the biggest components of the Phoenix-Mesa-Scottsdale MSA has traditionally been new home construction and commercial real estate development. Those segments of the local economy have suffered major setbacks in the past few years and it will take 2 – 3 years for these drivers of the economy to stabilize and begin experiencing real growth. New single-family home permits exceeded 58,000 in 2005 and have decreased dramatically to 6,794 new, single-family home permits issued in 2011. Projections for the number of new single-family permits to be issued in 2012 have been recently revised downward to approximately 7,000 permits. The single-family resale market is also still struggling but most forecasters and economists believe we almost “bottomed out” by the end of 2011 and the residential resale market will continue to make slow, steady progess in 2012. Median resale price in 2011 was $125,000 and average resale price in 2011 was $168,000 according to the Arizona Regional Multiple Listing Service. Median sale price in 2011 was $125,000 compared to $138,000 in 2010. The high-point for median sale price was 2007 when the median sale price was $260,000. It is believed that this dramatic decrease in median sale price is more a reflection of the number of foreclosed properties being resold than any other factor. Home sale velocity has dramatically increased from the low-point of 54,823 sales in 2007 to 101,436 sales in 2011. 4,747 single-family homes sold in Maricopa County in January, 2012 at a median sale price of $134,900. In March, 2012, 6,454 single-family homes sold at a median sale price of $145,000. Inventories of listed properties have been decreasing since January, 2012 which is causing upward pressure on sale prices and well-priced homes are generating multiple offers within hours of being placed on the MLS. One of the positive effects of the housing collapse and wave of foreclosures in the Phoenix Metropolitan Area is that the median price of homes in this market is significantly lower than competing cities such as Los Angeles, San Diego and Las Vegas.
The real solution to the housing industry’s problems is that the inventory of foreclosed properties must be “cleared” before the market can make a serious recovery which seems to be occuring since the beginning of 2012. Notices of Trustees Sales decreased throughout 2011 and there were 35,855 foreclosures in the Metro Area in 2011 versus 41,625 foreclosures in 2010. One of the biggest “positives” to our current residential market featuring depressed/low sale prices is the impact on affordability for Phoenix buyers. According to the National Association of Home Builders, Phoenix enjoys one of the highest rates of affordability in the Southwest. Based upon the percentage of new and existing homes sold during 2011, a high percentage of families in Phoenix that earn the area’s median income can afford to purchase a home. These statistics portend very well for Phoenix going forward as the economy improves, employment gains are realized and the area experiences net inbound migration.
Other than in the multi-family category, the investment property market is not back to pre-recession levels but sales activity did increase significantly in 2011. Investment sales in 2011 increased by over 60% when compared to 2010. The sale of retail properties increased in 2011 as more value-added, distressed and REO properties were acquired. There have been some sales of office and industrial properties but the major transactions have been large, institutional-type and/or trophy properties. Again, the most typical purchasers of these assets have been institutional and/or REITS or users.
There is still a substantial gap between “ask” and “bid” capitalization rates and many buyers are waiting on what they believe will be a significant increase in asking cap rates before they invest their capital in a purchase transaction. Many investors also do not believe we have yet “hit bottom” in the investment property category and they are not willing to invest their capital until they perceive that we have done so. It is expected that more properties ( specifically shopping centers and office buildings ) will be placed on the market in 2012 as “pretend and extend” properties become available for sale and sales volume is expected to increase in all property sectors during 2012.
Some of the most active buyers have been large, institutional-type investors that have purchased properties with cash. The financing market is still very challenging and lenders are “cherry-picking” properties and only offering financing on the very best properties. Consequently, the average investor must have the ability to purchase with cash or have available some viable method of financing.
The investment property market for 2012 should experience higher sales volume as more, smaller investment properties are placed on the market but until we experience higher job creation and net inbound migration and financing becomes more available, investment property deals will remain challenging.
Sources: Loopnet, Arizona Regional Multiple Listing Service, 2010 US Census, US Bureau of Labor Statistics, National Association of Home Builders, Arizona Department of Commerce, Central Arizona Asociation of Home Builders, ASU Realty Studies, Phoenix Business Journal, Central Arizona Association of Home Builders, CoStar, University of Arizona Eller College of Management, Blue Chip Economic Forecast, ASU-Economic Outlook Center, WP Carey School of Business, St. Louis Federal Reserve, Arizona Republic, Forbes Magazine, Praxis Strategy Group