April 26, 2016
Journal Columnist, Founder and Owner, Cromford® Report
The first quarter of 2016 got off to a slightly slow start but began to accelerate hard in March. The first quarter ended with Maricopa County unit sales for single family and condo homes up 12 percent from last year. The median sales price rose 8 percent to $229,000. However, the market balance is very different at different price points, depending on the quantity of supply of homes for sale. Demand is not the issue. It remains close to normal and has been strengthening at most price points over the latter part of the first quarter.
Supply continues to be poorly matched to this demand.
In the affordable ranges below $250,000 we see ever dwindling supply, causing homes for sale to be heavily outnumbered by buyers, including investors, millennials entering the market for the first time and those recovering from foreclosure or short sales. Annual appreciation tends to be in the 8 percent to 15 percent range for this price segment.
For those searching for affordable housing, the picture does not get any better when choosing to lease, as most rents are going up even faster than purchase prices. It is a very good time to be a landlord and not a good time to be a tenant.
For the price range from $250,000 to $500,000 we see much healthier levels of supply that are largely keeping up with robust and increasing demand. Price increases for homes in this “move-up” price segment tend to be at the relatively modest level of 2 percent to 6 percent per year. The supply of new homes is steadily increasing which helps to moderate upward pricing pressure, especially as overall demand still remains constrained by financing issues. Buyers are being increasingly selective given their wider choice. Less attractive or competitively priced listings risk being left behind. This is generating more frequent price cuts. Many buyers are showing a strong preference for new or recently updated homes.
Above $500,000 there is a plentiful supply in most areas, and that supply has reached new heights during the first quarter with a large number of new listings added. Consequently, sellers find themselves competing with each other. Although there are plenty of buyers, they have more high-end homes to choose from than in any year since 2009, so buyers have the advantage in negotiations except in the most sought after locations. As a result, prices have been showing little upward movement and in some areas they are settling back a little. Appreciation rates are typically between -2 percent and +2 percent.
New home closings were strong in the third quarter, up 38 percent in Maricopa County from a year earlier. This reinforces the evidence that buyers are especially attracted to modern designs these days. We saw a huge increase in permits during 2015 – 2016 has started with further increases over these numbers.
Urban living is gaining popularity but there are only a few opportunities to buy new townhomes and condos in the most fashionable locations. Those developments under way are seeing strong interest and contract activity is impressive. Most attached home new construction is still focused on providing apartments for rent. However, in time we see that wave receding and we expect to see growth in the number of newly built urban homes for purchase.
The West Valley had a stand-out year in 2015 and remains very strong in 2016. We also see strength in the Southeast Valley, especially for those areas close to the 101, 202 and 60 freeways as well as the major shopping areas like Tempe Marketplace and Mesa Riverview. Arcadia, South and Central Scottsdale are all increasingly popular, as are both Downtown and Uptown Phoenix.
We saw only small increases in overall pricing during the first quarter of 2016 with increases at the low end offset by weakness at the high end. The mid range is likely to see a little more movement during the second quarter as this is the peak time of year for demand.
See chart below for strongest appreciation by zip codes.
Michael Orr is the founder and owner of the Cromford® Report. Michael can be reached at firstname.lastname@example.org or at 480-262-5839. Sample of Cromford® Report data included with this article. www.cromfordreport.com.
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