July 22, 2016
Journal Columnist, Founder and Owner, Cromford® Report
The second quarter was strong and healthy for the sale of homes up to $1 million, but serious problems remain for the higher end of the market above the million dollar mark.
Overall supply has fallen substantially as homes are taken off the market for the summer season. This is particularly obvious in the higher price ranges. However supply remains excessive over $1,000,000 and is still far too scarce for homes under $200,000. Between $200,000 and $500,000 supply becomes increasingly good and is matched by healthy demand. During June demand between $500,000 and $1 million improved but was offset by weaker demand over $1 million.
Most normal buyers seem to have little patience for renovation projects these days despite the glut of fix and flip reality shows on TV. There are plenty of active professional fix and flip investors, but sellers must allow for the fact that these investors are not looking to pay market price for your home.
There is still a strong demand for new or newly rebuilt homes, but older homes are suffering from too much competition and too few potential buyers. Investors with the stomach for million dollar rehab projects are few and far between, so high end homes in need of modernization can stay on the market for a long time unless priced aggressively.
There were 3,301 closings of newly constructed homes in Maricopa County during the second quarter. This is up a startling 37 percent from Q2 2015. For comparison, re-sales were up by less than 5 percent. This underscores a significant swing in favor of new homes.
One way to measure the strength of each market is to examine the annual rate of appreciation based on the annual average sales price per square foot. Comparing Q2 2016 with Q2 2015 for single family home sales prices, we can see that the appreciation rate is strongest for the Maricopa County zip codes in Chart A.
Central Phoenix and the West Valley are well represented in this top 20, with North Tempe also making a strong showing.
At the other end of the scale, prices have been weakest in the zip codes in Chart B.
Here the table is dominated by the Northeast Valley which has large areas suffering from weaker demand and plentiful supply. A few areas are fashionable enough to buck the weakening trend for luxury homes. Phoenix 85018 has appreciated by 9.9 percent between 2Q 2015 and 2Q 2016 while Scottsdale 85251 is up by 6.4 percent.
Despite the weakness in the luxury sector, the majority of the Greater Phoenix housing market is healthier now than it was 12 months ago and the prospect of rising mortgage interest rates has faded. The millennial generation is now a more significant pool of potential home buyers than the baby boomer generation and this dominance will increase over the coming decade. It is the many differences between baby boomer and millennial lifestyle decisions that are likely to change the nature of the housing market going forward.