2017: The Best Of Times
May 2, 2017 |
Educator, Arizona School of Real Estate & Business
Faculty Associate, W.P. Carey School of Business
Just a few years ago the Arizona real estate market was in turmoil. Neighborhoods were riddled with foreclosures and short sales, while property values plummeted. Investors, seeing opportunities, purchased residential properties in bulk turning once owner occupied properties into rentals.
New home builders stopped building, lenders stopped lending, home equity loans were frozen, a once thriving real estate economy came to a grinding halt with no end in sight.
Much of the labor force left Arizona seeking better opportunities elsewhere.
Like all markets, the Arizona real estate industry began to recover; however, this recovery was painfully slow leaving many with damaged credit and reduction of net worth.
The market in 2017 is entirely different. Those who had damaged credit are now back in the market. Foreclosures and short sales are a thing of the past. Homes that had no equity are now in positive territory. Investors no longer dominate the metro market and most homes are purchased with new financing and are owner occupied. New home builders are now building. New jobs are being created and a once stagnant state is beginning to grow. The rental market is strong and there is a rebirth of urban living.
The median price of a home in the Phoenix metro area was $110,000 in 2011; in 2017 the median price is $225,000. With an affordable median price and low property taxes the Phoenix metro area is one the hottest real estate markets in the U.S. The highest demand for housing is in the $200,000 to $450,000 price range. Although demand is great, the housing supply in this price range is limited. On the other hand, houses in the upper price range have not seen the same type of sales activity.
Pride is back in the neighborhoods, homeowners are remodeling and contractors are busier than ever. It now makes economic sense to spend money on property improvements since such improvements have reflected an increase in property values. The residential rental market remains very strong. Affordable rental housing in good locations are in demand and the base rental prices continue to climb. Many potential home buyers are delaying purchasing a home and have opted to rent. This could be due to poor credit, lack of down payment or simply not wanting the responsibility of homeownership.
New home builders are seeing a resurgence of buyers interested in their communities. Builders are struggling to compete with the prices of resale homes. The cost of land and the severe shortage of labor have added to their challenges. Builders have been forced to do value engineering. Concentrating on high density communities that are well designed, featuring walkability and community activities. Infill lots are still the new home builders’ properties of choice. However, these projects have proven to be out of most buyers’ price range.
The Market Ahead
As with any strong market, we will face challenges in the future. Higher interest rates along with an increase in housing prices will price some buyers out of the market. The possible elimination of FNMA and FHLMC could result in higher qualifying loan ratios, higher interest rates and shorter loan terms.
The Arizona economy is not solely based on real estate and construction. Our state is now considered one of the fastest growing hi-tech areas in the U.S. Arizona has been through many economic cycles, each one different, posing new challenges. However, at this moment in 2017 — These Are The Best Of Times.