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The Phoenix housing market, is it all about supply or is it all about demand?


Prospective homebuyers and housing investors alike have the same questions about the current Phoenix housing market, both for new homes and for resale properties.

The resale market in the Metropolitan area continues to be generally flat, with 8432 resale transactions (we count both broker assisted and for sale by owner transactions) vs. an almost identical number of 8404 from June 2012.

Year to date the resale numbers are also almost identical with 48,530 homes sold across the Metro area this year to date vs. 48,917 sold during the same timeframe last year.

Resale insiders continue to tell us that the resale market is being dramatically hampered by a shortage of homes for sale in popular neighborhoods and resale agents are becoming more and more focused on the opportunities offered by the new home market place for their clients. However, the market continues to be tilted dramatically in favor of preowned homes versus new homes. In June, of the 9288 total homes sold in the Metropolitan Phoenix area, 9.22% of those homes were new homes.

The median resale price increased from $140,000 in one year ago to $178,500 in June 2013. That's a $38,500 increase and a 27.5% hike in just one year and a 2% increase from last month. One year ago the median price of a new home was $216,166, which calculates to an increase of $51,335 in just one year. That's a 23.75% increase in the median new home price in this market in one year. Are investors happy….you bet!

That's great news for previously underwater homeowners and equally great news for housing investors who purchased more than a year ago. It's not so great news for those investors or home buyers who stood on the sidelines as the market began to heat up… and it continues to do so.

So, is a Phoenix housing market all about supply or is it all about demand? It looks from our vantage point that the market today is largely about supply, or rather the shortage of supply!...and that the demand for both new and resale homes is being artificially slowed or distorted because of a lack of available inventory of either existing homes or new homes. The rapid uptake of prices supports that conclusion in spades.

At the same time prices are increasing so are mortgage interest rates which impact those “normal" owner occupant buyers of both existing and new homes.

Another factor we feel is worth considering is that while traditionally in this overall Metropolitan Phoenix housing market existing homes have captured 60 to 65% of the housing market activity. That equation has been dramatically changed during the recession and the recovery to date of the marketplace, with the market share capture of new homes falling below 10% currently. A significant portion of that decline in capture by new homes can be attributed both to the extreme price differential between existing homes and new homes and the failure of builders to produce spec inventory in the face of the uncertainty of the recovery.

Judging by the current level of permit activity for new homes in the region, it does not appear that the new home producers are currently able to fill the new home supply need, keeping inventory pressures on the local existing home market including continuing upward price pressures. It remains to be seen if existing home sellers will flock to the market with the rapid increase in potential selling prices.

While all of the above seems simple, the market equation and opportunity is greatly complicated by the fact that the demand that is being demonstrated by both owner occupants and by investors has clearly been spotty when viewed geographically within the region. While critical shortages of inventory of both existing and new homes exist in preferred neighborhoods, no shortage exists in neighborhoods that have been and continue to be “rejected" by current prospective buyers.

This presents probably the greatest danger that exists currently in the local housing market, especially for investor buyers. The real estate investor in Phoenix today continues to enjoy solid positive cash flow and really exceptional asset appreciation in those neighborhoods where the consumer has already demonstrated his preferences lie.

Whether this opportunity exists today or will exist over the midterm in those neighborhoods that the consumer has clearly “passed over" remains to be seen and represents the challenge for real estate investors and for owner occupant prospective buyers.

To date in this recovery there is not the kind of buying frenzy that will make all opportunities “good" ones. So, the mantra is to be very careful out there!

RL Brown and Greg Burger are the most authoritative providers of housing market analysis and data in the region. For additional insight and market data call Greg Burger at 480-614-0211 or
visit our website at www.RLBrownreports.com.