Phoenix-area home prices have been zooming up for months, and the streak continued in May. However, a new report from the W. P. Carey School of Business at Arizona State University takes a closer look at the short supply of available houses, an increase in foreclosures, and a possible leveling off of skyrocketing home prices this summer.
The report on Maricopa and Pinal counties reveals:
- The median single-family home price went up more than 32 percent from May 2011 to May 2012.
- The overall housing supply dropped by 50 percent in the same time frame.
- The number of completed foreclosures of single-family homes and condos combined went up 18 percent from April to May.
The median single-family home price jumped 32.4 percent from May 2011 to May 2012. It went from $111,000 up to $147,000. At the same time, the median townhouse/condo price soared 37.3 percent, from $69,900 to $96,000, and the average price per-square-foot shot up more than 22 percent. Prices have been increasing since they reached a low point in September 2011.
The report’s author, Mike Orr, says high demand and low supply remain the dominant factors in the Phoenix-area housing market. For example, the number of active listings for single-family homes without a contract in the greater Phoenix area was down to 8,550 as of June 1. Fierce competition for available homes has continued to push home prices up.
“Most houses below $250,000 priced realistically are attracting large numbers of offers in a short time, and many exceed the asking price,” says Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “We recently saw a Chandler home get 84 offers and a Glendale home receive 95. The Glendale house closed within four weeks for 17 percent above asking price. Needless to say, this is not something we would see in a normal market.”
The amount of overall sales activity is down, due to the short supply. The number of single-family home sales fell 5.8 percent compared to last May. Orr says things are especially quiet in the luxury and active-adult sectors of the market, where there’s less demand. But new-home sales are up 57 percent over last May, as buyers look for alternatives to the intense competition for existing homes under $250,000.
Orr says, “Contractors are trying to keep up with the new construction demand by supplementing a small skilled labor pool. They’re attempting to lure away competitors’ employees with higher pay and to attract back foremen who’ve gone on to other housing markets or industries.”
Investors are also playing an influential role in the area. In May, almost 28 percent of home purchases were made by investors. Orr says the average area home buyer faces an uphill battle against those offering all cash, instead of a financed offer requiring an appraisal. He does believe, though, that things are about to calm down somewhat.
“Prices gained further strength over the last month, but I suspect they cannot continue to rise at the extremely fast rate we experienced this spring,” says Orr. “This rate can’t be sustained long term, and the most likely time for prices to stabilize is during the hot summer months of June through September.”
At the same time, foreclosures are unfortunately going up in the area. The new report shows completed foreclosures of single-family homes and townhome/condos combined went up 18 percent from April to May this year. However, Orr doesn’t see this as reason to worry yet.
“Completed foreclosures were still down 52 percent year-over-year in May,” he explains. “Since the signing of a legal agreement between the states and five of the nation’s largest lenders, we have seen a slight uptick in the rate of foreclosure notices, but we are still a long way below the peak levels of March 2009.”
The areas of the Valley most affected by the foreclosure crisis are now seeing the biggest surge in home prices. For example, El Mirage, Maricopa, San Tan Valley, Glendale and Apache Junction are doing much better. The areas least affected by foreclosures have seen home prices improving slowest. Still, some are moving into positive territory, such as Cave Creek, Fountain Hills and Sun City. The only areas still showing a decline in average home prices per-square-foot over the past year are Eloy, Paradise Valley, Rio Verde, Sun City West and Sun Lakes.