Tag Archives: housing bubble

housing.prices

No Housing Bubble for the Phoenix Area?

Despite dramatic home-price boosts, don’t expect another housing bubble anytime soon in the Phoenix area. A new report from the W. P. Carey School of Business at Arizona State University breaks down what’s happening in the Maricopa and Pinal County housing market, as of April:

* The median single-family home price climbed again to $181,399, up almost 30 percent from April of last year.
* The report’s author sees no housing bubble on the way, with a very tight supply of available homes for sale.
* He also sees no significant negative effect yet from rising interest rates on local housing demand.

Phoenix-area home prices have been soaring since they reached a low point in September 2011. The median single-family home price rose 29.6 percent — from $140,000 to $181,399 — between April 2012 and April 2013. Realtors will note the average price per square foot went up 23.5 percent. The median townhouse/condo price went up 34.6 percent.

“In previous reports, we predicted prices would rise significantly during the strong annual buying season that lasts until June,” says the report’s author, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “From February through April, the average price per square foot did rise more than 9 percent for single-family homes, but the upward pricing pressure may finally ease somewhat this month.”

One big reason for the price gains has been the chronic shortage of available homes for sale in the Phoenix area. The number of active single-family-home listings (not including those already under contract) fell 7.3 percent just from April 1 to May 1. Only 24 days of lower-end supply (priced under $150,000) is out there. However, the frequent drops in supply have at least slowed down enough to let the market accumulate 20 percent more listings than it had at the same time last year.

Investor interest in Phoenix has also waned as prices went up and better bargains were still available in other areas of the country. Orr says the institutional-investor buying spree here began in 2011, peaked in summer 2012, and is now in a downward trend. The percentage of homes purchased by both small and institutional investors in Maricopa and Pinal counties in April was 26.8 percent, down all the way from 39.7 percent in July 2012, and most of these purchases were actually made by small-scale investors.

Many of the investor-purchased homes have already been turned into rentals for people who lost their houses during the recession. Some commentators have been saying there might be another housing bubble when investors decide to sell these homes, but Orr strongly disagrees.

“Some commentators talk ominously of a bubble bursting when these homes come back onto the market,” he says. “Such talk gets a lot of attention because we are over-sensitized to bubble talk after the disruptive events of 2004 to 2006. However, this idea falls flat when we examine the actual number of homes involved. The entire institutional inventory of 10,000 to 11,000 rental homes here represents a tiny fraction, less than 1 percent, of our housing stock. If every single one were to be placed for sale next month, we would still have less supply than in a normal balanced market.”

Demand from investors is already being replaced by demand from owner-occupiers and second-home buyers. Most homes priced below $600,000 continue to attract multiple offers within a short time. The luxury market is also gaining some steam. Single-family-home sales activity overall went up 4 percent from April 2012 to this April, beginning to reverse a long downward trend in year-over-year activity.

“There has been much talk of the negative effect that rising interest rates might have on demand,” says Orr. “So far, the increases have been minor, and the main effect has been to reduce the motivation to refinance existing home loans. At the same time, higher interest rates often create a greater sense of urgency among home buyers, so if lenders simultaneously relax their underwriting rules, this could stimulate demand, rather than reduce it.”

The market also continues to recover from the foreclosure crisis. The number of completed foreclosures on homes and condos in April of this year was down 46 percent from April last year. Foreclosure starts – homeowners receiving notice their lenders may foreclose in 90 days – dropped 60 percent. Orr expects the rates to fall below long-term averages soon.

With fewer foreclosures coming on the market, some buyers have turned to new-home builders. However, Orr says the construction industry is still building far fewer homes than needed to keep up with rising population and demand in the area. This is partly because the prices of land, materials and construction labor are all rising as subcontractors struggle to attract more workers. He says the developers are also being very cautious in their expansion. They enjoy the fact that limited supply allows them to continue increasing prices faster than their costs and don’t want to disturb this trend by overbuilding.

“Given the balance between supply and population growth in Phoenix, home prices are unlikely to fall below today’s level and are more likely to continue to climb for a long time, though at a more gentle pace.”

Orr’s full report, including statistics, charts and a breakdown by different areas of the Valley, can be viewed at http://wpcarey.asu.edu/finance/real-estate/upload/Full-Report-201305.pdf. A podcast with more analysis from Orr is also available from knowWPCarey, the business school’s online resource and newsletter, at http://knowwpcarey.com/index.cfm?cid=13.

Economic forecast

Economic Forecast Calls For Another Year Of Slow Recovery In 2011

Arizona’s economic recovery will continue to move at a glacial speed in 2011 — but at least it’s moving. The coming new year will see an increase in job creation, a rise in population and even a modest increase in single-family home permits. However, the consensus among economists at today’s 47th Annual Economic Forecast Luncheon, co-sponsored by the Department of Economics at Arizona State University’s W. P. Carey School of Business and JPMorgan Chase, is that Arizona’s recovery will continue to be far less robust than economic rebounds of the past.

“Arizona was much harder hit in this recession than the rest of the country,” said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W.P. Carey School of Business in an interview before the luncheon. “Overall the U.S. lost about 6 percent of jobs, while Arizona lost 11 percent of jobs and the Greater Phoenix area lost 12 percent of jobs. So, by that measure, Arizona’s problems were twice as large as the average state.”

According to McPheters, hampering Arizona’s growth in 2010 has been:

  • Consumers’ focusing on paying off debt rather than spending
  • Corporate profits improving but hiring deferred
  • The expected resurgence in single-family housing did not develop
  • Home prices have not yet stabilized
  • Small businesses facing tight credit conditions and weak demand
  • Stimulus programs ending


Job Growth

In terms of job creation, Arizona employment is expected to increase by 47,800 jobs in 2011, following three straight years of losses. The projected rate of growth for 2011 is 2 percent. That’s about double the rate of employment growth anticipated for the nation as a whole, but well below the state’s long-term average of 3.7 percent.

In addition, the state’s unemployment rate will remain above the 9 percent mark throughout 2011.

Still, even with Arizona being at ground zero of the burst housing bubble that dragged the rest of the nation into recession, the employment situation in the state has shown a marked improvement.

“For all of 2009, at the deepest point of the recession, only Nevada had weaker labor market conditions, and Arizona ranked 49th among the states in job growth (or losses),” McPheters said. “But in just the past couple of months, Arizona’s overall position is improving. The state ranked 12th based on October job creation in the 50 states. And in September, Phoenix added 27,400 jobs compared to the year before. Phoenix is the now the second-fastest growing metro area.”

Real Estate

The real estate and housing markets in Arizona remain weak in 2010, with single-family housing permits expected to be down 5 percent, marking a fifth consecutive year of declines. Single-family housing permits are expected to finally improve next year, with an anticipated increase of 25 percent. However, that increase stems from a base of 12,000 units in 2010, totaling just an additional 3,000 units. Compare that paltry number to the 80,000 annual permits handed out at the peak of the housing boom.

“Last year at this time, there was optimism about Arizona housing, but the growth never came,” McPheters said. “It looks like 2010 single-family building won’t even reach the level of 2009, which was the worst year of the recession. So most analysts are cautious right now about housing.”

One of those cautious analysts is Elliott Pollack, CEO of Elliott D. Pollack & Company in Scottsdale.

“The good news is that the worst is over, but it’s going to be a painfully slow recovery,” Pollack said in an interview before the forecast luncheon.

Pollack lists the following as reasons why the state’s housing market is showing only the slightest signs of improvement:

  • Tougher underwriting standards on mortgages
  • Up to 51 percent of the homes in Arizona have negative equity
  • Previous loan modifications have mostly failed
  • Foreclosures remain high
  • Option ARM resets do not peak until next year


Local neighborhood

Can Sustainable Housing Really Be A Part of Arizona’s Future?

Perched on the threshold of economic recovery, cities whose housing markets crashed and burned during the Great Recession are struggling like modern-day Phoenix birds to rise from the ashes.

While rebirth comes naturally for some, others seem caught between a trap labeled “sprawl” and a wide-open window tagged “sustainability.”

The question is, can cities that once embraced policies favoring sprawl over density buy into a new vision calling for a more sustainable, livable and socially just way of life? The shift required may be dramatic, but it’s not impossible.

The sprawl trap is certainly familiar territory for Phoenix, a post-WWII boom town where production builders John F. Long and Del Webb are hailed as the Godfathers of Post-Modern Development. Using innovations like simple, mass-production construction techniques, Long and Webb delivered Phoenix’s first work force housing to an eager middle-class audience.

Now, a half-century later, sprawl and the suburbs are being blamed for everything from global warming to social segregation. High suburban-growth states like Arizona, California, Nevada and Florida felt the busted housing bubble like a sock to the gut two years ago. And, faced with aging infrastructure and higher maintenance costs, fringe communities are now home to the country’s largest and fastest growing poor population, according to a report by the Brookings Institution. Between 2000 and 2008, the country’s largest metro areas saw their poor population grow by 25 percent, almost five times faster than either primary cities or rural areas, the report states.

Many economists believe the country’s latest economic pause presents the opportunity for a massive do-over; a chance for cities to end their love affair with the automobile and hook up, instead, with development practices that create more dense, walkable neighborhoods.

The Obama administration evidently agrees.

“The days where we’re just building sprawl forever, those days are over,” President Obama declared shortly after taking office. He followed up those remarks earlier this year by telling the U.S. Conference of Mayors, “When it comes to development, it’s time to throw out old policies that encouraged sprawl and congestion, pollution, and ended up isolating our communities in the process.”

The President’s willingness to back up his convictions with $1.5 billion in TIGER (Transportation Investment Generating Economic Recovery) grants and $1 million set aside for regional integrated planning initiatives is further proof that the suburban landscape is indeed changing. So is the federal government’s new Partnership for Sustainable Communities, an all-hands-on-deck approach to smart growth by the Department of Transportation, the Department of Housing and Urban Development and the Environmental Protection Agency. It — along with the government’s “Smart Growth Guidelines for Sustainable Design & Development” — presents a radical new perspective on how future growth is handled, and offers a lifeline to municipalities looking to turn over a new and greener leaf.

But, for cities like Phoenix, where density has traditionally been considered a dirty word, the challenge is not so much where the money is coming from, as it is how to change public perception. Will Phoenix, with its Wild West sensibilities and traditionally renegade attitude, take kindly to federal intervention intended to help wean itself from a dependence on sprawling development?

In all honesty, it’s likely to be a tough sell. True, infill development takes advantage of current infrastructure and services and produces a measurably smaller environmental impact than does its conventional counterpart. True, higher-density building creates additional living options for homeowners in the way of row houses, walk-ups and brownstones. And true, Phoenicians, like many Americans, acknowledge they would rather walk than drive, or at the very least, have access to more transit-oriented housing, making it easier and more convenient for them to utilize public transportation.

The first step forward, however, will have to come from developers and municipal leaders willing to reach out a hand and grab the support line being offered in the way of these new smart-growth initiatives and incentives.

“Successfully addressing the challenges and opportunities of growing smarter and building greener will require that communities collaborate with each other, as well as with regional, state and federal agencies and organizations,” write the authors of Smart Growth Guidelines for Sustainable Design & Development. The end reward, they say, is decisions that benefit households in the form of greater choice, lower combined housing and transportation costs and healthier communities, thereby producing stronger local economies.

Isn’t that what communities like Phoenix, that are battling their way out of the recession, really need? Shelley Poticha, a transportation reformer and Partnership for Sustainable Communities senior adviser, thinks so.

“To me this is about helping to rebuild our economy, about growing jobs in terms of making housing more energy-efficient,” she said in a grist.org interview. “It’s also about helping places and regions really understand where their economic future is going and how they can use that to be more sustainable.”