You would think the forecast would be sunny instead of cloudy. Arizona’s population is growing, Maricopa County is among the national leaders in adding jobs and all signs indicate that the state’s economy will continue to expand.
Despite all the positive economic indicators, 2014 housing sales aren’t living up to industry expectations after beginning a robust comeback in 2013 that saw the median single-family-home price rise 27 percent from the preceding year. Unfortunately, the comeback slowed to a halt and the Phoenix area is now observing negative milestones in its housing market.
“Unfortunately, I think what happened was that we went through a period where sellers thought their homes were worth more and more and more,” said Sandra Wilken, founder and designated broker of Engel & Völkers Sandra Wilken Partners. “For a while, we were OK. But now we’ve out-priced ourselves again and unless we can get our sellers to be realistic, their homes are going to sit on the market for a long time.”
A report from the W. P. Carey School of Business at Arizona State University reveals the latest details about Maricopa and Pinal counties, as of February:
* The median single-family-home sales price was $195,000, the lowest since August.
* Demand and sales activity were dramatically lower than at the same time last year.
* Spring may bring a normal seasonal boost in sales activity, but the market is still on track to possibly have little or no appreciation by the end of the year.
Phoenix-area home prices started rising quickly after hitting a recession low point in September 2011. Then, the price increases began slowing down in July, with the market experiencing two monthly drops in the median single-family-home sales price this January and February — totaling about 5 percent.
“Home-sales activity was a startling 26 percent below February 2013,” 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. “Despite the large price gains since last year, the total dollars spent on homes dropped 16 percent between last February and this February. This is the weakest February in four years.”
The news isn’t all doom and gloom if you look at the complete picture:
* The median single-family-home sales price was $195,000 in February, up about 15 percent from February 2013.
* Average price per square foot gained 15 percent, from $110.44 to $126.57.
* The median townhouse/condo sales price was up 13 percent.
Home sales in February (single family, townhouse and condo) were just 1.6 percent higher than January, traditionally the weakest month of the year. They were a startling 26 percent below the total for February 2013. Despite the large increase in median single-family-home sales price between February 2013 and February 2014, the total dollars spent on homes dropped by 16 percent year over year.
Though the supply of homes for sale continues to grow, low demand is affecting almost all types of houses. Even at the high end of the market, which had been going pretty strong, the Phoenix area saw 2 percent fewer luxury-home sales this February than last February.
“The quietness in the market is spreading from the bottom up, but it hasn’t reached the very top yet,” said Orr. “Homes priced at $2 million and more are still doing OK.”
A luxury market report put together by Walt Danley Realty in collaboration with Orr confirms a strong upward trend in luxury home prices over the last two years. The three month moving average has moved from $213 per square foot in August 2011 to reach $267 per square foot in March 2014, a rise of 25 percent. In addition, the supply of luxury homes is 31 percent higher than last year at this time.
“We were just in a meeting here about the MRA Custom Homes in the $8 million to $10 million range,” Wilken said. “When we got into the beginning of the season in October, we were having some really nice high-end sales. We felt the momentum really going and anticipated more buyers in this price range. Unfortunately, we have not seen the buyers. The buyers we are getting are primarily from California. They are taking a real hard look at their future and weighing out their options. The California buyers see that they can get so much more for the money here and really improve their lifestyle by making the move to Arizona.”
With an increasing number of companies moving to Arizona to escape the crippling California taxes, Wilken said she has seen a surge in property sales at the lower end of the market, but she has not seen a ripple effect in the high-end market.
“The period from March to May is almost always the strongest part of the year for demand, and it is highly probable we will see some upward movement in pricing over the next three months,” Orr said.
“However, it’s also likely this advance in pricing will be reversed during the hot summer months of June through September. We may be looking at little to no annual appreciation by the end of the year, if prices behave as we currently expect. Still, the Phoenix market is highly volatile, and nothing is certain.”
Wilken summed up the industry outlook for the next year with a simple observation.
“I was just on a panel,” she said, “and we all agreed that we are optimistically uncertain.”