Phoenix's housing market may be rising from the ashes
Phoenix’s housing market may be on the rise. John Burns Real Estate Consulting said the area is outpacing the recovery of other hard hit areas like Las Vegas, Riverside-San Bernardino and Sacramento.
“Phoenix was one of the hardest-hit housing markets during the bust, with home values declining 57% from 2006 through mid-2011,” said Adam Artunian, senior research analyst with the company. “But since the middle of 2011, the housing conditions in Phoenix have markedly improved and prices have begun to rise.”
According to the report, investors now make up 45% of all buyers in the area, and first-time buyers now have difficulty competing with all-cash offers coming from investors. This often creates a bidding war that raises the price of the home.
The effort by investors is well worth it, however. With a current average single-family rental rate of $12,500 per year and the median selling price of distressed homes in the area well below $127,000, the report says investors can expect between a 5% to 10% annual return. That, however, may not last.
“Competition for distressed resale homes is likely to get more challenging for buyers, with Phoenix making national headlines recently as one of the best markets in the country to purchase investment homes and enjoy favorable returns as rentals,” Artunian said.
Inventory also is very low at 2.4 months, down from almost five months just one year ago and more than 12 months in early 2008. Supply hasn’t been this low since late 2005 when the home market was at “feverish level,” said Artunian.
“Investors and foreign buyers have helped reduce Phoenix's housing inventory to its lowest level in over six years,” he said.
Low inventory creates competition and has helped stabilizes prices, he noted. The company's Burns Home Value Index is up 1.5% year-over-year for the Phoenix market.
Resale listings have also fallen 43% since March 2011 and are now as low as they were at the peak of the market in September 2005.
Phoenix is a destination for retirees escaping colder climates. Artunian said this past winter created the “perfect storm” for home sales, given improving conditions, low interest rates, good weather and the tourism from Major League Baseball’s spring training activity, which takes place near Pheonix.
“The true test of Phoenix housing market strength will be this summer, when these favorable elements subside, and the housing market will stand more on its own,” he said.