The Phoenix housing market continues to see home price gains, but those jumps are not as steep as before since the state is now dealing with an exodus of investors.
The trend began mid-last year and continues.
That’s the conclusion from a new report published by the W.P. Carey School of Business at Arizona State University. The report covers the Arizona counties of Maricopa and Pinal.
The median single-family home price still grew 23% from November 2012 to November 2013, but investor demand and construction permits began falling off in recent months, leading to a slowing in the real estate market.
But higher prices are actually lowering consumer sentiment and have discouraged buyer interest in the state. In fact, investors are now searching for deals in other areas, the W.P. Carey study concludes.
The median Phoenix-area price in November hit $200,000, up from $162,500 a year ago. The median townhome and condo also rose 20% to $119,900.
But as prices reach a certain point, demand is falling. Sales of single-family homes fell 27% from November 2012 to November 2013.
"This past November was the weakest month for sales in several years," said Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. "Demand is drastically lower in a slide that started in July. By the beginning of January, demand had weakened enough to drop even below the limited supply here, despite the fact that we have 15 to 20% fewer active listings than normal."
Going forward, Orr expects median sales price growth to be modest month-to-month.
Exiting investors are part of the problem. Orr’s report finds that the percentage of homes purchased by investors declined to its lowest level since June 2010 during the month of November. The percentage of investors involved fell a whole 20.2% from the peak of 39.7% in July 2012. Out-of-state purchases in Maricopa County, Ariz., also dropped to 16.2% in November, the lowest level in four years.
"The fourth quarter was also pretty disappointing to home builders in the area," Orr noted. "That may be one reason new single-family construction permits are way down. The Census reports a sharp drop from 1,030 in October to 667 in November, a small number by historic standards."
Richard Cordray, director of the Consumer Financial Protection Bureau, chose the volatile market of Phoenix to roll out the QM and ability-to-repay rules to the market this week. Speaking to housing counselors and other real estate industry advocates, Cordray took participants back to the days when foreclosures were common and Phoenix was suffering as one of the hardest hit markets.
"We decided to come to Phoenix to kick off these new mortgage rules because this community knows all too well the heartaches of troubled homeownership," Cordray said when speaking at a field hearing in Phoenix this week. "One in five Arizona homeowners with a mortgage still owes more than their home is worth. Across the country, that number is roughly one in ten."
Orr seems to agree with Cordray that while Phoenix has been going through a rapid recovery, many risks lurk in the background.
Foreclosure starts in the greater Phoenix area fell 50% from November 2012 to November 2013, and the number of completed foreclosures declined 64%.
"Despite all of this, time has shown us the Greater Phoenix housing market is very volatile," Orr adds. "Conditions could quickly change during the first quarter of 2014, and we could see some surprises."
