January 2015 - Phoenix Real Estate Review

To our valued clients:


I hope you enjoy this monthly newsletter. Remember whether you are buying a new or resale home it is important to have a realtor to represent your interests. If you know of anyone who is thinking about buying or selling please let me know.  You can search the MLS from my website at www.greathouseaz.com.


Do you want instant updates on the Phoenix Real Estate market? Follow me on Twitter


Do you have a rental property and need a property manager?  Please call or email Karen Van Vugt at 602-316-7028 or ftr9558@cox.net


Sincerely,

Pat Hune

Broker

greathouseaz@gmail.com

1st Southwest Realty

www.greathouseaz.com

Search the real MLS from my website!

Cell 480-703-1976

Fax 480-304-9099

Equal Housing Opportunity



Market Overview -  Many positive things are happening that should make the Phoenix housing market improve in 2015.  

a) The first is the number of new homes being built.  This is a case of the glass half full versus half empty. RL Brown reports 11,000 houses to be built in 2015, up slightly from the 10,840 built in 2014.  In the crazy boom days a hundred houses a day were being built for 36,500 per year. Unfortunately a lot of these houses were bought by investors. We all are painfully aware of what happened to those houses during the bust.   It is far better for builders to be able to sell their inventory in a reasonable manner versus having houses sitting around for months or being sold to investors.  

b) Interest rates have been low and have stayed low. This makes housing very affordable as well as encouraging buyers who bought a few years ago to refinance to get out of PMI (private mortgage insurance).  

c) Prices are stable and will likely increase by a small amount in 2015. This will help keep housing affordable as the economy continues to improve.  

d) Rents will likely increase. In February 2013 the average lease amount was $1237.  In February 2015 the average lease amount was up $44 to $1281. Local property managers report they are receiving higher rents especially on single family homes.  Rents will continue to go up and will drive the tenants to buy a home  instead of wasting their money on rent.  

The big question is will we see more inventory.  Inventory levels are still very low.  Homeowners who purchased when the prices were at the bottom have little incentive to sell unless their economic situation has improved and they want a bigger house.  Investors scooped up hundreds of houses during the fire sale.  They have little incentive to sell and if they do sell they will sell in bulk not one by one.  



Articles

1)  STAT Newsletter, PPI and Rent Check Link 

2)  Mortgage Changes Encourage Home Buyers and Increases Refinance Activity 

3)  Metro Phoenix New Home Building Up Slightly in 2015   

4)  Super Bowl Biggest Event Ever Held in Phoenix  

5)  Real Estate Briefs

a) Apple Set to Convert Mesa Plant into Data Center 

b) New Investors Rush into Student Housing

6) Early indicators say 2015 may be a stronger real estate market?

 

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1) STAT Newsletter Link - STAT is produced monthly  by the Arizona Regional Multiple Listing Service - the database realtors use to list homes for sale and that have sold.   ARMLS® COPYRIGHT 2014


January 2015 STAT


STAT Newsletter Highlights

Commentary by Tom Ruff, Information Market


We always saw 2014 as a transiti􏰀onal year where our market would evolve from a cash-driven, bargain-priced, investor-based market to a healthier more sustainable market driven by the conventi􏰀onal home buyer. We envisioned this transiti􏰀on being led by two major groups: millennials and boomerang buyers with both groups needing just a bit more 􏰀time to get moving. We expected 2014 prices to remain flat and demand to remain low. We waited for the millennials to become adults and for the boomerang buyers to restore their credit. As 2014 progressed, the market trends that started back in August 2013 rolled on and on through 2014. Month aft􏰂er month, the biggest challenge was finding unique ways to describe the dull consistency we faced.  Our 2014 in review focuses on 5 main areas: 


1.) Home Prices  - There are three prominent means for tracking home prices: average sales price, median sales price and price per-square-foot. Many make the argument for one method over another. I was always a median sales price person. But 2014 taught us that we need to pay attention to all three metrics. Median sales prices can be swayed by lower volumes and tend to congregate around round numbers. Average sales prices and price per-square-foot bounce as luxury sales strengthen and cluster. So, what did the three primary pricing metrics tell us about 2014? 


December 2014December 2014% Change

Average 247,001257,9024.4%

Median185,000197,0006.5%

Price PSF 127.58131.703.2%


Another facet of our composite pricing is something we commonly refer to as blend, the composition of types of sales. In December of 2013 (17.1%) of our sales were distressed and in December 2014 (9.8%) of our sales were distressed. As we all know, distressed sales sell at a discount, so it is no surprise when sales prices increase as the blend changes. Wisdom comes from correctly attributing changes in sales prices. Throughout 2014 we advised our readers to eliminate the noise and not to jump to rash conclusions in either direction as pricing metrics bounced up and down. We continually reiterated our position that prices are flat and remarkably stable. Probably the best example of how stable prices were in 2014 can be demonstrated by adding a fourth pricing metric, more of an apples to apples approach. By removing all the distressed sales and comparing only the “normal” sales between December 2013 and December 2014, we see the price per-square-foot rose only slightly, 1.7% from $133.10 to $135.41. After a decade of insane yearly price movements, 2014 reminded us that sustainable normal annual price movements are not only possible, but are a good thing. 


2.) Sales Volume - ARMLS reported 79,399 homes sold in 2014, coming in 11% below the total last year of 85,813. The year-over-year decreases in sales volume occurred in the first 8 months of 2014. Not by coincidence, the decreases happened at the same moment both local and institutional investors curtailed their buying appetite. Sales were actually 5.8% higher in the last four months of 2014 than the last four months of 2013. Even with the year end improvement, sales volume in 2014 was still a four letter word, drab. The visible decline in investor activity coupled with the decline in the number of distressed sales clearly showed the anticipated transition to a healthier more sustainable market, driven by the conventional home buyer. 


3.) Inventory - As 2014 began, inventory levels were rising and demand was extremely low. This was good news for the buyer but not so much for the seller. My personal pessimism at the outset of 2014 was harbored within these supply/demand metrics. Just when it appeared we were headed into a full blown buyers’ market, a fascinating thing happened. Supply and demand began to balance not by an increase in demand, but by a decrease in the rate new listings came onto the market.   In the last 7 months of 2014, all but two of those months reported the lowest number of new listings in the 14 years ARMLS has been tracking new inventory. The final numbers for 2014 show only 107,902 new listings  In spite of the low sales volume in 2014, we begin 2015 with 1.7% fewer homes listed for sale than last year at this 􏰀time. 


4.) Foreclosure Activity  - Every foreclosure housing metric was down in 2014. This was great news for the overall health of our market but extremely bad news for all parties offering foreclosure services, investors buying at auction, and all agents specializing in distressed sales. As we’re going on nine years removed from the peak of home prices in 2006 and adding together strong appreciation gains since 2010, there just isn’t any fuel to rekindle the foreclosure fire (barring a catastrophic event). Foreclosure activity  will decline again in 2015. 


Think about this for a moment: If a property received a Trustee’s Sale Notice  in 2014, there was a 45% chance that property would end in foreclosure. The banks aren’t dragging their feet to finish the foreclosure process, as 50% of those that end in foreclosure will be completed in less than 97 days after the notice is filed. 75% of those will lose their home within 125 days. With that said, in 2013 there were 4,290 active notices and in 2014 there were 1,371. Roughly 62% of the foreclosures were from the 2005-2007 boom/bust years. 


Looking Forward at 2015 - I’m quietly optimistic as 2015 begins. Even though inventory numbers are very similar to where they were last year at this 􏰀time, we have a little more wind in our sails. Put simply, our market is healthier. The price increases we’ve seen in the last 18 months are characteristic of a normal sustainable market, interest rates are at historical lows (3.86% Dec. 2014), the millennials are one year older, births are increasing, gas prices are low ($2.04 national average), boomerang buyers have had one more year to repair their credit and conventional buyers are making up a larger percentage of home purchases. People are feeling better about themselves. I feel it’s a safe bet to say 2015 sales volume will exceed 2014. I don’t think it will be the breakout year we’ve been awaiting, but in terms of sales volume, it will definitely be better. 


Rent Check - Rent Check is an ARMLS's  publication tracking single family home rentals.  Click on the link for the statistics.

Rent Stats


Commercial Real Estate Trends


Current Phoenix market trends data indicates a decrease of -1.1% in the median asking price per unit for Multifamily properties compared to the prior 3 months, with an increase of +12.0% compared to last year's prices. County-wide, asking prices for Multifamily properties are 1.2% higher at $54,414 per unit compared to the current median price of $53,116 per unit for Multifamily properties in Phoenix, AZ.


Loopnet Commercial Trends


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2)  Mortgage Changes and Lower Rates Encourage Home Buyers and Increases Refinance Activity 

Ris Media, January 20, 2015


President Obama announced on January 15, 2015  a new policy that will reduce annual mortgage insurance premiums (MIP) on FHA loans. The National Association of REALTORS® estimates that a reduction in the annual MIP of .50 to .85 percent will enable many first-time borrowers and other borrowers who are typically undeserved by the lending community to obtain home loans and help them into the buying market (and out of renting!).  Home owners that have equity may want to refinance to eliminate mortgage insurance premiums. Here are some things for buyers and home owners to consider:


Buying a house with an FHA loan is now more affordable in many cases, so check back with your preferred lender about how much home you may now qualify for with this reduction. 50 bps off the premium could amount to either meaningful savings on a monthly basisor an opportunity to purchase more home. Remember you will still have to demonstrate your qualifying income; FHA loans are government backed and require full documentation from borrowers.


Take action now. More people may now start to look for a home, which means competition could spike in your preferred area. When competition increases, home prices rise as well. This could also mean a rush of new loan applications for lenders, which could mean extended loan closing times (like what occurred in 2013 when the average loan closing time topped 50 days for an FHA home purchase loan).


If you already own, consider refinancing. With mortgage rates at 20-month lows and a reduction in the premium, borrowers may be able to achieve monthly savings by refinancing. Borrowers with an FHA loan have a potential opportunity to reduce their monthly payment with a user friendly refinance option called an FHA Streamline loan, which is typically faster to close than a regular refinance because no appraisal is required, and there are no out-of-pocket costs.Cash-out refinancing may also be an option, but be responsible. This shift in the market will allow some individuals to take cash out of their loans to pay for things like college tuition, weddings, etc. but don’t take out more than you can afford to repay.


Discuss the opportunity of a reduced term loan (25, 20, 15 or 10 year loan) with your lender. This could not only result in interest savings through the reduced term, but may also lower your rate and offer an opportunity to take advantage of the annual MIP savings.


Don’t let anxiety about financing a home paralyze you. Certain lenders offer educational tools to help keep you knowledgeable and informed throughout the loan process.


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3)  Metro Phoenix New Home Building Up Slightly in 2015 

Catherine Reagor, The Republic, RL Brown Housing Reports, February 2015


The long-awaited recovery of metro Phoenix's homebuilding market is still a few years away, according to leading housing research firm RL Brown Reports.  A new forecast calls for 11,000 houses to be built across the Valley in 2015, up slightly from the 10,840 constructed in the area last year. And the report's publishers, RL Brown and Greg Burger, call that a "moderately optimistic" forecast.  Homebuilding in the Phoenix area isn't expected to rebound even to the pre-boom levels of 2000-02, around 25,000 houses per year, until after 2020.  The housing analysts say population, employment and wages must all grow more for the demand for new houses to finally rebound.


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4)  Super Bowl Biggest Event Ever Held in Phoenix  

Mike Orr, ASU WP Carey School of Business, December 2014


Despite the rainy weather the Super Bowl was good for local businesses and for the Greater Phoenix area's national reputation. Restaurants, hotels and venues from Glendale to Chandler reported record receipts, even with the rain and various traffic snarls. And media outlets including the New York Times, Bloomberg News and the Wall Street Journal praised the city's restaurants, nightclubs and attractions, pointing out that Super Bowl ticket prices spiked not just because of the teams involved, but because so many people wanted to party in the Valley.


Phoenix officials said the Super Bowl's presence downtown was the biggest event ever managed in the city.  Metro light rail ridership Saturday was 126,000, more than double its previous highest ridership day, according to the city. The Phoenix Sky Harbor International Airport also set a record the following Monday.


There were 177,000 people who visited the Phoenix Convention Center where the NFL Experience was held, according to city officials, about 90,000 fewer than the attraction's record that was set in Indianapolis in 2012.  Saturday's massive crowds caused some downtown restaurants to run low on food.  "With some of the smaller businesses, we heard that they ran out of the last crumb that they had," said David Farca, of the Arizona Super Bowl Host Committee. 


Phoenix and Tempe also were quick with permits and approvals, said Dan Clay, vice president of operations for Fox Restaurant Concepts, which saw private dining sales, such as private dinners and whole-restaurant buyouts, increase last week to between 10 to 15 percent, up from an average of 3 percent of business.  "When we're investing a tremendous amount of money to put together an event, and our clients are too, to know that you're going to get your permit to extend premises, and to put a stage up ... it makes such a difference.”  Saturday, the Renaissance Phoenix Downtown Hotel set a property record for food and drink sold, said Jon Erickson, director of sales and marketing. The hotel was in the middle of the Verizon Super Bowl Central and sold burgers, chicken fingers and alcohol outside.


Whether cities and the state benefited financially won't be known until tax receipts come in.  Even then any conclusions are difficult to make with certainty.  


Editor’s Note: Personally I think hosting a Super Bowl provides great benefits for the Phoenix area real estate market.  It highlights the diversity of the area and the typically great weather. With all the economical housing available I think many people will consider buying a part or full time home in the Phoenix area.



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5) Real Estate Briefs


a) Apple Set to Convert Mesa Plant into Data Center 

Eric Mungenast, East Valley Tribune, February 2015


Concerns about a possible closure of the Apple plant in Mesa proved for naught after the company announced this week it will commit $2 billion to convert the facility into a data center.  A release sent by Gov. Doug Ducey’s office on Monday states the technology giant will turn the building intended to build sapphire screens for Apple products into a hub for the company’s global network of data centers. Running the data center will require 150 full-time employees — Mesa Mayor John Giles said during his Tuesday State of the City speech the jobs that will come to Mesa are high-paying executive positions — and the company will hire 300 to 500 workers to revamp the facility located along Elliot Road.


Giles said the company is making a 30-year commitment to Apple and will spend the $2 billion over a 10-year period.  Apple spokesperson Rachel Wolf said in an email the company’s $2 billion investment in the center is one of the largest in its history. She added the facility, which formally belonged to First Solar before Apple purchased it, will receive all of its power from renewable energy sources.  


“Apple is by far one of the most innovative and successful companies in the world. Its decision to bring this new facility to Mesa is a huge win for Arizona and a high testament to our business-friendly climate and talented workforce,” Ducey said in the release.


Construction of the revamp is expected to start in 2016, which is when Apple regains full possession of the facility from GT Advanced Technologies. GT was contracted by Apple to manufacture sapphire glass to use in iPhones in late 2013, but GT filed for Chapter 11 bankruptcy protection in October 2014 and eliminated more than 700 positions from the facility during the process.

Apple’s command center will not replace all of the positions lost due to GT Advanced Technology’s bankruptcy, although Mesa Chamber of Commerce President Sally Harrison said via email the company’s investment in the building is good for the city and the rest of the state.


“We look forward to Apple being a partner in our community and the jobs they will bring with their facility in east Mesa,” she said. Harrison also mentioned the benefits to the Gateway region, something Giles cited during his speech. He said the Apple facility will bring the city cachet as it recruits other businesses and will serve as the anchor for the developing the Elliot Road Tech Corridor.  “I don’t think I’m prone to exaggeration or hyperbole, but it would be really impossible to overstate the significance of the events of (Feb. 2) and what’s going to transpire over the next several years as Apple becomes so closely identified with the City of Mesa,” he said.


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b) New Investors Rush into Student Housing

Bendix Anderson, National Real Estate Investor, February 2, 2015


In the last week of January, Starwood Capital closed a deal to buy four student housing properties. And before the week was done, Starwood had bought another portfolio in a second deal—building its portfolio of student housing beds from zero to several thousand in just a few days.  

“There are a lot of new people in the market for student housing properties,” says Jaclyn Fitts, director of student housing for CBRE’s capital markets group, which helped arrange the four-property deal. Starwood is expected to release more details of the transactions in February.


New investors have piled into the market for student housing properties—driving property prices and the volume of deals up and driving capitalization rates down. The new student housing buyers include private equity funds and institutional investors, which are becoming much more likely to bid for student housing properties.  Student housing investors bought between $2.8 billion and $3.0 billion in properties in 2014, continuing the very fast pace set the year before, according to preliminary totals from CBRE, which will release its official count of student housing investments in February.


New investors have been drawn to the sector as it becomes more understood. “Student housing is much more accepted as an asset class,” says Dorothy Jackman, managing director of student housing for real estate services firm Colliers International.  Investors are also impressed with how student housing performed through the Great Recession. Prices for apartment properties overall fell by about 20 percent, but average prices per bed for student housing properties stayed strong. “The industry demonstrated resilience,” says CBRE’s Fitts.


“There are now four or five more private equity funds specifically tasked to buy student housing,” says Fitts. That's in addition to funds managed by private equity firms with a long history in student housing like Harrison Street and Blue Vista.  “The student housing industry as a whole is experiencing higher demand than I have ever seen,” says Fitts. Bidding wars are driving prices higher. Investors now routinely accept cap rates as low as 5.5 percent for student housing properties within walking distance of tier-one universities, and as low as 7.5 percent for properties a shuttle bus ride away from tier-two or tier-three schools. “There is definitely downward pressure on cap rates,” says Fitts.


Prices for student housing properties are now similar to the prices investors pay for conventional apartment properties, relative to income. The spread between conventional multifamily cap rates and student housing cap rates has shrunk from 50 to 100 basis points four years ago to just 25 to 50 basis points today.  Financing is also more available for student housing properties, at more attractive terms. For example, Fannie Mae and Freddie Mac no longer add an interest rate premium to most loans for student housing properties. Other lenders have also become more accommodating as student housing becomes a more mainstream asset class.


The most valuable properties are still those within walking distance of campuses. Both Education Realty Trust Inc. (EdR), a student housing developer and owner, and American Campus Communities, a student housing REIT, have stated they are focused on those types of assets. However, the demand for student housing is strong enough to encompass stabilized projects even if they are a bus ride away from the school.


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6)  Early indicators say 2015 may be a stronger real estate market?

Pat Hune, Broker at 1st Southwest Realty


This information is mostly anecdotal but many signs indicate the real estate market is starting 2015 on a positive upward trend. Title companies, home inspectors and mortgage brokers as well as realtors report an increase in overall activity since January.   Multiple offers on desirable properties are becoming more common.  Buyers who look at a home but either can’t decide or think they have not looked at enough homes are disappointed when they go for a second look and the house is under contract.  The second bitter winter in the midwest and east coast may be enough to drive retirees who can afford a second home  to the warmer climates like Phoenix.  The trend of reverse mortgages appears to be increasing as this allows the retired buyer to live in a nice home without the burden of a mortgage payment or rent while freeing up cash for them to enjoy.  It will be interesting to see what happens over the next few months.