January and February 2017 - Phoenix Real Estate Update

I hope you enjoy this monthly newsletter.  Are you thinking about selling a property?  If you want to know the true value of your home, not just Zillow’s opinion, please call or send me an email.  You can also search the MLS from my website at greathouseaz.com


Are you looking for a rental property manager?  Please call or email Karen at 602-316-7028 or ftr9558@cox.net.

Sincerely,

Pat Hune

Broker

greathouseaz@gmail.com

480-703-1976

www.greathouseaz.com

Equal Housing Opportunity


Market Overview - How did the experts do with their 2016 Predictions?

Commentary from Pat Hune, Broker, 1st Southwest Realty, and various sources


Diana Olick, CNBC,  December 2015

  • Interest rates will increase thanks to the improving economy and the Federal Reserve.  (Ok we won’t talk about the dismal week the stock market had during the first week in January 2016.) The Federal Reserve increased the interest rate on December 16, 2015 by one quarter point for the first time in decades.  This has a limited effect on mortgages (Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result.  Mortgage Backed Securities (MBS), are the type of Bond on which home loan rates are based.) There are other reforms that may impact the mortgage industry including an omnibus spending bill that prohibits the Treasury Department from selling the government’s stake in mortgage finance giants Fannie Mae and Freddie Mac until 2018 without further legislation.  
  • Rents will increase as there will still be a shortage of housing despite the tremendous number of apartment complexes being built. The demand is still higher than supply which keeps rents high.
  • New home starts will not increase much as builders still struggle to find enough land and labor to build more houses.
  • The supply of housing will still continue to be tight which will in turn keep prices high.

Elliott Pollack, Phoenix Economist, December 2015

Millennials and "boomerang buyers" are among the forces creating the best conditions for housing since the boom a decade ago.  The state's real-estate markets are experiencing healthy growth.  Millennials, the generation whose oldest members are in their mid-30s, are marrying, with many becoming first-time homebuyers. Younger members of the generation are leaving their parents' homes and creating strong demand for apartments. As they grow older and marry, life events will create even more demand for more single-family housing, he said. On the other hand, people aren’t moving nearly as much. They are still locked into their homes or afraid to move. The big spending boomers are getting older, and fewer people are moving to Arizona. We grow about 80,000 a year now, but that’s slower than ever, and as a consequence fewer single-family homes are being built, and fewer apartments.


At the same time, many of those who left or lost their houses during the crash are newly eligible for federally backed loans again.  "The outlook for housing is quite exceptional, given the outlook for a post-2007 world," Pollack said in a nod to the housing crash. "The parade of horribles that have been affecting housing are almost all improving.”  The Phoenix area should have at least 15,000 building permits for single-family houses this year and at least 18,000 next year, Pollack said. Commercial real estate remains soft, but not in all parts of the Valley.


Arizona is expected to maintain its status as one of the faster-growing states in the nation, though other areas, many of them in the West, are doing better. The year ahead should finally produce enough jobs to replace the ones Arizona lost during the Great Recession, something the nation as a whole achieved by mid-2014.  Our economy is not as strong as it historically has been, and won’t be until it changes. Next year we will grow at 1.8 percent. Nationally, immigration represents 42 percent of population growth, but in Arizona it’s 20 percent because of the passage of SB 1070, which drove immigrants away.  


Pat Hune, Broker, 1st Southwest Realty

  • Interest rates are going to go up.  It may not be much be there will be an increase.  But this is ok as the buyers who purchased in 2015 will be happy they did so and will be bragging to their friends who sat on the fence.  The number of entry level buyers and boomerang buyers will increase as a result.
  • Prices will go up and inventory will continue to be low especially in houses priced under $250,000.  This is a very safe prediction as it is unlikely there will be an influx of entry level single family housing from any new source. The new home builders cannot afford to build, and quite frankly don’t need to build, cheap housing.
  • High density single family housing developments like town houses will increase especially close to the light rail and the ever expanding ASU Campus but they probably won’t be cheap.  Another safe bet as both Tempe and Mesa are anxious to see some owner occupant housing versus the huge rental complexes.  They want less tenants (who are transient) so the neighborhoods become more stable.  But buyers will pay a steep price for the convenience.
  • Prices will go up by 6% driven by the high demand and low inventory levels.  Another safe prediction as it is unlikely a tsunami of houses will hit the market.   

How did everyone do with their predictions?  Overall everyone did well.  However in a relatively stable market it is easy to make predictions.   


Interest rates in January 2016 for a 30 year fixed mortgage were around 4.0 - 4.125%.  Interest rates have gone up a bit. Thirty year fixed interest rates were 4.15% on February 17, 2017.  Goldman Sachs predicts mortgage interest rates will increase to 5.5% over the next two years. 


New Homes - Phoenix area builders built 18,000 new homes in 2016 compared to 15,000 in 2015.  This was the most new homes in nearly a decade.  


Rents have continued to rise.  The median lease in January 2017 was $1,298 and the average lease was $1,474. In January 2016 the median was $1,250 and the average was $1,379.  This is an increase of $48 for the median and $95 for the average.  However many rentals are not listed in the MLS so a lot of data is missing.


Prices have continued to go up.  The median sales price in January 2016 was $210,000 while the average sales price was $270,200.   In January 2017 the median sales price was $225,000 while the average sales price was $281,200.  This is an increase of $15,000 for the median and $11,000 for the average sales price.



Articles

1)  STAT Newsletter

2)  Rental Market

3)  Multifamily and Commercial Real Estate Trends

4)  Arizona Ranks in Top 20 of Best Places to Retire in the US 

5)  Chandler Announces Downtown Development with Movie Theater 

6)  Is Sunshine and Low-Cost Homes Enough to Fuel Phoenix Growth?

7)  Tales From the Trenches -  Nothing, not even labor, will stop a dedicated buyer.


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1) STAT Newsletter Link - Commentary by Tom Ruff, Founder of the Information Market

(Note the numbers are reported one month behind.)  STAT is produced monthly by the Arizona Regional Multiple Listing Service.  This is the database realtors use to list homes for sale and the source for historical sales. ©ARMLS 2017


In the blink of an eye our selling season has begun. It’s way too early to tell exactly what kind of year it’s going to be for home sales. If January is any indication, it’s going to be a really good one. Inventory levels began 2017 much like 2016 but demand is much higher. Monthly sale volumes as reported by STAT are up 12% on average over the last 6 months with January 2017 sales volume 15.6% higher than last January. Our current inventory level is now 6% lower than last year at this time. Lower inventory numbers with higher demand means rising home prices are likely to follow. 


Where is the impetus for this increased demand? I believe it’s two-fold. Millennials are maturing and forming families and it’s clear they are now buying houses. We need to look no further than the popular baby names of 1984 to see how these names dye the landscape of 2017 home purchases. With millennials defined as births between 1984 and 2004, this is just the beginning as their time has arrived. The second impetus is that people have been improving their credit scores as prior foreclosures and short sales age and then fall from credit reports. As credit scores improve, more people are qualifying for home loans. The arrival and return of these two buying factions have been anticipated for some time and are now quantifiable. Their impact on our market just took slightly longer than expected. 


Oddly, NAR released the following statement in their monthly report that was picked up by the media, “Pending home sales in January dipped to their lowest level in a year.”  (Note Zillow issued a similar report stating it had become a Buyer’s market. I think not.)  Duh, January almost always has the lowest pending home sales, so don’t worry about those headlines. 


There is probably no better chart for showing the seasonal and individual monthly cycles in real estate then a daily chart of the total number of pend- ing sales contracts. The chart below clearly shows the monthly spikes as well as the seasonal spikes. The highest percentage of home closings each month occur at the end of the month leading to the corresponding rapid drop in pending contracts. In January 2017, 26% of all home sales for the month closed in the last 3 days. Of less impact but also noticeable are home closings centered around the 15th of each month. The number of pending contracts rises from January 1 to late April, plateauing in late April and May and then beginning an annual descent. History also shows year-over-year increases in the number of pending contracts with each successive year greater than the prior. We begin February 2017 with pending contracts 6% ahead of last year. 



Click here for the latest Stat Report


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2) STAT Rental Market Link


The January median lease was $1,298 as compared to the December's median lease of $1,295. The January average lease was $1,474 as compared to the December average lease of $1,444.  The January average days on market was 37 as compared to the December average of 37 days on market.  


Rent Check


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3) Multifamily and Commercial Real Estate Trends


Current Phoenix trends show median asking prices are up 3.4% compared to the prior 3 months and 14.5% year over year.  Prices are $68,231 per unit as compared to $66,964 year over year. 


Loopnet Commercial Trends


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4)  Arizona Ranks in Top 20 of Best Places to Retire in the US 

Richie Bernardo, WalletHub, January 2016


As the nation’s baby boomer population ages the best place to retire becomes a big question.  Unfortunately nearly a third of this group have not put a single penny away for retirement through not necessarily through any fault of their own.  Some are victims of circumstances where the company was holding their retirement funds and then filed bankruptcy or “raided” the funds to cover corporate expenses.  Some lost money because they invested in the stock market at the wrong time.  Social Security or pension checks may not be adequate to cover their living expenses.  Social Security benefits only replace about 40% of the amount an average worker earned.  To help retirees find a permanent yet affordable place to call home WalletHub’s analysts compare 50 states and the District of Columbia using 31 key indicators of retirement friendliness.  They examined affordability, health-related factors and overall quality of life.  Arizona ranked number 13 overall.  Click below for the details of the analysis.


Best Places to Retire


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5)  Chandler Announces Downtown Development with Movie Theater 

Orion Investment Real Estate, February 2017


Downtown Chandler residents and visitors will get the movie theater they’ve longed for the past few years, possibly as early as December.  Flix Brewhouse, which combines a microbrewery and a theater, will anchor a 77,000-square-foot multi-use project – called Overstreet – along the southwest corner of Arizona Avenue and Chandler Boulevard. David Sellers, president of LGE Design Build, which put the deal together, said he wants to sign up two restaurants and possibly a clothing boutique and a fitness center. He said LGE has wanted to do something in downtown Chandler for several years and is excited to get Overstreet started.  The development will feature a large-scale bridge that rises above the entrance and will house office space. Pathways will wind through the property’s alleyways, increasing its accessibility for auto, foot, stroller and two-wheel traffic. A 350-spot parking structure is also planned.


Kim Moyers, downtown Chandler redevelopment manager, said Overstreet will be a “destination driver.”  “What we’ve heard loud and clear is that businesses and residents really wanted a downtown theater,” she said. “It’s been a fun process.”  It was a slow and troubled process until the city brought LGE on board recently. The city gave a greenlight to a project called The Row in 2014 that would have brought an Alamo Drafthouse Cinema to that corner, along with popular Valley restaurants La Bocca and Modern Margarita.


But problems with the site’s soil led to delays, causing Alamo to choose a new location at Arizona Avenue and Chandler Heights Boulevard. The theater opened last December, to the delight of many south Chandler residents. La Bocca and Modern Margarita decided to move into the former Coach & Willie’s space on the corner of Arizona Avenue and Boston Street.


Then-developer Vintage Partners tried to ink a deal with Harkins Theaters but couldn’t ultimately reach an agreement.


Flix Brewhouse and Alamo both combine dining and drinking with a first-run movie experience. Flix will offer a wide range of local and regional craft beer, in addition to up to 12 of its own, brewed on-premises. Flix Brewhouse will also serve non-moviegoers during regular theater business hours.


Chandler Downtown Development


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6)  Is Sunshine and Low-Cost Homes Enough to Fuel Phoenix Growth?

AZ Central, February 2017


Sunshine and affordable homes have long spurred metro Phoenix’s growth.  On the downside, Phoenix has also long been known as an area with inexpensive labor and warehouses for call centers and distribution hubs.  But at least part of the Valley’s original growth formula is now helping a number of startups bring coveted tech, automation and software-engineering jobs to the area.


Metro Phoenix is no mini Silicon Valley yet, but Greater Phoenix Economic Council CEO Chris Camacho and representatives from a group of venture-capital-funded Phoenix startups said the area is near a “tipping point to become a tech hub.”  They made that prediction to Arizona’s top real-estate and growth executives at Urban Land Institute Arizona’s annual forecast on Thursday. The audience of hundreds listened closely as they described what could be a huge growth shifter for the Valley.


Camacho kicked off the panel called Phoenix Beyond the Tipping Point: More Than Sunshine and Cheap Labor by citing metro Phoenix’s tech-job growth last year: 58 percent.  Brenda Schmidt, CEO of the health-care tech firm Solera Health based in downtown Phoenix, said thanks to Arizona State University and other universities in Arizona, the state has the tech talent but is having a hard time keeping those people here after they graduate.



Ori Eisen, who founded Scottsdale-based ID authentication firm Trusona, said the deterrent for the Valley becoming a growing tech hub isn’t attracting venture capital. It’s attracting enough engineers.  “We are paying $150,000 for jobs that we can’t fill,” he told the crowd.


That’s where the Valley’s affordable home prices come in. Eisen said one of the first things he shows engineer and developer job candidates is a picture of a beautiful Phoenix home with a pool.  “They ask if it’s a $15 million home from Silicon Valley,” he said. “I tell them they can come here, do the same job they would at Google and afford a house like it, something many won’t ever be able to do in San Francisco.”


Alexi Venneri, CEO of Scottsdale-based automotive social-media firm Digital Air Strike, said the Valley isn’t just a call-center hub for big tech firms like Yelp anymore.  She said more big tech firms are adding other operations and hiring developers here because the Valley has the right conditions for their growth.  Those conditions, including affordable home prices, helped bring tech pioneer Motorola to the Valley in the 1950s and later chip-making giant Intel, which recently announced a $7 billion expansion of a Chandler plant.


Affordable homes and sunshine brought many of us to the Valley, or at least made us want to stay.


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7)  Tales From the Trenches -  Nothing, not even labor, will stop a dedicated buyer.

Pat Hune, Broker, 1st Southwest Realty


Recently I met a client at the title company to sign documents the last day of February.  While we were signing the escrow officer mentioned there was a young couple in the conference room next door signing loan documents to buy their first home.  This is not unusual especially at the end of the month.  What was unusual was the wife was in labor!  Everyone breathed a sigh of relief and gave her a round of applause when the signing was done and she was on her way to the hospital.  One might think signing loan documents could have waited but unfortunately loan documents expire. In any event we all were amazed by the fortitude of this young woman.