October 2016 Phoenix Real Estate Update

1st Southwest Realty Real Estate Update


Congratulations to the Chicago Cubs!

Even though I am from Ohio I was happy to see the Cubs finally win a world series after all those years.


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

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


I recently attended a Cromford Report presentation.  Here are the highlights of the presentation.


Job Growth and Corporate Relocation is positive, has expanded into Downtown Phoenix and south of Sky Harbor Airport – Good for Demand.


Boomerang Buyers still returning after cleaning up their credit, but should start declining in 2017.


Builders are ramping up permits, cities to watch for increased supply: Mesa and Buckeye. This is good for buyers, but may slow the future rate of appreciation for current sellers.


Long term affect for demand: Population is growing over 65 and declining for children under the age of 5.  If this continues, it could cause a drop in demand 20 years from now.


Expect price appreciation to continue to be positive under $300,000 (higher than the rate of inflation), flat between $300,000 and $800,000, and low or declining over $800,000.


Increased multi-family developments could stabilize rents as it adds to supply in that market.  Not likely to affect single-family rental rates.


Hot spots for flip investors: Central Phoenix within the 101/202/I-17 Loop, North Chandler, Northwest Gilbert, North Tempe.


Future Areas to watch: Areas north and south of Sky Harbor Airport.


72% of all sales are under $300,000.  45% of all sales are under $200,000.


Spring is the best time to sell.  More houses go up for sale as sellers with children prefer to move over the summer months.  Also easier to move to other parts of the country when it is summer there.   October is the best time to buy. The sellers who did not get their houses sold over the summer will become discouraged and drop the price to get the house to move.  The third quarter is typically the best time to sell to winter visitors.  However winter home sales have dropped significantly due to the favorable exchange rate of the Canadian currency. A lot of Canadians are selling to cash in versus buying.


Appreciation over $500K is flat over the past few years. This is due to builders only building large, luxury homes. They cannot afford to build small homes due to the shortage of labor and expense of the materials and land.


North Scottsdale is not doing well.  Houses are sitting on the market for a long time - greater than 250 days. 


There is no real estate bubble.  If you take out the bubble of tremendous increased and then decreases, house prices have increased 2-3% which is typical. House prices usually follow the rate of inflation.



Articles

1)  STAT Newsletter

2)  Rental Market

3)  Multifamily and Commercial Real Estate Trends

4)  More Financial Services Firms Moving to Phoenix

5)  How will 14 SEER HVAC and new Water Heater regulations effect you?

6)  Tales From the Trenches - What is an HOA reserve study and why is it so important? 


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1) STAT Newsletter Link - Commentary by Mike Orr, Founder of the Cromford Report

(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 2016


The market in 2016 has behaved very predictably following all the usual seasonal trends and largely mirroring the market of 2015. However, 2015 lost some momentum in August and we are seeing no evidence of any similar weakness in 2016. In fact, demand has shown a slight improvement during September and the first half of October. At the same time, supply is now growing, as it does every year between September and December. This gives buyers a little more choice and keeps sellers from getting over-confident.


The top end of the luxury market, over $2 million, had a better third quarter than last year, with more sales and higher pricing. However, the market between $500,000 and $2 million is now the weakest price range with some important areas impacted by excessive inventory and lack-luster buyer demand. Below $500,000 the market is looking very healthy with supply getting tighter and tighter as we drop down in price. Consequently, appreciation is strongest in the lowest price sectors of the market.


The biggest difference between 2015 and 2016 has been the market share gains made by new homes over resales. Based on year to date sales at the end of August, overall dollar volume is up by 13.6 percent for single family and townhouse/condo properties across Maricopa and Pinal Counties. However, new home dollar volume is up by 34.6 percent while resales are up by only 10.3 percent. In market share terms new homes have grown from a 13.6 percent share to 16.1 percent.  New home developers have done more in 2016 to address the lower price ranges and unit counts are up 33 percent year-to-date. Analyzing by city we see the following unit sales growth as depicted on the chart (click link below).


Note that additional new homes are being sold in the town of Wickenburg, but almost all of these are in Yavapai County – outside of our data collection area.  We can anticipate new home sales in 2017 by looking at single family permit counts for 2016 year-to-date.


Click here to see the Chart of Price Ranges and New Home Building Permits


Click here for the latest STAT Report


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2) STAT Rental Market Link


The September median lease was $1,295 as compared to the August median lease of $1,325. The September average lease was $1,477 as compared to the August average lease of $1,499.  The September average days on market was 30 as compared to the August average of 28 days on market.  Rental activity typically decreases once school starts and will be slow until after the holidays.  Yardi reported the largest drop in apartment rents since 2013.  On a trailing three-month basis, the leading areas for growth in October were three California metros—Orange County, San Diego and Sacramento—along with Phoenix and Kansas City, MO. The metros in which rents trailed the most overall on a T3 basis were San Francisco, Seattle, Denver, Boston and Portland, OR.


That being said, the Yardi Matrix report notes that the recent deceleration is “far from being a sign that the sector is overheated. Fundamentals in most markets continue to be strong. Occupancies of stabilized properties are not far from cyclical highs, while the growing population coupled with strong job numbers is producing above-trend household formation that leads to demand for apartments.”


Rent Check


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3) Multifamily and Commercial Real Estate Trends


Multifamily prices seem to have leveled off after an increase of 14.5% year over year. The prices are averaging $68,231 per unit.  Multifamily properties are in high demand.  Canadian investors may take advantage the favorable exchange rate of their Loonie to sell and not buy a replacement property in the USA.  


Loopnet Commercial Trends


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4)  More Financial Services Firms Moving to Phoenix

Orion, October 2016


New economic realities, post-recession regulations and technological changes are putting profit pressures on financial services firms. And, that’s leading to more jobs in Phoenix. 

Darin Mellot co-authored an industry study for a commercial real-estate firm. It shows banks, insurance companies and other financial firms are moving more into non-traditional markets that offer good value.  “You can’t just have low costs,” he said. “You also need to be able to get the talent you need and when you look at it in those terms Phoenix is very cost effective.”


Phoenix’s lower labor and real-estate costs compared with cities like New York and Los Angeles are adding up to more jobs. Since 2010, the study found only Dallas-Fort Worth with 284,600 jobs has added more financial services jobs than Phoenix with 173,700.  The Valley is labeled as “strong” in shared services, which include jobs like accounting, legal services and human resources. The study listed Phoenix as  “moderate” for information-technology jobs like software and web developers, and “moderate” for risk and compliance workers, which include quantitative analysts, mathematicians and compliance officers.


“In Phoenix what you have is one of the largest cities in the country and a very large workforce,” Mellot said. “So the numbers really work in favor of Phoenix.”  He said the Valley’s sheer size is another plus, with enough space and workers for companies in the same sector to grow.


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5)  How will 14 SEER HVAC and Water Heater regulations effect you?

Home Care Buzz, October 2016


The changes in the efficiency requirements for HVAC units and Water Heaters could create additional expense for property owners.  Water heaters are sometimes in small closets or areas where space is limited.  If the size is not available to fit the space then costly construction work may be needed.  Even though this change was put in place in 2015 some owners may not be aware and will get an unpleasant surprise when it is time to replace the hot water heater.  HVAC unit replacement may also have space limitations.  Often the inside unit is installed in the attic or on top the roof.  If an exact match cannot be found then modifications may need to be made.  Owners who maintain a home warranty should check with their home warranty company to make sure the potential construction costs are covered.  If they are not then switch to home warranty company that does cover the additional costs.


Changes for Hot Water Heater Energy Factors (EF) 

Beginning April 16, 2015, the minimum Energy Factor (EF) ratings for virtually all residential water heaters are increasing. An EF rating measures the annual efficiency of a water heater – a higher EF means a more efficient water heater. Manufacturers will no longer produce units that do not meet the new standards. Products manufactured prior to April 16, 2015 can continue to be purchased and installed.  Both gas and electric water heaters between 20-55 gallons will have more insulation. This means they could be up to 2 inches taller and wider. If water heaters get bigger, then some units might not fit in current installation sites. (e.g. small closet).


Both gas and electric water heaters will have unique installation requirements. Gas water heaters over 55 gallons will use a new condensing technology. Electric water heaters over 55 gallons will be required to use heat pump technology, which calls for the installation of a condensate disposal line, and the provision of sufficient air volume to accommodate the heat source, which may prevent installation in smaller spaces.  Note: Less than 10% of all of the water heaters replaced by First American in 2014 were over 55 gallons.


Changes for Heat Pumps and Air Conditioners - SEER Changes for the Southwestern United States.  (SEER stands for “Seasonal Energy Efficiency Ratio.” SEER can be compared to miles per gallon on your car. The higher the number, the more efficient the HVAC unit.)


Heat Pumps - The standard for all split-system heat pumps has increased to the national heat pump efficiency minimum of 14 SEER and 8.2 HSPF (Heating Seasonal Performance Factor). 


Air Conditioners - The AC standard has increased to 14 SEER.


Existing systems less than 14 SEER may continue to be used as long as they can be repaired with available parts. Replacement systems less than 14 SEER may continue to be purchased and installed as long as the system was manufactured prior to January 1, 2015.  13 SEER (straight cool units) may still be installed until June 30, 2016.


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6)  Tales From the Trenches - What is an HOA reserve study and why is it so important? 

Attorney Scott M Drucker,General Counsel for the Arizona Association of Realtors, October 2016 with Comments from Pat Hune, Broker, 1st Southwest Realty


Recently I met a couple at a social event and they were very unhappy with their Home Owner’s Association.  The landscaping was not properly maintained, the streets were deteriorating, the pool was green, the roofs were not being maintained and the community was generally falling into disrepair.  They were concerned it would decrease the value of their property. They were absolutely right to be concerned.  When a community is clean, looks well maintained and all the mechanical items are functioning buyers are more likely to want to live there.  If the community does not look good it may make the buyers wonder what they are getting for their HOA dues.  I asked what the last recent reserve study said the owners should be allocating for maintenance to keep the property looking good.  They responded with “What is a reserve study?”  


Attorney Drucker describes a reserve study as follows: "A typical reserve study consists of two parts: a physical analysis and a financial analysis. By way of the physical analysis, the condition of common area, building and grounds components are evaluated. The remaining useful life of each component is determined and the repair or replacement cost is estimated. By way of the financial analysis, the reserve study compares the association’s current reserve funds to what should be set aside to ensure that the association has adequate funds to cover such repairs and replacements.”  It is recommended the HOA has a reserve study done at least once every five years. Click the link below to see the entire article.


Reserve Study


I own a property in an HOA, was once an HOA president and my sister manages several HOAs so I can speak from experience.  If there has not been a recent reserve study then this may not be a good property to buy.  In addition the HOA needs to have enough money in reserve to cover upcoming maintenance.  When buying a property located in an HOA the HOA is required by Arizona law to provide a financial statement, amount of money in the HOA’s reserve account and a copy of the latest reserve study if available.   Unfortunately there are no Arizona statutes requiring the HOA to do a reserve study or have a certain amount of funds available for property maintenance.  In additional some mortgage company will not loan money on a property where the HOA is insolvent.  This will limit the buyer pool resulting in decreased property values.


One issue is during the real estate bust many owners stopped paying their HOA dues and mortgage payments.  When the mortgage holder foreclosed there was no requirement for the back HOA dues to be paid.  As a result many HOA’s lost thousands of dollars essentially stripping them of ability to build the cash reserves needed for future maintenance.  


What happens when the HOA runs out of money?  Either the HOA stops doing the needed maintenance, increases the HOA dues  or levies a dreaded “special assessment” on all the current owners.   Some HOAs have established a capital contribution fee that is required to be paid every time a property changes hands to keep adequate money in the reserve fund  for future maintenance.  The bottomline is before buying a property in an HOA be sure to ask a lot of questions about the financial state of the HOA.