As inventory shrinks Phoenix housing market sees price increases

As the inventory of single-family homes continues to grow smaller price valuations continue to increase the Valley of the Sun. (Independent Newsmedia/Terrance Thornton)

As the inventory of single-family homes continues to grow smaller price valuations continue to increase the Valley of the Sun. (Independent Newsmedia/Terrance Thornton)

As prices continue to rise and supply of single-family homes continue to dwindle, the Phoenix metropolitan housing market continues to show signs of a recovery in motion.

Real estate agents, brokers and experts all agree the local housing market is on its way back. But attention is focused on the dwindling supply of inventory — as the shrinking amount of homes for sale continues to drive prices up in some areas, while fueling investor buys in others.

Shrinking single-family home supply coupled with an explosion of multifamily dwellings continues to be the dominant storyline in the market. The latest Phoenix housing report prepared by the Center for Real Estate Theory and Practice at the W. P. Carey School of Business suggests that trend could be changing by end of the year.

In the past two months the number of building permits issued in the $200,000 to $500,000 range has increased, according to Michael Orr, director of the Center for Real Estate Theory and Practice.

But first-time homebuyers looking to buy something around the $200,000 price threshold can find themselves priced out and out-bid, real estate agents and experts agree.

“This is causing problems for buyers who are experiencing multiple bids in the range below $200,000,” Mr. Orr pointed out in the July housing report. “If the current supply shortage persists through the third quarter, we should expect upward price pressure to resume at the end of September.”

Active listings continue to drop across the Phoenix metropolitan area, but demand has remained steady, the July housing report states.

A quick glance at current trends:

  • Active listings dropped 7 percent in the month of May compared to April. On June 1 there were 21 percent fewer listings than June 2014.
  • Single-family home sales rose 1 percent over April and 7 percent over May 2014.
  • Townhouses and condominiums slumped a little; however, sales dropped 5 percent since March but were up 11 percent from May 2014.

The median sales price continues to be a bit misleading as luxury home sales — homes priced about $500,000 in the Phoenix metropolitan area — are inflating numbers marketwide.

The median sales price for single-family homes increased 5.2 percent from April, but price per square foot rose just 0.3 percent. Year over year, the median price was up 11.5 percent — from $200,000 to $223,000 — and the average price per square foot grew 7.2 percent — from $125.25 to $134.31.

The latest housing report shows the largest gain in price valuations occurring in the multifamily sector, with median price for townhomes and condominiums year-over-year up 11.9 percent — going from $126,000 to 140,950.

In contrast price per square foot at the townhomes and condominiums dropped 5 percent since March but still show an 11 percent uptick since May of 2014.

From the top down

The luxury housing market is a creature of its own and while homes selling north of $500,000 are typically reserved for the affluent consumer, that marketplace is having an impact on the lower markets filled with fist-time, and move-up homebuyers.

“Talking about median pricing, we get this all the time, where median prices jump 11 percent. That’s just not right. It is more of a reflection of what portion of the market is moving,” said Walt Danley of Walt Danley Realty in a July 28 phone interview.  “It has just been the upper-end of the market that is skewing those numbers.”

Without a proper understanding of the median pricing formula, data used to track trends can be deceptive, Mr. Danley points out.

“If someone puts a gun to your head and made you choose the best option, one would be price per square foot,” he said of the best indicator of overall market activity. “That is a little more of an accurate way to do it.”

Walt Danley Realty is an exclusive affiliate of Christie’s International Real Estate and a staple of the luxury real estate market in the Phoenix metropolitan area.
When asked how business was, Mr. Danley replied “significantly busier than last year.”

According to a market snapshot by the realty firm, there are 2,530 listings of homes prices beyond $500,000 in the northeast portion of the Valley of the Sun including the communities of Paradise Valley, Scottsdale, Fountain Hills, Rio Verde, Biltmore, Cave Creek and Carefree.

There were 2,409 listing this same time last year and in June of this year there have been 371 sales in that marketplace compared to 344 year to date, the market snapshot states.

“The upper end of the market has been strong. There is still a lot of inventory out there,” Mr. Danley said, noting there have been 16 sales of $3 million dollars each in the northeast valley so far this year.

Mr. Danley says the majority of buyers he deals with are folks who already live here.

“The majority, about 55 percent of homeowners in the luxury market in the northeast Valley, are people who already live here,” he pointed out. “There is a lot of migration for this marketplace.”

Finding what you are looking for is the goal of any homebuyer, but oftentimes a typical fist-time homebuyer is seeking modest accommodations.

“Anyone can purchase a home it is just a matter of having the means to do it,” said Ronaldo Lewis, designated broker and owner of Brokerich Properties. “A lot of first-time homebuyers aren’t walking around with Scottsdale money.”

Mr. Lewis primarily serves clients in the southeast Valley through residential sales and single-family home management.

“The main thing you have to look at is what you are getting for that price,” he pointed out in a July 29 phone interview of typical consumer desires. “You are not going to get the size or quality of home in Scottsdale for the same price that you would get in Chandler or Mesa.”

Mr. Lewis says the typical pricing point for real estate transactions common for his clients hovers around $200,000 in recent months.

“We do have some multiple offers but it is not between two or three different buyers but we have been biting at each others ankles,” he explained. “For quality homes, there is definitely a demand for it.”

A strengthening market

Scottsdale Area Association of Realtors President and CEO Rebecca Grossman says her membership, which is more than 8,000 members, is under the impression Scottsdale and the surrounding Phoenix marketplace is a thriving market.

“If you look at $250,000 range, in that pocket range, multiple offers are very common,” she said in a July 28 phone interview.

“One of the things we are always cautioning is in that kind of market you have to listen to your Realtor. As you know, in the past we have seen the market heat up and people get in there and are willing to pay more than the appraised value determined by their agent — while they may not be able to pull that equity out of the home.”

Formed in 1963 the SAAR trade association is a 501(c)6 not-for-profit organization with members specializing in every aspect of the real estate profession, including residential, property management and commercial, as well as supplemental services such as appraisal, financing, title, and inspection.

Within Scottsdale city limits there are 3,170 homes for sale with a median listing price of $595,000, which represents a 19.25 percent increase year to date, according to a market report provided by SAAR.

The data states the average listing price is $935,000, which represents a 11.7 percent increase year to date.

“I like to go with average sale price,” Ms. Grossmann said of trying to asses new value on a marketplace. “Anyone can put a price on a listing but that does not accurately depict a value. But we are seeing really nice steady increases in these values.”

In terms of overall activity reported, Ms. Grossmann says the market is at about 80 percent of where it once was in 2005.

“Do we want to reach and exceed that in the short term? In the short term that would be a volatile market,” she said.  “A healthy real estate market and a healthy community depends on having housing at multiple points of entry. It is almost as if we are grooming our full-time resident and that can help it (the market) thrive.”

Lack of inventory in the lower price points is something the Realtor trade association is keeping a close eye on, Ms. Grossman says.

“It is a good market, but it could be better; but it is a lack of inventory that makes it a seller’s market,” she said.  “To improve on that we need to see more construction. Until you add more competition to the marketplace you are going to have buyers unable to find what they are looking for.”

Northeast Valley Managing Editor Terrance Thornton can be contacted at tthornton@newszap.com

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