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Michael Orr Director Center for Real Estate Theory and Practice August 20, 2014 Michael Orr Director Center for Real Estate Theory and Practice August 20, 2014 Greater Phoenix Housing Market
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Euphoria Denial Despair Hope Skepticism Optimism Enthusiasm Exhilaration Unease Pessimism Panic Capitulation Relief Optimism Enthusiasm The Market Cycle
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Sep 2004 Jul 2008 Another +50% to reach the peak! +60%
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Most Home Prices Are No Longer Rising Some Are Falling, but Not Much
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Normal Listings Only
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Southeast Valley Cities + Ahwatukee
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Normal Sales Only Southeast Valley Cities + Ahwatukee Normal Sales Only
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Prediction Is Very Difficult, Especially About the Future - Neils Bohr (1885-1962) Prediction Is Very Difficult, Especially About the Future - Neils Bohr (1885-1962)
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Normal = 100 for all gauges
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12 Months Ago
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Balanced Market Buyer’s Advantage
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Where Are the Boomers? Sun City West (median age 75.8) Sun City (73.2) Sun Lakes (70.9) Gold Canyon (61.8) Fountain Hills (52.9) Cave Creek (50.6) Paradise Valley (50.4) Apache Junction (47.3) Litchfield Park (46.4) Scottsdale (45.1) Sun City West (median age 75.8) Sun City (73.2) Sun Lakes (70.9) Gold Canyon (61.8) Fountain Hills (52.9) Cave Creek (50.6) Paradise Valley (50.4) Apache Junction (47.3) Litchfield Park (46.4) Scottsdale (45.1) These markets are relatively robust
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Where Are All the Buyers? 232,767 have been foreclosed since 2008 – 19% of the home owners in Maricopa County 83,849 have completed a short sale since 2008 – 7% of the home owners in Maricopa County So 26% of former owners have a credit issue Most are locked out from loans for 7 years Peak foreclosures were 2008-2011 Peak eligibility to buy again is 2015-2018 Some of this demand will emerge more strongly next year
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The Penalty Box ShareMaxForeclosure Wait Down Payment Short Sale WaitDown Payment Fannie Mae 43%$417,0007 years maybe 3 if special case 10%2 years 4 years 20% 10% Freddie Mac 13%$417,0007 years maybe 3 if special case 10%4 years10% VA6%$1,000,0002 years0%0 years0% FHA28%$271,0603 years3.5%1 year3.5% Other Loans 10%Variable
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Millennial Impact on Housing Market Starting families later than earlier generations Lower birth rates Many still living with parents Higher preference for urban lifestyle Tendency to share accommodation & transport Not convinced home ownership is good for wealth Expect to own a home…one day Not a high priority for them in 2014 Mostly renting – creating demand for landlords Starting families later than earlier generations Lower birth rates Many still living with parents Higher preference for urban lifestyle Tendency to share accommodation & transport Not convinced home ownership is good for wealth Expect to own a home…one day Not a high priority for them in 2014 Mostly renting – creating demand for landlords
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Where Are the Millennials? Tolleson (median age 26.7) Avondale (28.1) Tempe (28.1) El Mirage (28.2) San Tan Valley (28.2) Queen Creek (28.9) Buckeye (30.2) Maricopa (32.1) Gilbert (32.2) Phoenix (32.2) Tolleson (median age 26.7) Avondale (28.1) Tempe (28.1) El Mirage (28.2) San Tan Valley (28.2) Queen Creek (28.9) Buckeye (30.2) Maricopa (32.1) Gilbert (32.2) Phoenix (32.2)
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Single Family Rentals
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Investors pulling back but tenants still coming Only 3,048 SFR rental listings on ARMLS In January there were 4,345 This is only 36 days of supply Most of what is left is expensive (avg $1,760 pm) Average in January was $1,449 pm Condo rentals are now getting harder to find (63->48 days supply) Investors pulling back but tenants still coming Only 3,048 SFR rental listings on ARMLS In January there were 4,345 This is only 36 days of supply Most of what is left is expensive (avg $1,760 pm) Average in January was $1,449 pm Condo rentals are now getting harder to find (63->48 days supply)
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Maricopa County – SFR / Condo Homes Units 2015 2015 Assessed Value Units 2013 2013 Assessed Value Total Number1,233,164$240 Billion1,215,971$168 Billion Owner Occupied901,656$188 Billion1,018,809$152 Billion Rentals & Second Homes331,508$52 Billion197,162$16 Billion …including Institutions13,553$1 Billion Increase in Assessed Value of Residential Inventory in Last 2 Years = 43%
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Supply of New Listings at a 14-Year Low
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Annual Sales Volume Unusually Low and Still Falling
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Almost Everything Is Below Normal
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Situation Summary – August 2014 Supply is below normal & falling (87% of normal) Demand weak but stable (81% of normal) AZ loan delinquency below normal at 4.5% Foreclosures are below normal Investor buys are below normal 40% -> 13% of sales Cash transactions decreasing 42% -> 21% Out-of-state buyers below normal 29% -> 17% Expect a little price weakness in the rest of 2014 Expect market to improve for sellers during 2015 Supply is below normal & falling (87% of normal) Demand weak but stable (81% of normal) AZ loan delinquency below normal at 4.5% Foreclosures are below normal Investor buys are below normal 40% -> 13% of sales Cash transactions decreasing 42% -> 21% Out-of-state buyers below normal 29% -> 17% Expect a little price weakness in the rest of 2014 Expect market to improve for sellers during 2015
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New Homes Still a small part (10-12%) of the market New Homes Still a small part (10-12%) of the market
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How Will Demand Return to Normal? Mortgage applications are at their lowest level since December 2000 Lenders will start approving applications from people with lower quality credit history Rents will increase, driving more tenants towards ownership Millennials will eventually join the game Supply will become an issue once again Mortgage applications are at their lowest level since December 2000 Lenders will start approving applications from people with lower quality credit history Rents will increase, driving more tenants towards ownership Millennials will eventually join the game Supply will become an issue once again
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Michael Orr Director Center for Real Estate Theory and Practice Michael Orr Director Center for Real Estate Theory and Practice
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