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Tucson Home Prices

An uptick in home prices could signal stabilization in the housing market, but the sustainability of those rising prices has some analysts concerned.

Local Realtors are hopeful the worst is behind us, with prices going up and inventories running short, largely due to investor activity. By one analyst's estimate, investors have snapped up about 20 percent of Tucson's home inventory.

That's a good thing for the local economy, said Marshall Vest, an economist and director of the Economic and Business Research Center at the University of Arizona's Eller College of Management.

"It helps put a floor under prices," he said. "Most investors have bought these properties with the idea that they're going to have to hold on to them for five years."

As a result, Vest said, the market is unlikely to be flooded at any one point with flipped properties, and demand is likely strong enough to counter any downward pressure on prices.

"A strong case can be made that we have passed the low point for housing pricing," he said.

Vest said he wouldn't be surprised if prices rose as much as 20 percent over the next year.

Other analysts agree home prices will likely increase, but they're less certain the data are showing a clear upward trend.

"Sustained demand is the part that worries me," said David Stiff, chief economist for the Fiserv Case-Shiller Indexes, which recently predicted a 4.1 percent decrease in Tucson home prices from the fourth quarter of 2011 through the end of this year.

The indexes analyze single-family properties with two or more recorded sales to control for a changing mix in home stock, and focus on the average change in home prices. The algorithm tries to capture local demand using unemployment rates, population growth and median family income, among other factors, to make predictions.

The company's most recent report forecast that Tucson area home prices would climb 4.1 percent between the fourth quarter of 2012 and the fourth quarter of 2013.

Stiff, who oversaw the report, said the model may not adequately represent the demand from outside investors, who have been especially active recently in Arizona markets.

"Investor demand can ebb and flow depending on market trends," he said. That means investors are likely to sell as prices rise and homeowners who have been waiting for the right time to sell will begin to put their homes on the market.

Local real estate data consultant John Strobeck puts it this way: "Right now, in my terminology, we're bouncing on the bottom in pricing. I would like to see it turn up, but I haven't seen that yet."

However, Strobeck, like Stiff, adds a caveat: "I do see that we will see prices begin to increase." He thinks a rise of 4.1 percent in 2013 is "not out of the realm of possibilities" but predicts that prices will shift up and down for the next couple of years.

The reason? "Investors will start dumping properties," Strobeck said, estimating that investors own about 20 percent of Tucson's home inventory. "More houses will enter the market, and prices will fall."

The president of the Tucson Association of Realtors Multiple Listing Service is optimistic.

"I think we've already trended up," Sue Cartun said. "It's a good time for buyers in that they still have a good interest rate."

Both analysts agreed there are several bright spots in the market.

"Nearly all non-price metrics - existing home sales, rising home order volumes, increased spending on home improvement, a jump in multifamily construction - indicate that the housing sector hit bottom last year and has started along a path of slow recovery," Stiff said in a news release announcing the recent report.

Strobeck noted that there have been increases in local new home permits this spring, up about 12 percent compared with the same period last year. Prices for lumber and drywall are also inching upward, another reflection of growing demand, he said.

In the resale market, "the proportion of distressed sales appears to be dropping," Stiff said. That means that Arizona, unlike states with a judicial foreclosure process such as Florida, may have worked through most of the foreclosures linked to the recession.

"The way properties make their way through the process will determine what happens with prices," he said. "That could be good news for Arizona."

Still, Strobeck estimated that distressed sales - foreclosures, short sales and other sales in which the homebuyer is under financial pressure to unload the home - constitute about 70 percent of the Tucson resale market.

Real estate activity in both Phoenix and Tucson has been strong this spring, Stiff said, noting that that data did not factor into his report, which used fourth-quarter statistics.

The median home sale price has generally trended upward since hitting a low of $117,500 in September, according to Tucson Association of Realtors Multiple Listing Service data. In April this year, that figure was $134,000.

"Buyers of all kinds have gotten serious," Cartun said, pointing to an influx in homebuyers looking to take advantage of low interest rates, including buyers from New York, New Jersey and Canada shopping for second homes.

"If there's not much on the market, that's going to drive prices up," said Kevin Kaplan, a spokesman for Long Realty. He estimated home inventories at about four months' worth, less than the six months that represents a balanced market.

Home sales volume for April was up 12 percent compared with the year before, according to MLS data.

"Demand is up, and our inventory is down," Kaplan said. "That's a sellers' market."

One hint that investors may be involved in much of the purchasing is in the financing breakdown. About 38 percent of the homes bought in April were paid for in cash, MLS data show. In contrast, 31 percent were bought using conventional financing.

The Fiserv Case-Shiller Indexes show that home affordability for those relying on a conventional mortgage is improving. The median Tucson mortgage payment was equal to 11 percent of the local median family income in the fourth quarter of 2011, according to the report.

The nationwide figure was 12 percent, the lowest figure since 1971.

The report shows that Tucson home prices in the fourth quarter of 2011 had dropped 45.8 percent from their peak.

Contact reporter Carli Brosseau at cbrosseau@azstarnet.com

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