by Kristena Hansen
Phoenix Business Journal
Date: Thursday, January 10, 2013, 3:38pm MST
The good news for metro Phoenix is that home values are still on a steep upswing â€” by more than 35 percent in November, to be exact â€” and foreclosures and short sales continue drying up.
Ironically, that leads us to the bad news, which is that the Valley may be headed toward â€” and I quote the words of a local expert â€” a â€œchronic supply problem.â€
Michael Orr, a real estate expert at Arizona State Universityâ€™s W.P. Carey School of Business, released his latest housing report on Thursday stating that last yearâ€™s surge in Valley median home prices continued through November, which also climbed by about 3.5 percent from the previous month to $162,500.
The boost, Orr said, has been gradually pushing out cash investors, who made up 27.5 percent of all Valley home sales in November. Thatâ€™s still a high figure, but was nonetheless down from the August peak of about 35 percent.
Much to the relief of traditional homebuyers, who typically need financing, fewer investors could mean a less competitive market in 2013, he said.
But their woes may not end there.
The price surge has been driven by an abnormally low supply of homes for sale in the Phoenix market â€” and Orr believes the problem may persist, or even worsen, this spring.
â€œWe donâ€™t see a strong flow of new listings coming onto the market,â€ Orr said in the report. â€œFor example, short-sale listings are down about 70 percent compared to this same time last year. As the market improves, it seems many people may have decided to hang onto their homes in an effort to let values keep going up. I also anticipate another possible drop in supply this spring.â€
In recent months, competition for the few homes for sale has grown increasingly fierce, and more often than not favors those with cash-on-hand. Ordinary buyers have thus turned to the new-home market out of frustration.
While the investor trend seems to be waning, the supply problem persists, and â€œUnless new-home builders can start keeping up with rising demand, we may have a chronic supply problem,â€ Orr said.
On Dec. 1, almost 13,500 single-family homes were for sale on the Arizona Regional Multiple Listing Service, according to Orrâ€™s report. Thatâ€™s down 7 percent year-over-year, but was still 8 percent better than November and up by almost one-third from September.
But supply may dip again early this year as the number of distressed properties that once flooded the market continues to dwindle.
In November, there were 34 percent less completed foreclosures year-over-year, nearly 48 percent fewer homeowners that started the foreclosure process and a whopping 43 percent drop in overall supply of distressed properties, the report said.
That means bargain deals are now increasingly harder to come by, with homes priced below $150,000 making up only 6 percent of all supply â€” or about 810 homes â€” on Dec. 1.
â€œAs prices go up each month, price-sensitive buyers, such as investors, get a little less enthusiastic,â€ Orr said. â€œBargain hunters havenâ€™t got much left to pick over, which is allowing more normal buyers to jump into the market before prices rise past what they can afford.â€