Phoenix Area Housing Market Overview & 2019 ProjectionsNovember 29, 2018 / Blog / 0 Comments
As one might expect, Valley housing prices have jumped dramatically since the market crash of 2007-2008. The market seemed to have bottomed in 2010 when homes built just 5-7 years prior were selling at prices far below the builder’s cost to replace the structure alone.
The Crash of 2008
Much of the demand leading up to that crash was created by investors chasing the rapid appreciation that had come in the years prior. About 35% of the homes sold in 2005 were to non-owner-occupants, presumably investors looking to flip for a quick profit or to hold long term as rentals. That’s double the percentage we would expect in a normal market. Furthermore, it’s a lot of excess demand tilting the supply/demand curve. Ultimately, it’s not healthy or sustainable.
The fundamental need for Phoenix area housing wasn’t affected by all the speculating. That is, the number of houses that people needed to live in was determined by other factors (migration to the valley, job creation, fundamental economic activity, etc.). It’s worth pointing out that Phoenix housing market speculation did affect prices. Investor purchases were pursuing demand beyond supply, raising those prices.
Once the market stabilized around the demand created by the (unsustainable) investor enthusiasm, the flippers found they couldn’t make a profit. Further, as the supply of rental housing continued to exceed demand, rental prices steadily declined. The investors decided they needed to get out. The rest is ugly history.
The Housing Market Affects Land Sales
Brown’s comment is music to the ears of land investors. Historically, we’ve done the best during natural growth cycles with steady, sustainable demand. That’s the phase Arizona Land Partners believe we are in and we are purchasing acreage with the expectation of big profits.
Inevitably, our development cycle will complete and land prices will stop appreciating. Yet, all the fundamental signals we are finding suggest we’ll be enjoying an appreciating land market for the foreseeable future.
Give me a call if you’d like to share in the profits that are generated by that appreciation. I’d love to include you in our next purchase.
Phoenix Housing Growth is Projected to Stay Strong in 2019
Let’s take a look at what’s coming up on the land investment stage of 2019. The Phoenix Business Journal (paywall) brings up some good news regarding housing growth in 2019. Analysts and homebuilders are predicting a continued robust market for new homes.
Phoenix Area Real Estate often Defies National Trends
This article makes a point that is commonly noted for the Phoenix area: Our local housing market is often trending differently than the national average. National markets currently indicate a slow down in new housing. It’s tempting to draw conclusions about our local market when reading about national trends, but time and time again, I’ve found that the Phoenix area doesn’t follow the national average particularly well. That can work in either direction. I’ve seen our market dropping when national trends are up, and I’ve seen our market strengthen as the national market weakens.
The article quotes Peter O’Neil, director of research for NorthMarq Capital in Phoenix. “Phoenix housing tends to struggle when we overbuild,” O’Neil said. “That is certainly not the case in the current cycle. Even though economic growth has been strong, homebuilders have been fairly cautious to this point in the cycle. Single-family permitting has accelerated in recent years but levels are well below the peak.”
Maricopa Housing Growth is Strong but Restrained
Builders pulled nearly 60,000 permits a year in ‘04 and ‘05, our peak years. We seem to have pulled in the neighborhood of 24,000 permits in 2018. Although permit activity has increased steadily since the post-crash bottom of 5,600 in 2010, we don’t seem to be close to overbuilding current demand. In fact, prior to the 2007 crash, you’d have to go back to 1994 to find a year in which we pulled fewer than 24,000 permits.
That gives me confidence that the years ahead are going to be good for our land investments.
If you have an appetite to share in some of that upside, get in contact with me. We can discuss how you can participate in our activity.
Should You Invest Now?
Many are wondering if we are entering a similar housing bubble now. I’m happy to say that a look at the fundamentals of our market suggests we are not. A recent article published by the Phoenix Business Journal (paywall) quoting RL Brown outlines the evidence, indicating that Brown’s latest report shows our market experiencing steady, healthy increases and not a rapid spike in sales and prices common in a bubble:
“You almost can’t not see a news article warning about some real estate bubble,” Brown said. “It’s kind of interesting when you take that, and you compare it to what’s really going on factually. In this housing market, there’s really no way you could say that the Phoenix housing market is in any kind of bubble configuration or even looks like it’s heading toward a bubble. The trends here are solid, and the trends we are seeing in both new and resale are growing with the growing population.”
“This is the kind of housing market consumers should be looking for — be they buyers or be they sellers. This is a steady, stable, but growing housing market on the resale side and the new home sale side.”