Phoenix Area Housing Market Bubble? RL Brown Says No!

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.

Should You Invest Now?

Many are wondering if we are entering a similar 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.”

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.