As the Valley's real estate market goes, so goes the Valley.

Phoenix was the number one or two home-sales market from 1995 to 2005, and as in also-ran boomtown Las Vegas, a substantial percentage of the region's economy is built around housing. (A study of Vegas during the bubble found a quarter of the population was involved in the industry.)

Housing's driven by strong jobs growth and, by extension, population growth. Obviously, the weather and golf courses have made this a retirement mecca, but Phoenix-Mesa also has boasted some of the nation's best jobs growth for more than two decades. Indeed, since 2012, the region's ranked fifth or sixth in jobs growth among cities with at least a million residents.

One reason it may not feel like much of a jobs boomtown is that the Phoenix area fell so far.

While the country's recovered more than three-quarters of jobs lost in the recession, greater Phoenix is only halfway there. Almost the entire remaining difference can be accounted for in the 120,000 construction jobs still un-recovered since the June 2006 peak of 244,300 jobs.

Because so much of the economy is based on housing, when the industry catches a cold, the entire Valley sneezes.

"We had a long period of negative feedback [about the local economy], which is very difficult to break," says real estate consultant Jim Belfiore. "Now, we're getting positive feedback. People are starting to see that there are more jobs being created. There's more financial wherewithal. They spend more in the store. They can go out and purchase a home. They're confident, and it all feeds upon itself."

The decline in housing prices began to ebb in 2009, when institutional investors — such as Blackstone and American Residential Properties — joined local investors in scooping up the overflow of distressed single-family homes. By 2011, as prices started to rise, other investors stepped in, looking for values and buying houses by the score.

This helped trim the home supply and push prices higher.

Though these out-of-town companies' strategies are subtly different, they generally hire local firms to manage their holdings as rentals, which they keep for several years as the housing market appreciates. Meanwhile, they've priced rents to keep vacancies low.

"They're interested in buying where you get the best ratio between monthly rent and purchase price, [and that] seems to be West Phoenix, South Phoenix, Glendale, Laveen, Tolleson, parts of Mesa, and parts of Chandler," says Orr, an Oxford-trained mathematician who worked at IBM before moving to Paradise Valley in 2001. "We're talking about between 200,000 and 300,000 families [who lost their homes]. Somebody had to step up, buy these properties, and rent them back to these people."

Orr is quick to note that institutional investors who came in the past two years bought 12,500 homes, a relatively small number (though still greater than the number of new-home permits issued last year). This represents just 5 percent of the single-family rental inventory in metro Phoenix.

The rest are owned by local individuals and "mom-and-pop" companies, Orr says.

Most institutional investors left early this year as prices rose and bargains dwindled. Apartment rents dropped during the boom and then bounced back when the housing market busted. But they've posted only a modest gain (in price per square foot) the past eight years. Property Wars' Hopkins reports getting "increases of $25 to $50 across the board."


Hit hardest in the industry by the downturn were homebuilders, and they've been the slowest to recover.

In 2005, 62,617 new-home permits were issued in the Valley. This year, they're expected to exceed 13,000 — and that's nearly double the number issued in 2011.

New homes now make up less than 10 percent of housing sales, when they'd typically accounted for 25 percent to 30 percent. This is a third of the 30,000 to 35,000 homes per year needed to keep pace with population growth, expected to average nearly 100,000 people annually during the next several years.

A big culprit is the depth of the downturn.

Many smaller local builders went bankrupt, while larger national ones had pockets deep enough to wait out the economic slide. Phoenix's housing market is seeing significant appreciation ahead of much of the country — again, partly because of the depths to which it sank — and these out-of-town builders have been slow on the uptake. This has put them behind the curve of the local housing comeback. Now they're madly making up for lost time.

"Builders are aggressively purchasing land and accepting that it's safe now to go back to south Buckeye, Maricopa, and San Tan Valley. That's a scary thought for some of them because they were burned really badly there," real estate consultant Belfiore says.

Increased demand has sent prices spiraling. The average new home price was up 25 percent in the Phoenix metro area this summer over last summer to more than $300,000 — and that's expected to go higher.

"They're working really hard to [get back to normal homebuilding levels], but it's something that can take a considerable amount of time," Belfiore says. "Going from 7,400 [new homes] to 13,000 overnight, there are supply chains that need to be built up. There aren't enough subcontractors here. And if you're a land seller sitting on some lots, you recognize where supply and demand is — and where it's heading — and you're going to charge builders more."

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20 comments
ConcernedCitizenAZ
ConcernedCitizenAZ topcommenter

Is this the housing you mean? Private corporation prison "beds" are increasing by the thousands. $50,000,000 mortgage foreclosure money swiped for this and / or a new Super Max Prison, Arizona does not need.

Time for a reality check by the PR and marketing people promoting Arizona to naive prospects.

Cuzitsthere
Cuzitsthere

The market has actually already turned. Mr Orr was just too kind to point that out. Inventory is going up very hard and demand has dropped far below the usual seasonality (its always slowest in Q4). Sellers getting greedy hasn't helped. If I am a buyer I would be waiting a bit. I expect prices to start adjusting downwards due to lack of demand or at best going sideways. There is very little demand right now. The change has been very similar to late 2008.

TheRegular
TheRegular

I definitely take issue with Arizona State University's W.P. Carey School of Business', Michael Orr. The neighborhood I bought into in 2011 has a few houses available in the $125k range and it is far from a slum. Check out the South Mountain area of Phoenix, east of 24th Street. Their are some nice neighborhoods with conscientious, hardworking homeowners and considerate renters, that would put some Scottsdale neighborhoods to shame.

afdhm
afdhm

These bastards are back. Can't they leave the wise, older property owners alone?

royalphoenix
royalphoenix

My property taxes dropped 50% from 2006-2013. My 5/1 arm signed in Mar. of 04 @ 4.4% has been below 2.9% for the last 2 years. No complaints from me. peace

John Blevins
John Blevins

OVER RATED, And IF you watch that dumb-ass show that is more hype and crap with the Doug guy in it,Property Wars, STAY AWAY AND STEER CLEAR OF THEM, DO NO BUSINESS WITH THEM As far as I am concerned THEY RIPPED ME AND MY FAMILY OFF.

Camille Stodgell
Camille Stodgell

Hell yeah, That's because 90 Percent of the homes being sold in the past 5 years were FORECLOSURES.....Banks would not work with homeowners so they LOST their homes......Just ask WELLS FARGO. They top # 1 for that...

Brennan Johnson
Brennan Johnson

Sheeple!!! Well now that the media outlets in this town are posting positive news about the market the market has taken off. The market didn't need to tank as far as it did, but with all the negative news back in 08-09 telling the sheeple to run the market had no chance.

Nicholas Gonzalez
Nicholas Gonzalez

Housing should be affordable. And should never get back to how high homes were before the bubble burst.

Eliott Kroll
Eliott Kroll

All tied to QE. If you remember rates reacting to the word, 'taper' a few months ago, that should give you some idea of what's to come.

bluebassin
bluebassin

Up 35% in one year? Where have I heard that before? Oh yeah, right before the last big crash. 

How is this NOT a bubble again?

ConcernedCitizenAZ
ConcernedCitizenAZ topcommenter

@Camille Stodgell  While investors swiped those homes at rock bottom prices, to begin the cycle all over again.  Withholding mortgage foreclosure money to the homeowners it was intended for, has been shameful Arizona.

BrainyTreesWhipDevil
BrainyTreesWhipDevil

It is affordable, to anyone that isn't making minimum wage.  People making below average incomes should be living in rentals.

marcy
marcy

@Nicholas Gonzalez 

Planes should be affordable and the price of gas should never go back to how high it was.

If you can't afford to buy a house or a helicopter, rent.

royalphoenix
royalphoenix

@bluebassin The bubble was caused by over aggressive lenders and buyers who bought the line "real estate never goes down." I don't think the mortgage companies do liar loans anymore. peace

marcy
marcy

@bluebassin 

Why is it not a bubble?  Because prices are now back to more normal levels from deeply depressed levels and aren't anywhere near the bubbly peaks of 2005/6 and remain below the cost of new construction in most areas.

Sorry to hear you, like most people, missed one of the greatest home buying opportunities of a lifetime.


BrainyTreesWhipDevil
BrainyTreesWhipDevil

@ConcernedCitizenAZ

Tough luck for those that paid too much and wouldn't make their monthly payments.  Don't pay your loan, lose your home.


Nobody swiped anything, you and your fellow deadbeats just stopped paying and got the boot as a result.

bluebassin
bluebassin

@marcy 
 

Used house salesman like you said this same thing before the last market crash also. How many California investors do you work for?

marcy
marcy

@bluebassin @marcy 

I was singing the same tune in 2009+ when I was telling people not to listen to people like you who were saying houses were a terrible investment and prices would never go up again.

I work for myself honey and I was buying while you were hiding under the bed.   The typical rent I get is about double what the mortgage payment is on the houses I bought.  So I have been getting massively positive cash flow for 4+ years and appreciation.



 
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