The Sky's the Limit for Home Prices in Phoenix, But for How Long?

Real estate fortunes are looking up in the Valley of the Sun — where the economy is tied inextricably to the housing market.

The dramatic rise in housing prices during the past two years has lifted a millstone off the backs of many once-underwater homeowners and many who work in the industry. Sometimes they're one and the same, like Lisa Brown, a branch manager at mortgage banker AmeriFirst Financial.

"[I] lost a significant amount of income," says Brown, who appears on the Real Estate Show on KTAR (92.3 FM) as Lisa the Lender. Brown bought her Desert Ridge residence in 2004 and a rental in Scottsdale in 2005. She also took out cash to buy other homes. In the end, she had to short-sell one of them.

Evie Carpenter
Chart shows number of single-family home sales and prices.
Information Courtesy of ASU's Michael Orr
Chart shows number of single-family home sales and prices.

"I lost sleep. I didn't come out of my house for a few months after I short-sold," she says. "I'm supposed to have perfect credit and give people direction on what to do with their home finances, and here I am losing homes and not making any money, thinking I might have to dump the two homes I have now. The only reason I didn't is because I had renters that hung in there."

Thanks to prices that have risen in some areas by as much as 35 percent in just the past year, Brown now is above water and able to refinance. Even though interest rates also have risen over the past year (to 4.24 percent), they're still historically low and much better than the 6.5 percent she got nine years ago. She's seeing more of that lately.

"Most people have no idea how much their homes have gone up in value. They're sitting there thinking it's doomsday, and then they'll get an estimate on the value and, all of a sudden, they're refinancing or maybe they'll sell the house and downsize," she says.

The run-up in prices has been a double-edged sword. Though it's helped lift many homeowners out of the red, it's also conspired with a substandard supply of homes and more rigorous lending standards to squeeze a lot of first-time homebuyers out of the market.

"If you're going to go $100,000 to $125,000, you haven't got much choice, and what [homes are available] probably are in the wrong place," says Michael Orr, a real estate expert at Arizona State University's W.P. Carey School of Business. "You can get something if you're willing to live in Maricopa or Outer Buckeye, but trying to find something in Phoenix is very hard unless you're prepared to take a slum."

Through the first half of 2013, demand for houses priced under $200,000 was fierce. Any reasonably priced house received multiple bids, produced fierce competition. Agent Michelle Minik recalls the lengths some homebuyers went to curry favor: "One agent sent me photos of the couple and a nice handwritten letter saying 'Pick me.'"

Since housing prices hit bottom in September 2011, the acceleration has been steep, climbing 2 percent to 3 percent a month. It's enough for some to wonder whether another bubble is starting. However, it's worth noting that most of the dramatic gains came from liquidation of distressed and bank-owned stock at rock-bottom prices.

Notice that the places with the greatest appreciation are those hit hardest by the bust. That's typically homes farthest out, like in Maricopa (up 37 percent over last year), San Tan Valley (32 percent), Youngtown (38), El Mirage (38), and Tonopah (33), based on average price per square foot.

Phoenix, Glendale, and Tolleson also have seen increases of more than 30 percent.

In the heart of the Phoenix area, price gains have moderated significantly, increasing by percentages in the low double digits. Fewer foreclosures flooded the market with available homes and depressed property values. So, in the past few years, fewer profiteers have been looking for bargains.

Neighborhoods in the interior have had a negligible number of new homes and foreclosures because they are filled in — their housing stock comes primarily from resales. Such homes have been slower to go on the market (many homeowners still are underwater) and have been slower to accelerate in price because they never fell as far as in outlying areas.

Now that the supply of cheap foreclosures is getting exhausted overall, the vast majority of homes left on the market are resales.

As of June, distressed home sales in Maricopa and Pinal counties were down 60 percent over last year. Arizona's a non-judicial foreclosure state, which means houses avoid the courts and hit the market quickly. The average time to foreclosure is 229 days, versus a national average of 414.

This means there's little backlog. Meanwhile, the economy's recovery has reduced the number of foreclosures to a point unseen since 2002. Those that remain aren't nearly the bargain they once were.

"[In 2010] when I was buying out [in] Queen Creek and San Tan Valley, we were picking up houses for $30,000 to $40,000, and now these same houses are going for $90,000 to $100,000 at auction," says Doug Hopkins of Red Brick Realty, featured on the Discovery Channel's popular Property Wars.

"If we have a house under $200,000, it's very rare," he says. "In 2008, 2009, and into 2010 a bit, stuff was just hanging on the market. Everyone had to pay to [have their homes spruced up for presentation] and do every little trick in the book to get the houses sold."

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19 comments
dondressel
dondressel

Does anybody know how prices are in ft. mojave? I would appreciate it if someone could let me know at dondressel@yahoo.com Thank you Don Dressel

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?

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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