John Wake of HomeSmart expects 2015 to be the most “normal” real estate market Phoenix has seen in over 10 years with generally flat home prices and a low level of new listings paired with low sales which will create a more or less balanced residential real estate market in Phoenix.
Low number of homes hitting the market (low supply)
- We’re through the backlog of homes. It looks like we’ve worked our way through the backlog of homes that 1) people wanted to sell in 2008, 2009, 2010 and 2011 but didn’t because home prices were so low, and 2) that people were happy to sell at 2012, 2013 and 2014 home prices.
- 18% still underwater. Despite the very large home price increases in 2012 and 2013, about 18% of Arizona homeowners are still seriously underwater on their mortgages (Phoenix Business Journal). Many of those underwater homeowners would sell their homes if home prices were higher, however, it seems unlikely that home prices will go much higher in 2015. At current Phoenix home prices, it’s as if the potential supply of homes for sale has been reduced by 18%.
Low number of homes sold (low demand)
- Millenials. The Millennial generation has tons of student loan debt which makes it difficult for them to borrow money to buy their first homes. They’re also delaying marriage and marriage is a huge trigger for home buying.
- Previously foreclosed. People who have been foreclosed on or who did a short sale in recent years still aren’t able to borrow money to buy homes. (Others who were foreclosed on earlier in the real estate bust are now able to borrow money to buy homes, however, some of them may have lost their appetite for homeownership altogether after their previous painful experiences.)
- Low population growth. Arizona population growth at around 1% is way below the previously typical figure of about 2% annual growth in population. Having 60,000 fewer people move to Arizona each year significantly lowers the number of homes sold.
- Homeownership rate down. Whatever the reason, the homeownership rate in Arizona fell to 63% from 64% a year ago which may signal that Arizonans are slightly less in love with owning their own homes than they were before the real estate boom and bust.
Phoenix Real Estate Boom, Bust & Return to “Normal”
Dark Blue = Normal Home Sales
Light Blue = Short Sales
Orange = Bank Owned Sales (foreclosures)
Gray = HUD Home Sales
John Wake added the price trend lines to Mike Orr’s The Cromford Report chart above.