Phoenix Real Estate Market at a Glance
Yikes! Phoenix home prices are up 9.5% over the last year (July to July). That’s a hot market! Kind of scary hot to me. Prices are up 17.8% since two years ago and 145% since prices bottomed out in May 2011.
On the other hand, Phoenix home prices are now only back to where they were at the top of the real estate bubble in 2006, 12 years ago. If you take into account inflation, however, Phoenix home prices are still 20% below the inflation-adjusted peak in 2005. See the graphic at the bottom of this post.
If the last few weeks we’ve seen stories about home price increases beginning to slow down in some the hottest real estate markets. Prices aren’t falling, they just aren’t increasing as fast.
In metro Phoenix, we don’t see any signs yet that home price increases are slowing down.
The number of homes for sale is down 11.3% over the last year and 19.4% over the last 2 years. We only have 2.4 months of inventory which is super tight. I think a 4 to 6 months supply of homes for sale in “normal.” Prices start to increase fast under 4 months of supply and now we’re way under 3 months of supply and months supply continues to shrink.
As the supply of homes for sale continues to decrease, the demand for homes continues to increase. The number of single-family detached homes sold in metro Phoenix increased 6.2% (July to July) despite the higher home prices. (Although, you could also make an argument that it’s “because” of the higher prices.)
This time of year we always see a seasonal slow down in home price increases. Look at the graph. The green price line kind of flattens out in the second half of the year, every year.
If, however, we see by the end of the fall that home prices in Phoenix have fallen, that is a strong sign to me that home price increases in 2019 will be smaller than in 2018. And if we see home prices actually increase by the end of the fall, that tells me that home price increases in 2019 are very likely to be even higher than in 2018.
The national economy is super strong and the number of people moving into Phoenix is finally strong again after tanking during the Great Recession. Homebuilders are not overbuilding anything like during the Great Real Estate Bubble so even if the U.S. enters an economic slowdown in the next couple of years, Phoenix housing prices will NOT freefall.
Las Vegas. Our sister housing bubble city, Las Vegas, is now the fastest appreciating city in the United States. According to the latest Case-Shiller data, Las Vegas home prices were up 12.6% over the previous year. Whatever is moving Las Vegas real estate prices is likely in play in Phoenix as well, to some degree. In the Great Real Estate Bubble, Las Vegas home prices took off about a year before Phoenix prices.
Story of a bust
In 2005, the groundwork for the bust was laid with large increases in the number of homes hitting the market (the pinkish line in the second graph), then slowing home sales in 2006 (blue line), and the 2 combined to create a skyrocketing supply of homes listed for sale from 2005 to 2007 (red line).
Notice that prices (green) had more or less leveled off for 2 years and didn’t start to fall until 2007 despite the incredible oversupply of homes for sale since 2006. As they say, home prices are “sticky” on the downside. Also, notice that prices were the last thing to change.
We haven’t yet seen supply loosen or demand weaken in metro Phoenix so, right now, the wave continues.
Sell at the top
All this means that if you want to sell at the top, you may be able to ride the wave for another high season (Jan-June) in 2019. If home price increases slow down in 2019, you might want to start planning your exit.
Phoenix has a large percentage of investor-owned homes. If a large number of them plan to sell at the top, that would be a problem. The top wouldn’t last 2 years like in the last cycle.
During the Great Real Estate Bubble, the conventional wisdom was that home prices never fall so the top lasted 2 years and investors had plenty of time to sell if they wanted to.
Now, however, people know home prices can actually fall, and fall fast, so I think the tide could turn far more quickly in this cycle even though any price declines will be MUCH smaller this time.
By John Wake, http://www.arizonarealestatenotebook.com
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