Why Should You Invest in Phoenix?

[Melanie Johnston]

Investors make their decisions based on research and running numbers. I've been contacted by BP members seeking stats to better understand the investing landscape here. Whether you want to invest in Phoenix, Scottsdale, Mesa, Gilbert, Tempe, Chandler, Peoria, Goodyear or all the cities in between that make up the Metro area, I thought this excerpt from an article in the Arizona Republic (1/13/20) summed it up well:

>>“Metro Phoenix is the Goldilocks of U.S. housing,” (real estate analyst John) Burns said at the Land Advisors Organization’s annual real estate forecast in December. “It’s not too hot, and it’s not too cold.”

Why Phoenix is hot

• Valley home prices are forecasted to climb about 4% during 2020, while they have peaked or are falling in Chicago, Denver, Los Angeles, San Francisco, Portland, Houston, New York, Dallas, Nashville, Salt Lake City, Charlotte, Washington D.C., according to Burns Real Estate Consulting.
• Metro Phoenix ranks No. 4 for the most investors — about 28% of homebuyers. Those buyers include ibuyers like Offerpad, flippers and big single-family rental firms such as VIP Homes that pay cash for houses.
• Despite the high ranking for investors, the Valley still has 8% fewer buyers who don’t plan to live in homes than it did during the boom of 2004-06 when speculators put little to nothing down on houses and then walked away when prices fell. Los Angeles, San Francisco, Houston and Nashville all have nearly 5% more home investors now than during the boom.
• Metro Phoenix was the second-fastest-growing area for new residents with more than 96,000 in 2018, according to Land Advisors' analysis of the latest federal census and labor statistics.
• The Valley is expected to draw 55,000 more residents by September, boosting the area’s population to 5 million.
• Almost 70,000 new jobs were created in the Phoenix area during 2019, ranking it the fourth-highest for U.S. employment growth."<<

The article went on to address recession concerns:

>>He also thinks metro Phoenix will fare better in an economic slowdown or recession than other parts of the U.S.

Lower interest rates for home buyers, an undersupply of new homes built and projected stronger-than-average job and population growth in the Valley are why.

“It won’t be a housing-led recession this time,” he said. “Phoenix always fares better in downturns not tied to housing.”<<

Insight on Home Price Trends

Just last week Tina Tamboer, our premier Arizona-specific real estate analyst through The Cromford Report, basically gasped over our low inventory and what that means for prices this year. Here's an excerpt from her commentary:

>>"The current situation is remarkable.

Here are the basics - the ARMLS numbers for January 1, 2020 compared with January 1, 2019 for all areas & types:

• Active Listings (excluding UCB & CCBS): 12,141 versus 17,339 last year - down 30.0% - and down 12.5% from 13,869 last month
• Active Listings (including UCB & CCBS): 15,018 versus 19,900 last year - down 24.5% - and down 14.6% compared with 17,577 last month
• Pending Listings: 4,662 versus 3,740 last year - up 24.7% - but down 20.5% from 5,864 last month
• Under Contract Listings (including Pending, CCBS & UCB): 7,539 versus 6,301 last year - up 19.6% - but down 21.2% from 9,572 last month
• Monthly Sales: 7,764 versus 6,457 last year - up 20.2% - and up 8.7% from 7,142 last month
• Monthly Average Sales Price per Sq. Ft.: $179.92 versus $165.21 last year - up 8.9% - but almost unchanged from $179.90 last month
• Monthly Median Sales Price: $289,500 versus $260,500 last year - up 11.1% - and up 3.0% from $281,000 last month

The lack of supply can only be described as shocking. A 30% decline since this time last year to reach the lowest level since August 2005. This to satisfy a population that has grown more than 20% since 2005. Anyone who thinks this severe shortage will not result in a significant rise in prices is going to have another thought coming pretty soon. The median sales price is already up 11% over the last 12 months and the average price per square foot is up almost 9% and probably heading for a double figure appreciation rate.

We note that December 2019 contained 21 working days and December 2018 contained 20, giving 2019 a 5% advantage. However unit sales were up more than 20% so making an allowance for the advantage still gives 2019 a win by 15%. The listings under contract count is less impressive. While it is almost 20% up from last year it had been almost 24% up at the start of December, so gave back a little of its lead. Only a little mind you. We are clutching at straws here to find something indicating a little cooling in the market.

...

Phoenix is currently the strongest large-city housing market in the USA and this is fueled by inter-state population movements. Retirees are a big part of that, but so are people moving here from California and other Western states for work and the lower cost of living. Demand is likely to remain healthy despite the rising prices.

The primary question is whether we will see any change in the meager supply of homes for sale. If this is to take place it is likely to be visible over the next few weeks. There has been no sign of an improvement in new listing flows in the last several weeks of 2019. But 2020 is a new year, so we will be watching closely for signs of change."<<

Lots to process! 

Reporting from Phoenix/Scottsdale...Melanie