This is an excerpt from an interview done by Wrangler News
Wrangler News: What’s actually going on the metropolitan Phoenix real estate market?
Jeff Lucas: There is mostly good news to report about the Phoenix residential real estate market right now. In my view, based on market data and trends, the recovery is under way for most market segments. The exception would be the Phoenix luxury real estate market, which still has an oversupply of homes on the market for sale.
Wrangler: What factors are bringing about this market recovery?
Lucas: Home values in metro Phoenix have declined in the range of 40-70 percent over the last four-plus years. The result is that most resale homes are selling at prices that are below replacement cost. For example, homes built from 2003-2007 in master-planned communities in Chandler and Gilbert initially were selling in the range of $160-180 per square foot. Today many of these same Chandler homes are selling in the range of $75-100 per square foot. Those prices are significantly below replacement cost.
When a commodity is selling at below replacement cost, investors enter the marketplace as buyers. In 2010, approximately 40 percent of all sales were for cash. Year-to-date, close to 50 percent of all sales are cash. This is extraordinary. In a “normal” market, cash sales typically comprise 2-3 percent of all sales. And when you consider that not all investors buy property with cash, investor/buyers likely comprise 55-60 percent of total buyer sides.
Wrangler: So investors are a large presence in our residential marketplace. What has been the impact of this investor component?
Lucas: Investor presence has created strong demand. The result is that there is incredible “velocity” in the current market. Phoenix properties that are competitively priced are flying off the market in days or weeks, very often with multiple offers. Units sold in 2011 are on track to be the third or fourth highest number of annual sales ever in metro Phoenix.
A second result of the strong demand/high velocity is that the “active” inventory of homes for sale has been drawn down by more than 40 percent over the past six months. We currently have an inventory of 21,000 homes listed for sale. Phoenix homes are selling at the rate of approximately 9,500 per month. That’s a 2.2-month supply of homes. In a “balanced” market, inventory supply is 5-7 months. This is classic supply and demand, Econ 101. We currently have an abnormally low inventory supply, down 30-plus percent year over year, and high-velocity, investor driven demand. In these affected market sectors (generally under $500,000), market recovery is under way and, in the near term, home prices will begin to rise.
Wrangler: So you’re saying that…
Lucas: Yes, in the near term, home prices in metro Phoenix are on their way up.
Wrangler: What are investors doing with these homes that they are buying? What is their “endgame”?
Lucas: Metro Phoenix represents a “perfect storm” opportunity for investors. First, investors are buying the commodity of housing at below replacement cost; commodities do not stay for long at prices below replacement cost. Investors are confident that these properties, in 3 to 5 years, will appreciate to replacement cost or higher. Second, rents are rising.
Every short sale and foreclosure creates a renter because these displaced families cannot credit-qualify to purchase a home. So investors are getting cash-on-cash returns in the range of 10-15 percent per year before factoring in appreciation or tax advantages.
The “endgame” for investors is likely to be to sell these properties in 5 to 7 years after the marketplace has stabilized.
Wrangler: Given current market conditions, what’s your advice to a traditional buyer or investor buyer?
Lucas: If you’re not a cash buyer, mortgage interest rates are still at near record lows— under 5 percent. In most market price-point sectors, the recovery is under way. Given demand pressure on our low inventory, I think we are likely to see appreciation of 5 to 10 percent for properties under $200,000 over the next 12 to 18 months and appreciation in the range of 3 to 6 percent for properties priced between $200,000-$500,000 over the next 12 to 18 months. So if you are thinking of buying a property to owner-occupy or as an investment, better sooner than later.
— Jeff Lucas, founding member of The Lucas Group, is an associate broker with Keller Williams Realty East Valley. For a number of years, he has provided a monthly Phoenix Residential Real Estate Market Data and Trends Report for several MasterMind Groups, his brokerage and for The Lucas Group, (480) 598-8800.
Large kitchen with 5 burner gas stove, sub zero fridge, kitchen island, eat in area and lots of raised panel cabinets.
Exit the brand new french doors to the large backyard with pool. Other features include neutral decor, new security door, gas fireplace, 4 car garage, and corner lot.
