Home prices are climbing in metro Phoenix faster than they have since the housing boom.
Some parts of the region experienced home-value increases of 5 to 10 percent a month this year because of a shortage of homes for sale that is sparking bidding wars between investors and regular buyers armed with pre-approvals for mortgages.
This emerging recovery of home prices in the Phoenix area started late last year and has been building each month.
Home values still have a long way to go to recover to pre-boom levels. Metro Phoenix's median existing-home price is currently $124,500, about $20,000 below the area's median in 2002 and well below the $267,000 from the height of the boom in summer 2006. But many housing-market analysts see this as the beginning of a long-awaited recovery for the area's battered housing market. The uptick in prices is enticing more buyers who have been waiting for the market's bottom to purchase a home and now have likely missed it.
Investors have driven the market, usually paying cash for low-priced homes and beating out other bidders. About 60 percent of homes sold in metro Phoenix this year have gone to cash buyers.
Now, both investors and regular buyers trying to purchase before prices climb higher are giving Phoenix's housing recovery momentum. However, not all parts of the region are showing the same positive signs. Areas with lower-priced homes are drawing the most buyers, while the Valley's high-end housing market is still in a slump. Communities in metro Phoenix with better schools, shopping and freeway access are also beating out other neighborhoods -- not far away -- for home-price increases.
Micro-markets
Many of the metro Phoenix neighborhoods and communities seeing the most rapid increases in prices now experienced the biggest drop in values. Some communities on the edge of the region, including Goodyear in the west and Queen Creek in the southeast, drew more speculators and homebuilding during the boom. Many of the buyers had subprime loans that resulted in the Valley's first wave of foreclosures. Home prices in these new communities plummeted much lower than the region's median but are now rising the fastest. For example, in Goodyear, the median home price has climbed 14 percent in the past year. But while the increases are large, the prices are low: The growth translates to a median home price of $92,000 in the area, compared with $81,000 in 2010. Some neighborhoods with bigger homes in the southeast Valley cities of Chandler and Gilbert are posting significant price increases, even though the areas didn't see huge previous declines. Chandler's median home price has climbed to $186,000 from $170,000 last year.
Bidding wars
Martin Dace has been shopping for a house in the southeast Valley for nine months. He has been outbid by both investors and regular buyers on foreclosures and short sales.
Now he's considering buying a new home in Gilbert, near his job. Though the new home will cost $25,000 more than a short-sale house of the same size, he won't have to worry about being outbid.
"I am ready to buy and move in," he said. "I am tired of losing out on bidding wars. And new homes' prices are bound to go up, too, at some point."
Housing analysts say higher-paying jobs and better schools in the East Valley draw buyers willing to pay more to live there. Homes priced below $400,000 in established neighborhoods are selling the fastest, real-estate agents say.
Struggles remain
The high-end housing market was the last to crash and is now the slowest to recover. Homes priced above $1 million in Paradise Valley and parts of north Scottsdale are generally slow to sell. Mike Orr, a real-estate analyst with Arizona State University's W.P. Carey School of Business, said supply is a problem for the million-dollar-plus market. He said so many homes are for sale with price tags and mortgages above $1 million, that this portion of the market could take a few years to post increases. The median price of a home in exclusive Paradise Valley has fallen to $870,000 from $1 million a year ago. Though, last week, a Paradise Valley home did sell for $10.5 million in cash, the highest price paid for a metro Phoenix home since the boom.
Looking ahead
If the current trends continue, with fewer foreclosure homes for sale, home prices will also continue to rise, real-estate analysts say. Foreclosures did climb slightly in February, but not enough to alarm housing-market watchers. The number of metro Phoenix homes taken back by lenders during February is still less than half the number of foreclosures recorded during almost every month in 2009. Also, the number of homeowners behind on their mortgages in Arizona continues to fall. So, many market watchers don't expect another big jump in foreclosures.
Post-foreclosure sales are another matter -- banks decide when to put those homes back on the market. If they were to flood the market with a large supply of vacant homes, they could drive prices down again, as a similar move did in 2008-09.
Longer term, experts are gauging a housing recovery not by bank-owned homes but by homes for sale by owner-occupants. Orr said the recovery will feel much more real when homeowners who bought before the boom feel optimistic enough to put their homes on the market.
"Many homeowners and buyers are still several months behind the reality of what's going on in metro Phoenix's housing market," said Orr, who also publishes the Cromford Report, an online daily real-estate analysis. "The housing market started recovering last year and hasn't stopped."
-Arizona Republic Sunday 4/2/2010
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