Published by Scottsdale Independent on October 19th, 2016, written b Terrance Thornton
The basic economic rule of supply and demand is in full effect as experts agree the Phoenix metropolitan housing market continues its steady pace of home valuation increases, new home builds and rising rents.
As the Phoenix area continues to join the ranks of American municipalities seeing a significant influx of multifamily housing — from top-tier development to run-of-the-mill housing stock — Realtors, agents and evaluators agree: no new housing bubble is forming.
“The concerns that people have is that we have the makings of a multifamily bubble,” said Center for Real Estate Theory and Practice at Arizona State University Director Mark Stapp in an Oct. 18 phone interview. “I don’t see that as being the case at all.”
Mr. Stapp points out inventory of existing homes continues to be tight marketwide.
“There is very, very tight inventory in the low end of the market,” he pointed out of homes below $250,000. “The upper brand of home, about $500,000 or above, is doing fairly well. That is where we are seeing a lot of the current activity.”
New home builds are increasing, but at a controlled clip, Mr. Stapp points out.
“I think labor and the cost of land is still limiting builders to build homes under the $250,000 range. It keeps that damper on the volume of sales,” he said.
Looking at the city of Phoenix, the state’s largest housing market, the municipality has an average sale price of homes trending at $208,000 with a price per square foot at $138, according to Trulia.com.
Neighboring communities like the Town of Paradise Valley and the city of Scottsdale are experiencing average sales prices considerably higher than the more developed city of phoenix, numbers show.
But population growth that has remained steady over the past few years and during the Great Recession throughout the state of Arizona will continue to propel both rental prices and housing values upward for the foreseeable future.
“We are still adding 80,000 to 85,000 new residents every year. When you look at the number of households and number of people we are not building, we are not adding enough supply to meet the demand,” he said of a macro economic view. “The thing about demand is it is a little bit different than it was eight or 10 years ago. I think there are significant changes in trends and I think our urban landscape has been changed by all of this.”
In terms of housing stock, Mr. Stapp points out in recent years virtually no new housing stock was built compared to historic trends.
“When you look at the amount of supply that was added from 2006 to 2009 there was almost nothing added but population continued to grow,” he said.
“The real issue is not just of demand but it is demand at a certain price. But as units are coming onto the marketplace people may be finding it harder to find those established assumptions.”
A homebuilder perspective
Shea Homes Arizona has been a staple of homebuilding in recent years and officials there say signs of positive growth continue to emerge in the greater Phoenix area.
“The big takeaway is after years of having stagnant home building activities things are improving,” Shea Homes Vice President of Land Acquisition and Development David Garcia said in an Oct. 18 phone interview.
“We are moving in the right direction. The Valley’s activity is coming back and to our satisfaction it is a smooth gradual growth. It is not that we got hot during a 30-day period, we have had sustained growth.”
Shea Homes is reporting a 12 percent increase in sales compared to this same time last year.
In addition, the Homebuilders Association of Central Arizona, is reporting a 12 percent uptick to single-family building permits issued in the Greater Phoenix area from January through September.
Mr. Garcia says Shea Homes — an entity that buys the land, builds the roads and constructs and sells the homes on that land — has learned a lot from tight years following the Great Recession.
“In terms of what we have learned, you know over the last five or six years, I think many of us as homebuilders we had to look at our processes,” he said. “When you slow down you have to be more efficient. Going from 50,000 to 60,000 builds down to 10,000 or 11,000 it has an impact. We all want strong activity but every now and then you have to ask yourselves are we being too aggressive? We don’t want to be behind growth but you also don’t want to be in front of it.”
In the past year, Shea Homes has opened four new communities around the Valley: the modern gated community of 24 North in Phoenix, the Shea3D community of Ambition at Eastmark in Mesa, and the condo communities Vantage in Ahwatukee and Carino Villas in Chandler.
Mr. Garcia says from a homebuilder’s perspective the apartments coming online can serve a purpose that benefits the greater Phoenix area.
“I think that apartments serve a purpose. I think most of us lived in an apartment at some point in our lives,” he explained. “In more instances than not, most people still have a dream of homeownership. It provides a useful transition for those wanting to buy a house.”
Mr. Garcia does admit, however, new demographics are taking a new approach to homeownership.
“What has happened as an industry there has been some trends, demographic trends that has changed when people buy homes,” he said. “Now people are getting married later in life and buying their first homes later in life. But we still think the basic foundation for homeownership is still there.”
The luxury end
The average sales price for a home in the Town of Paradise Valley exceeds $1 million, experts agree.
“Especially as we finish up the third and into the fourth quarter we have had an increase in sales overall,” said Chris Karas of The Karas Group in an Oct. 18 phone interview.
According to data provided by The Karas Group, the Town of Paradise Valley has a median home sales price of $1,647,720, which is a 2 percent decrease from this same time last year while average price per square foot has remained steady at $355.26.
There are 319 active listings today compared to 248 this same time last year, the latest data shows.
“If you look at all of the active listings we are pretty strong overall,” he said. “From the data I am looking at, I don’t want to say flat, but our market has been slightly increasing and decreasing month after month.”
Mr. Karas says the majority of his sales are in the luxury housing markets of both Paradise Valley and Scottsdale.
“My clientele is coming from all over. I have clients who are out of state and they are typically buying on the premise of a centralized location,” he said. “But for this first time ever Arcadia has definitely surpassed Paradise Valley with land value specifically and price per square foot on new construction — they are definitely leading the pack.”
A Scottsdale snapshot
The average sales price for a home in the city of Scottsdale eclipses $500,000.
“I think that the housing market in the metropolitan Phoenix area is a strong and stable market,” said Brian Keller of Scottsdale-based RE/MAX Fine Properties in an Oct. 19 statement.
“I expect prices to continue to rise over the next several years due to the fact that Phoenix has jobs being added around twice of the national average. When you combine positive job growth with sunshine it’s a win-win for the Phoenix housing market.”
The numbers confirm Mr. Keller’s anecdotal account of what he is seeing in the marketplace.
According to data provided by The Karas Group, the city of Scottsdale has an average home sales price of $594,930, which is a 2 percent increase from this same time last year while average price per square foot has also increased by 2 percent during the same time period at $237.08.
There are 145 active listings in the city of Scottsdale, the latest data shows.
“I continue to work the traditional residential resale with both buyers and sellers,” Mr. Keller said.
“In addition, a large percentage of my business is working with developers and luxury home builders in acquiring land for infill projects and luxury spec homes. There is always going to be a shortage to meet the demand for these types of projects in Paradise Valley, Scottsdale and certain areas of Phoenix.”
Mr. Keller says Scottsdale offers a quality of life not easily found — but prospective residents will be paying for that luxury.
“The demand for single-family housing in the Phoenix metro area specifically Scottsdale is always going to be strong,” he pointed out. “The quality of life in Scottsdale is one of the best in the country. If a buyer is looking for an area with good schools, easy commutes and safe neighborhoods, Scottsdale is always on the list.”
Mr. Keller too finds a purpose in the increase of multifamily housing stock in Scottsdale.
“The number of multifamily developments being built in south Scottsdale is simply a result of the area being built out,” he said.
“When an area becomes built out, developers build up. Developing multi-family in Scottsdale is a no-brainer. The number of young students, college graduates and young professionals who are coming from affluent areas of California, Illinois and the east coast are very appealing to these developers.”