6 Reasons Why Phoenix Housing Market is Not Another Bubble

Housing Bubble

I just read another very thoughtful article written by Mike Orr of The Cromford Report about the differences between the Phoenix housing market during 2004, 2005, and 2006 and the Phoenix housing market now. It reminded me how often we, here at The Hill Group, are asked whether Arizona’s recently rising real estate values are sustainable or not, and I thought I would share with you the six observations Mike Orr provided as proof that today’s housing market is unlike the housing bubble approximately eight years ago.

Phoenix’s Housing Market Then & Now

1. The median home sales price is still lower than the median replacement construction cost.

2. Investors in 2012 and 2013 are not borrowing money to buy homes – they are predominantly using cash.

3. Most investors are buying homes to rent out for several years, not to flip them after a short term rise in prices.

4. We have a real housing shortage, because new construction has been so low for the last five years and Arizona’s population continues to expand.

5. The pool of home buyers is being fueled by younger buyers leaving their parents’ homes at last.

6. People need these homes to live in – they are not just trading commodities like they were during 2005.

Phoenix’s Real Estate Values Then & Now

We already know that the median sales price in the Phoenix Metropolitan Area has risen by almost 30% since the beginning of 2012 and by approximately 40% since 2011. In order to tell whether Phoenix’s pricing is still competitive, though, we can compare today’s median sales price against the median sales price back in 2006, when the Phoenix housing market hit most of its peaks. The reassuring news here is that today’s median sales price is still 43% below the peak prices we hit in 2006!

So, yes, the market has improved significantly over the last year, but the reasons for its improvement seem to have much more to do with our improving economy and less to do with risky loans or questionable home appraisals.

Source: The Cromford Report
Image Credit: nickstone333 on Flickr. CC Licensed.

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About Doug Hill

Doug Hill is an Associate Broker with Coldwell Banker Residential Brokerage, and founded The Hill Group with his wife, Kirsten in 2003. Combined, they have helped over 1,000+ clients buy and sell homes in the Phoenix Metropolitan Area. Doug holds a Bachelor's Degree in Business Management & Economics, and is a Navy veteran. He is an active member of the Southeast Valley Regional Association of Realtors on their Professional Standards Board, and he and his wife have had the #1 team for Coldwell Banker in Arizona for multiple years in a row. He loves to read, travel, and spend time with his family and friends.
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  • Shaun

    How do you think the investors releasing these properties back onto the market in a few years is going to affect home prices?

    • http://www.thehillgroupaz.com Joshua Hill

      Hi Shaun, thanks for the comment! According to The Cromford Report I referenced in the article above, over the last four years institutional investors have only come to own 10,000 – 11,000 homes in Maricopa County. Relative to the size of Maricopa County, an inventory of 11,000 properties is not big enough to impact our market in any major way. It represents less than 1% of the housing stock and less than 1.5 months of sales. Investors are definitely active here in the Phoenix area, but normal homeowners buy three times as many homes as all of the investors here put together.

      • shaun

        Well that is a positive outlook, keep up the good work

        • http://www.thehillgroupaz.com Joshua Hill

          Thanks, Shaun, we will!