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.
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.
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.
The Hill Group
7975 N Hayden Rd C-100
Scottsdale, AZ 85258