Phoenix Housing Market Hit By Unprecedented Plunge In Demand

Tyler Durden's picture

The Phoenix housing market has a special place in the heart of housing bubble watchers: together with Las Vegas and various California MSAs, this is the place where the last housing bubble was born and subsequently died a gruesome death which nearly brought down the entire financial system. Which is why the monthly WP Carey report on the Greater Phoenix Housing Market is of peculiar interest for those who want to catch a leading glimpse into the overall state of the bubble US housing market. As hoped, this month's letter does not disappoint. What we find is that while equilibrium prices have been largely flat month over month, and are up 6% on an average square foot basis from a year ago, something very bad is happening with a key component of the pricing calculation: demand has fallen off a cliff.

Some of the disturbing findings from the report:

Demand has been much weaker since July 2013. The slight recovery in demand that had been  developing over the last two months dissipated again in May. While move-up owner occupiers and  second home buyers are starting to compensate for the departure of investors, activity by first time home buyers is unusually low.

 

At the top end of the market sales of single family homes over $500,000 grew 1% over May 2013. Sales of single family homes below $150,000 fell 37%. This fall was partly caused by the lack of distressed supply, but mostly by the reduction in demand from investors.

 

 

The market over $500,000 was much weaker in May than it was in April, with a 15% drop in dollar volume compared with a year earlier. However it is the market below $150,000 that has contracted the most dramatically. The relatively low volume of low-priced home sales is causing the monthly median sales price to rise.

 

Luxury homes over $500,000 went back to a 24% market share, the same as in May 2013. The lowest-priced homes under $150,000 fell from 15% to 11%. The mid range has increased its share of spending from 61% to 65%, despite a 9% decline in dollars spent. Contrary to what is often stated in the national media, demand is nowhere inhibited by supply shortages, unlike in April 2013 when supply was severely constrained.

So how is it that prices aren't crashing to keep up with (lack of) demand? For now the sellers are simply staying put, and not rushing to lower their prices even as supply remains largely stable despite slumping demand for housing. As the Carey report summarizes "Although buyers now have more homes to choose from and much less competition from other buyers than in 2013, supply has not become excessive." At least not yet.

Here one could be philosophical and note that just like the S&P 500, the leading bubble housing market is merely suffering from a case of the CYNK (henceforth halted until perpetuity just so the SEC can stick its head in the sand and pretend it never heard of that particular fraud): with a plunging number of transactions, price discovery is becoming a farce.

And plunging they are:

  • The percentage of residential properties purchased by investors continued to decline from 16.3% in April to 16.1% in May.
  • Single family home sales decreased year over year across every sector:
    • Normal re-sales (down 2%)
    • New homes (down 4%)
    • Investor flips (down 53%)
    • Short sales and pre-foreclosures (down 73%)
    • Bank owned homes (down 20%)
    • GSE (Fannie Mae, Freddie Mac, etc.) owned homes (down 44%)
    • HUD sales (down 76%)
    • Third party purchases at trustee sale (down 59%)
  • Foreclosure starts on single family and condo homes fell 8% between April and May, which confirms a continued declining trend. They were down 47% from May 2013.
  • Recorded trustee deeds (completed foreclosures) on single family and condo homes were up 9% between April and May but down 50% from May 2013.

What is just as interesting is the ongoing decline in out of state purchasers, cash buyers and investors:

Out of State Purchasers

 

The percentage of residences in Maricopa County sold to owners from outside Arizona was 20.1% in May, down from 20.8% in April but still the second highest percentage since June 2013, though lower than the 22.0% we saw in May 2013. Californians have reduced their market share from 4.7% to 4.1% over the last year but retained their normal position as the largest group of out of state buyers. Canadian demand has plummeted from 2.6% to 1.5% over the last 12 months, which about the same as buyers from Colorado which was the source of an unusually large number of buyers in May. Washington, Illinois, Minnesota, Texas, Michigan and New York provided the next most numerous home locations for home buyers in Greater Phoenix during May.

 

Cash Buyers

 

For some considerable time, cash purchases have been running at an unusually high level but this has been on a declining trend over the past year. In Maricopa County the percentage of properties recording an Affidavit of Value and purchased without financing was 25.0% in May 2014, significantly down from 32.3% in May 2013. We consider 7% to 12% the normal range for cash buyers, so mortgage lending still has a long way to go to get back its normal share of the market.

 

Investor Purchases

 

The percentage of individual single family and townhouse/condo parcels acquired by investors in May 2013 and May 2014 are as follows:

 

 

These percentages are the lowest we have seen for many years and are now close to the historical norm. The steep decline over the last 12 months confirms that investors are no longer driving the market the way they did between early 2009 and mid 2013.

Finally, the Outlook:

The resale market is currently delivering a fairly low number of new listings to market compared with historic norms over the last 15 years. Some home sellers appear to be cancelling their listings and waiting for another time when buyers have a greater sense of urgency. Many families are choosing to stay in their homes longer than they used to 10 to 15 years ago. Some owners still have either negative equity or only a small equity position which discourages both buying and selling. Others have low interest rates that they don’t want to lose, and as they cannot apply their mortgage to a new home, it is cheaper to stay put. These trends are likely to stay in place for a while now that house prices have stabilized.

 

In May 2014 the Greater Phoenix housing market had sellers outnumbering buyers but the numbers of both were well below normal. For the prime spring selling season things were remarkably quiet. Supply has stabilized at a level which is about 10% below normal and is starting to weaken, an encouraging sign for sellers. However, except at the lowest price ranges, we still have more supply than necessary to meet the weak demand which is about 20% below normal. In May 2014 every category of single family sales had lower volume than in May 2013, even normal re-sales which were down 2%.

 

Currently there is little movement on home prices in either direction. However the mix of homes that are selling has changed a lot in the past 12 months. There are fewer distressed homes and far fewer homes priced under $150,000. This tends to push the averages and medians upward even if prices are stable.

 

Compared with April, sales of luxury homes were weaker in May, but we think this is mostly normal month to month variation and expect them to recover somewhat in June. However it is likely that this will fade during the hottest months of July through September when the luxury, snowbird and active adult markets tend to go relatively quiet.

 

...

 

Single family new home construction and sales are well down from last year, contrary to everyone’s expectations in Q4 2013, and they remain about 65% below what would be considered normal for Central Arizona. Population and job growth are not back to their peak levels but have recovered much further than home construction has. People have been sharing homes and renting instead of moving out and buying. All trends in housing tend to be cyclical and this one is probably no exception.

 

With investors pulling back from the low end, the weak demand from first time home buyers has come into sharp focus. But as lenders start to ease up on underwriting restrictions this market is likely to expand from its current extreme lows. Once this happens we shall probably be talking about the low supply again. Between 2012 and 2013 we experienced a chronic housing shortage in Greater Phoenix. This shortage has not gone away. It has just been masked by the unusually low demand between July 2013 and now, and this state of affairs is likely to be temporary.

Here one could be an optimist and agree with the following: "There is plenty of pent-up demand which could emerge at any time... But for the time being, the market remains unbalanced in favor of buyers and if demand does not pick up soon then the next likely alternative will be a fall in the supply as more sellers decide to wait for better times. Unlike 2006 there is very little likelihood of a massive increase in supply creating strong downward pressure on prices."

That is, unless all those who are locked in their houses max out their credit cards and run out of ways to fund their lifestyle and, contrary to traditionally wrong expectations, are forced to sell. Considering the collapse in demand, what would happen then would be nothing short of an avalanche.

Regardless of what a plunge in demand translates into on the pricing front, it is becoming evident that little by little not only fraudulent microcaps (which succeed in ballooning their market cap to over $5 billion before being halted), but also the S&P 500 and the US housing market itself, are becoming "Level 3" assets: with virtually no transactions to determine the equilibrium price, the value of ever more assets is now in the eyes of the central-planner.

Full WPCarey report here

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Itchy and Scratchy's picture

Hmmmm.....who doesn't want to live in a desert with no water?

NidStyles's picture

It's hot, that doesn't mean there is no water.

Winston Churchill's picture

They are here in South Florida.

10-15% off asking on the ones not underwater where they can't drop without a short sale..

Just started in the last month.Now just about all are starting to discount on my

zillow updates.Sub $1m housing.

jbvtme's picture

aridzona conjurs images of illegal aliens, psychotic cops and recycled toilet drinking water. good luck with that housing market

Chief Wonder Bread's picture

It doesn't matter that, for a big country, the U.S. has the best real estate on planet earth (not including Arid Zone-a). There have been too many national policy errors over the last 40-some-odd years and when it crashes, it's going to be ONE hellava 'come-to-Jesus' moment.

CheapBastard's picture

Intense heat, serious crime, high pollution, dry desert .... what's not to like?

 

I took a job there back in the 1990's and soon hated every minute of it there. the job was great but Phoenix was horrible. I finally decided to move when they found a woman's head lopped off in a trench nearby. He rbody and her bicycle were found several meters away in another dirt dry trench.

 

 

Keyser's picture

Phoenix  was the canary in the coalmine in 2008 housing collapse... Look at is as a leading indicator, as if it were not obvious to anyone with a brain that the economy is in the toilet and we're heading for something much worse than 2008... 

 

knukles's picture

Wait!  There's More!
More people flooding the southern borders of Amerika and soon, what with Section 8, they're going to be renting houses smack fucking dab right next door to you!
More Demand for Housing!
Go Long Phoenix.
As well as Phonics, Ebonics and Espanoics, if you get my lilt.

 

No standing 8 count
No saved by the bell
Only the fucks in DC can stop the fight

Freddie's picture

You must be a friend of mine.  Too a "good" job in PHX in the early to mid 1990s.  He came back to visit and our little gang was horrified because he looked like Rock Hudson before he died.  He is hetero.

He hated PHX and we guess he probably drank heavily and chain smoked.  I think he took up smoking out in that hell hole.  He moved back and within about 2 months he looked normal and was back to normal. It was the weirdest thing.  We all thought he was going to die.

maskone909's picture

Dude Phoenix sucks! Who the hell wants to live in a god damn oven overrun with violent drug traffickers!?! In the words of the late great richard simmons, "STOP THE INSANITY!"

Edit

Susan powter was the stop the insanity broad
Hilarious
http://youtu.be/ZjfB4qDx3RM

RobD's picture

Zillow has some weird stuff going on in my neck of the woods. My house has been tanking about 3k a month for about six months now with my neighbors going the other way. I looked a couple of weeks ago and bam my house is up 15k in the last 30 days and now my neighbors prices are tanking.

toady's picture

Me too. You can't take zillows "zestimates" seriously, but I think they should try to be realistic.

Save_America1st's picture

Remember in Aliens part 2 when they were watching the swarm of aliens on the radar heading to their hideout before they busted in through the ceiling? 

That's Phoenix and many other southwest cities as the illegal invaders move in and are handed the keys to all those Fed Gov-owned foreclosed homes.

Game over, man...GAME OVER!!!

https://www.youtube.com/watch?v=dsx2vdn7gpY

p00k1e's picture

Instead, entertain the following.   Notice the non-stop illegals.  

Matrix Revolutions Attack Scene

 

http://www.youtube.com/watch?v=5q5rsQJpGV0

JuliaS's picture

Zionists to the rescue.

johnconnor's picture

I say we nuke it from orbit, it is the only way to be sure

August's picture

 

>>>Game over, man...GAME OVER!!!

You've had your time.  The future is our time.

The USA will be a greatly different place in six months.

Sudden Debt's picture

Februari... Another polar vortex inch of snow that will cripple the country :)

Government needs you to pay taxes's picture

The age of men is over, the time of the Marxist orc has come.

teslaberry's picture

bill paxton is one of holywoods most under-rated actors. 

 

watch a simple plan if you have not. excellent acting. billy bob thorton is good in that too.

NidStyles's picture

Uhh, dude... Arizona has always been Hispanic dominant. The only time when white people were in a sort of "majority" was during the housing boom of the early 2000's. This is pure Espanol territory here.

 

It's too bright and too hot for white people here, and the only reason white people move here is because of the lack of rain and humidity for their arthritis. I've lived here since 2002, and my brother-in-law has been here almost his entire life. It's always been this way here. If it were not for the Hispanics there would be no Phoenix at all. 

disabledvet's picture

Actually you have a huge Navajo and Hopi population out there too. "Whole bag of mixed nuts."

This is all looking more and more like a Clint Eastwood flik by the minute now.

What's that movie where he orders the town to paint it red again?

CunnyFunt's picture

High Plains Drifter

"Senor, can we come to the fiesta?"

"No."

NoDebt's picture

In the end, after all the plans are laid and preps made for the baddies to get ambushed.... he just leaves.  They're all expecting him to stay and shoot it out with the bad guys along side of them, but he doesn't.  Just rides out.  So long, see ya, good luck.

Probably something to be learned from that.

NidStyles's picture

Not nearly as large as people assume.

zyby's picture

Meh, prices are up, and the arbitrary $150K is not, hence fewer sales in that bucket. Poor and misleading analysis here.

Sudden Debt's picture

The scorpions like it there... It's ideal to grow up your kids and you don't have to waste money on pets.

NidStyles's picture

Not really. Scorpians are only around yards that runn sprinklers twice a day like morons growing foreign grass and attracting insects that scorpians prey on.

Professorlocknload's picture

How do they differ from Scorpions?

NidStyles's picture

Yay! Lame jokes about typos....

Sudden Debt's picture

So... Only showoffs have scorpions... i see a market there...

NidStyles's picture

Mainly mid-westerners and easterners that come here hating insects but want green grass for some stupid reason. Grass is a weed, but people think it looks good...

 

Not as bad as all of the invasive trees that the same type of people plant everywhere that attracts everything with stingers and teeth. There's this Japanese tree that is all over some neighborhoods, it leaves these sticky sap covered leaves everywhere. Not sure who thought it was a good idea to start planting those things, all I see are those leaves covering the ground everywhere so the nasty things can hide in the open during the day...

thamnosma's picture

Gotta agree with you there.  If those fuckers want it to look like Wisconsin, then stay the hell IN Wisconsin.  At some point they will be forced by mother nature to stop it.

Anyway, Phoenix should be nuked.  There's no reason for a city of millions in the driest part of the country.  Same for Vegas.

Flagstaff, Prescott, Show Low -- eons away from the south.  Pretty livable.

Not My Real Name's picture

The Scorpions like Arizona so much they wrote a song about it.

https://www.youtube.com/watch?v=5VIphEl5xFY

813kml's picture

I think it's time to officially turn Arizona into a draconian penal colony, it's already halfway there.

BlindMonkey's picture

Arizona as the Austrila of America.  I like it.  Good thinking.

Jumbotron's picture

GREAT NEWS !   Now housing will be SOOOOooo much cheaper for all the GuatalaMexiColumbians coming over the border.

BULLISH !!!

migra's picture

Its 100 degrees at 3AM. Whats not to like?

Freddie's picture

Phoenix is a real shithole which will be overrun by illegals thanks to Obama, McCain, Jeff Flake and their patron Lester AIPAC Crown.

Scottsdale is a little bit better but PHX is hell on earth in the summer.  Sheriff Joe is awesome and the only man who stood up to Obama and Holder.

RmcAZ's picture

Sheriff Joe is a moron who is only trying to advance the growing police state.

toady's picture

I can see the police state comment as at least partially true, but the real deal with sheriff Joe is that he's an attention whore. A day can't go by without him on the local news doing his tough guy act.

He really got the old white retirees behind him with his tent city, cost cutting stuff back in the day. Now he keeps losing hundred-million dollar lawsuits and no one cares. All the money he saved with tent city has been lost 100,000,000,000.00 times over to the feds, ACLU, lawyers, and families of the victims he has killed.

knukles's picture

Yeah, but Good Olde Sheriff Joe is My Kinda Totalarian Marshall.
Y'all gottan ID fo' me boy?  Whatju say?  I don' give a rats ass if yo name is BarackI asted yo ass fo an ID.  Boy.

IdiocracyIsAlreadyHere's picture

There are no such thing as good Totalitarians no matter how much you agree with their pet cause.  Sheriff Joe is an authoritarian asshole and an attention whore who does more harm than good.  You embrace that mindset and eventually it is you that is in their crosshairs.  Can't have any independent thought in the eyes of a high authoritarian follower - "Your papers please" is not a good reality ANYWHERE.

wee-weed up's picture

But Obozo's MSM keeps saying the housing market is in recovery!

hedgeless_horseman's picture

 

 

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