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Phoenix Housing Market Hit By Unprecedented Plunge In Demand
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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Dup redux.
Looks like Phoenix may be leading the way down. Several other cities I've been too recently are also stagnant or dropping. Even builders are throwing in all sorts of incentives now. Hard to believe even with zero down or near zero down houses the housing market is falling. Add that to plunging retail sales in stores, and stagnant wages and you have a serious trifecta for the "Summer of Rekovery." Cities where Roaches don't even want to live are bad choices.
Has to be the Weather !
Once it warms up a bit things will start to improve, unless it's already warm, in which case, once it cools off a bit, things will start to improve.
You are truly a master of "bet hedgerey".
"No one saw this coming."
No one "wants" to move to Phoenix unless they are forced. They are either trapped there or can't afford a place somewhere nicer is what I see. Come on! 110 in the shade and desert all around?!
Not true. People choose AZ. This is only one data point, here, but I'll give it: I moved to AZ from Chicago burbs ... happily, and lived in Carefree AZ for many years. It was blisteringly hot, so I left every summer as did 37% of my neighbors. Finally, I couldn't stand the heat, creepy insects, aged and aging neighbors, crappy schools and the brown-white divide, so I moved house to Colorado.
Colorado has great mountains and beautiful weather (except now). But I hate the dim-wittedness of this place. No culture. No intellectual anything. Nice bodies ... empty minds.
So where to go? I'm not sure there are any beautiful exurbs in the US (or abroad) which have good weather as well as interesting and trustworthy neighbors who are culturally sensitive and intellectually curious.
I have driven every N/S road in Colorado - the Bark Beetle thrives on draught - entire mountain ranges are just brown kindling; and the mountain resevoirs are dry - empty dry - Colorado is mostly mexicans aand DEAD for about 150 years - until the fires burn off the deadwood and new trees come on. Only a fool would not see this. Check out Oregon - Southwest coast - best of all no mexicans.
Boodles, what you need as a stay in LA for about 3 weeks
Bud of mine bought a place in (Carefree) Desert Mountain. Now that's nice.
You can always go to NYC for "culture", especially the South Bronx. Or South Side of Chicago. Kinda the modern equivalent of the intrepid explorer leading his African safari through the hostile jungles
Way ahead of your time... "the abnormally hot summer has slowed our "back-to-school spending" forecast, thus we are lowering our 3Q GDP estimate to Zero, plus or minus .1%... but we expect strong 2014 "holiday" spending from those dumb goys who watch too much teevee...
thank god the seasons change. But I must be in hell because I still aint buying.
I went into a Target last week. The first time in probably 4 months. I did not buy anything. The place is a ghost town. Staples and Office Depots are even worse. I did not buy anything in either one. I remember when I used to buy a lot of stuff in both.
Yes, indeed.
Another coincident indicator are public golf course traffic. Which are down.
A great lagging indicator are retail, commercial property rentals, leases. Keep going up...
Add that to the no traffic and golly gee, Mr Wizard....
not only did I quit shopping. I sold my business, left Austin TX, and moved to the country near a town of 1500. I buy almost nothing these days.
This article has no mention if the price of upscale underground bunkers in Arizona has gone up. Bet they have.
Nor does it talk about all the pr0n produced up in the high-rent areas of Camelback Mountain or Lincoln Drive.
By the time I get to..
https://www.youtube.com/watch?v=mUg5p3BncuQ
When most people think of Arizona they think of tract housing, hot summers, hispanics everywhere, etc. While thats true in Phoenix, which is a cultural wasteland, its very not true for many other parts of the state. Prescott, Flagstaff, Payson are all very beautiful areas with totally opposite climate than the rest of AZ. They have their own history and small town feel. Once you get further north of the valley there are tons of old mining towns wedged up and hidden in the mountains. Its one of the few places in the US where you can live within a 2 hour drive of places with totally different climates and environments (low desert vs high pines). I own gold mining claims in AZ and dig them part time when I have to get away from my day job. I travel for my day job and it really makes me appreciate AZ compared to many other states (especially CA). Guns are embraced, along with the outdoors, with an independent attitude (north of the valley). Quick summary from a 28 year old AZ native.
.."Guns are embraced, along with the outdoors, with an independent attitude"..
Yes, and to a guy like me who grew up during the golden years of California living when it was nearly identical freedom wise- then watching it turn into a literal hell hole of dystopian magnitude in fewer than ten years I see Arizona is still a great place when you compare it to the left coast or some liberal police state heavy whistle stop like New Mexico.
I thank God Almighty daily that I moved here when I did.
Problem is, too many Clownaforinans are dragging their own oppressive chains along with them when they flee, sadly I predict this state fueled by illegal immigration will be a nice bright shade of blue within two more election cycles.
Arizona has it's warts, my own complaint is for it's being known as the private prison overflow for other states, but that's my pet issue.
I thought about Payson after I clear some more fiats, it is 100% stupendous. Spent a week there in 2002 on an engineering job. Beautiful ride off the desert, up the Mogollon Rim, and into the North Country...
+1000000000. Lived in Flagstaff for years, had clients down in Payson, Strawberry, drove down past Happy Jack. Miss the mountains. Spent some time over in the White Mountains too, client over on the Rez.
There's GOLD in them there hills ... Keep diggin ' !
You have to dig before you can stack ..
Flagstaff is indeed a nice place. I can see a 1200 square foot place going for $2 million there, easy.
BernankeCoin won't buy much. But that damn DOW!!!
"embracing the outdoors" of what exactly i don't get it ?
I live in the dumped on cesspool of NJ but yesterday I took my boat offshore and saw whales, dolphins, blue marlin, 300 pound sea turtles, and caught 2 60 pound yellow fin tuna, and a 78 pound wahoo
Plenty of "independent attitude" within the confines of the Valley as well.
Open carry bikers.
When the Coyotes win the Cup, look out. To the moon.
good luck with that!
Not surprising, the St. Louis real estate market is effectively broken. Some houses sell right away and others sit for months with nothing wrong with them, prices falling all over the place. My wife and I have been looking for over a year now and the price point has dropped at least 10% in cost vs. value in just that year.
Hell, we're looking at a turn of the century 4 bed 2 bath that is incredibly ostentatious and across the street from a very nice city park. The place is listed for $250,000 which in my mind is a bit high... but here's the kicker, it won't comp out for more than $175,000 at best. Sales are just that weak. Might make an offer on this badboy but I'm thinking of letting it whither on the vine a bit longer, the last note filed on the property was $168,000. Putting in an offer at $175,000 isn't going to work until the sellers exit the dream world they're living in.
St Louis? You don't want to be there when the SHTF. Not even any gentrified upscale area.
Considering that any demand in the last 7 years was caused by leveraged buy to rent funds, all it means is that the buy to rent fund crowd are now stuck with a bunch of excess property and their Ponzi will hit a wall.
Let's see........non-english speaking people everywhere, gazillions of illegals that are desperate, hotter than hell and in close proximity to towns that have warned people that police have lost total control of and not to go outside after dark.
Go right on ahead.
When the collapse comes, access to reliable sources of electricity and water will give your town or city a huge advantage - whether you live in the town or just go into town to re-stock. Places like Phoenix and Las Vegas are not places you want to be in or near unless you dig your own very deep cistern.
soory, that's illegal now. if you try to collect rain water it's a federal crime, life in prison is the punishment, but only if you do not resist arrest. If you do, well then the military commandos, known as the phoenix police, will drive a tank to your house and blow you away for being a rain terrorist.
Obama's first "open border" housing market crash. How quaint. The central americans used to living in a mud hut will appreciate the stucco, till the drug cartels run them out. Nothing like a president and co. with absolutely no thought of consequences of their actions.
Could it be that drought denying pro development speculators are beginning to stare into the abyss of water supply unsustainability. Are we running out of bigger fools in the "dry" states?
If so, the remaining demand could quickly evaporate and supply go ballistic.
Who wants to invest in real estate that may not have water in a few years? At least not enough to sustain a city...
who wants to invest in real estate where the water bill is higher than the mortgage?
Hmmm, they're not shopping at Walmart, they're not buying homes in Phoenix. Maybe people spent all their money on inflating costs of healthcare, food, electricity, fuel, and transportation.
Wow, the Chinese Horde doesn't appreciate anonymous tract boxes in a barren wasteland?
Reminds me of "Pump up the Volume".
http://www.imdb.com/title/tt0100436/
An under-appreciated movie about the anonymous tract house/suburbs of Arizona.
So the hubbub is about Phoenix today, which is explained simply by too much largely false wealth chasing easy targets in a broken economy.
Testament to how we got here, consider the energy expended in attempts to protect false wealth in the desert even, rather than towards fixing anything... anything at all.
So then We'll all go down together to a new equilibrium, come hell or... no water.
What do you expect when the average job here pays $9 hour? A lucky few can find jobs that pay a living wage but most don't. Two generations of people educated in one of the worst states for education ain't helping out much either.
Arizona is the closest thing this country has to a penal colony. Overzealous police and a governor who profits greatly from her connections to the private prison system must make people think twice before moving here.
Joe (nickel bag) A-pie-hole can go fuck himself.
"Yes, sir. The South will rise again, and when it does, I'll be right up front waving the Stars and Bars," said Dock Mullins of Decatur, GA. "But first, I gotta get my truck fixed and get that rusty old stove out of my yard."
Arizona sounds about as dumb as the rest of 'Murica. Bend over losers.
Back in the 60's and 70's Bubba was known as "Maryvale Man" in Phoenix. It was not a compliment.
Phoenix has tons of call centers as well as service/back office centers of many companies...they employ lots of people but at VERY low wages....no wonder people cannot buy first time houses.....it is a "right to work" State which means an employer can fire anyone at any time with no explanation...workers here are in most part not unionized and afraid to lose their jobs if they ask for a pay raise......it is a classic example of "working poor"...welcome to Obamaland.....
You mean welcome to Sheriff Joeland...NRArizona.
Open carry, Conceal carry is legal in AZ.
Boating/jetskis, camping, desert romping, river tubing is big in AZ
AZ isn't a melting pot. Most people still are the same as where they came. New Yorkers still act like east coasters, etc...
Blonde haired/blue eyed neocon christians and mormons to Mexicans and Natives, biker gangs, nutty Cali transplants, Mexican cartel.
Seen some mexicans at the circle k yesterday. Looked like MS 13 tatoos.
Probably in town to recruit Barrack's new refugees.
And not one mention of Ren Fest. Or gun ranges. Hunting above the north rim of the Canyon.
I'm glad Yellen is tightening the credit markets. The market clearing prices will be reached sooner.
Not too bad considering when the water supply runs completely dry this will be the first ever GHOST STATE.
Anyone with half a brain would be unloading Vegas property - that is soon to be a Ghost Town too.
Also, LOT's of preppers here. And I mean mainstream, normal job, boring everyday people.
Prepping is a big Mormon thing.
And also: GOLD & SILVER IS LEGAL TENDER here!
LIVE TODAY FROM MAIN STREET: https://www.youtube.com/watch?v=rc8FqDPJyY4&list=UUUGvAftpIaIPliJCpo62QwA&index=2
...and La La Land South: https://www.youtube.com/watch?v=bE-ucqE3TPU&list=UUr5LE6rAA-0M0vY9Y3XHe_w&index=1
Did he say "two million dollar crack houses" or 5 bedroom Victorians for 40K? I'm from China and man, I'm confused! "Ni schung jou go reng ma?"
Oh.... and....my daughter say: Got water and ballet?
To increase home sales in Phoenix, each buyer gets 3 newly arrived Guatemalans with each purchase. Of course, you still have to feed and shelter them, it isn't included in the sales price.
Like most locales, phx is a tale of two...summer- bitchin hot, ac indoors; winter gorgeous. Rich pockets/poor pockets; specific preferences...hiking, golfing shooting/ certainly not ocean fishing. But what could be more boring than sitting by the ocean and looking out at a grayscape/ganzfeld followed by winter. Bottom line - no one place is perfect, and it is getting more difficult to approximate such.
See- Reality isn't so bad once you get over the initial terror of facing it.
I enjoy the entire year here outside the city even tho some have not. I appreciate not being carried away by mosquitoes every night or eaten up by red bugs as in Oklahoma, I have never been forced to dig out a tornado shelter or had to flee flooding living here.
Phoenix metro does suck, I wouldn't want to live in downtown Phoenix any more than I would want to live in downtown anywhere.
I've worked in Compton in the sixties before it was gang ridden, I later worked the copper mines in Butte Montana before they shut it down. I wouldn't want to do either again but I'm not stupid enough to feel my single experience is basis for judging either area like some seem to do.
I've found that people can be either content or not depending on their view of life- anyone who believes they will magically be happier somewhere else unless they are currently doing time is usually miserable everywhere they live and spend a lot of time making everyone around them feel much the same as possible in the process.