December 2015 Phoenix Real Estate Update

Happy New Year!  

Phoenix Real Estate Update

I hope you enjoy this monthly newsletter. Remember whether you are buying a new or resale home it is important to have a realtor to represent your interests. If you know of anyone who is thinking about buying or selling please let me know.  You can search the MLS from my website at

Do you have a rental property and need a property manager?  Please call or email Karen Van Vugt at 602-316-7028 or


Pat Hune


1st Southwest Realty

Search the real MLS from my website!

Cell 480-703-1976

Fax 480-304-9099

Equal Housing Opportunity

Market Overview  - A look back at 2015 and Predictions for 2016

Here is a look at the expert’s predictions for 2015.

Mortgage News Daily along with Various Lenders

Interest rates have been low and will stay low.  Correct.  Interest rates creeped up a bit but are still very affordable especially when compared to the 1980’s.

Prices are stable and will likely increase by a small amount in 2015.  Correct. The median price in the greater Phoenix area increased by 8.9% while the average price increased 5.4% when compared to 2014.

Rents will likely increase especially on single family homes.  Rents will continue to go up and will drive the tenants to buy a home  instead of wasting their money on rent.  Correct. The Arizona Regional MLS reports the overall rental market for November 2015 showed the median lease rate had increased to $1,245, the average lease is $1,380 and the days on market is at 32.  This is compared to January 2015 when the median lease rate was at $1,175, the average lease at $1,316 and the days on market at 37. 


U.S. rents will outpace home values by the end of the year.  Nationwide home values will increase by 2.5% while rents will increase by 3.5%.   Somewhat Correct - Ok I will give Zillow credit for this one even though the gap between the forecasted increase in home values was off by 4% while the difference in the rents was only a half percent.   Home values increased nationally by 6.3% while rents increased by 4%.  I do agree the increase in rents makes owning a home more attractive.

Builders will begin constructing more, less expensive homes.  Wrong.  Builders could not afford to build less expensive homes due to the increased cost of labor and land. 

Millennials will overtake Generation X as the largest group of homebuyers. Maybe.  Millennials started buying according to the National Association of Realtors who reported millennials nationally made up 68% of the first time home buyers. But there is no database that tracks whether a buyer is a millennial or not.  

Homebuyers will have more negotiating power in 2015. Wrong.  Low inventory resulted in multiple offers forcing buyers to give up appraisal contingencies, price negotiations and repairs in order to get the home they wanted. 

RL Brown

RL Brown reports 11,000 houses to be built in 2015, up slightly from the 10,840 built in 2014. Correct though the number was actually a bit higher than predicted.  As of the end of November 2015 there have been more than 13,500 permits taken out, according to RL Brown researchers. That is up 46.4 percent from the approximately 9,250 permits taken out during the first 10 months of 2014.

Tom Ruff, The Information Market

Looking Forward at 2015 - I’m quietly optimistic as 2015 begins. Even though inventory numbers are very similar to where they were last year at this 􏰀time, we have a little more wind in our sails. Put simply, our market is healthier. The price increases we’ve seen in the last 18 months are characteristic of a normal sustainable market, interest rates are at historical lows (3.86% Dec. 2014), the millennials are one year older, births are increasing, gas prices are low ($2.04 national average), boomerang buyers have had one more year to repair their credit and conventional buyers are making up a larger percentage of home purchases. People are feeling better about themselves. I feel it’s a safe bet to say 2015 sales volume will exceed 2014. I don’t think it will be the breakout year we’ve been awaiting, but in terms of sales volume, it will definitely be better.  Correct.  The year over year sales increased by 6.5% when compared to 2014.  Millennials started buying and nationally made up 68% of the first time home buyers though there is no good database to collect these statistics.

Pat Hune, Broker, 1st Southwest Realty

This information is mostly anecdotal but many signs indicate the real estate market is starting 2015 on a positive upward trend. Title companies, home inspectors and mortgage brokers, as well as realtors, report an increase in overall activity since January.   Multiple offers on desirable properties are becoming more common.  Buyers who look at a home but either can’t decide or think they have not looked at enough homes are disappointed when they go for a second look and the house is under contract.  The second bitter winter in the midwest and east coast may be enough to drive retirees who can afford a second home to the warmer climates like Phoenix.  The trend of reverse mortgages appears to be increasing as this allows the retired buyer to live in a nice home without the burden of a mortgage payment or rent while freeing up cash for them to enjoy.  It will be interesting to see what happens over the next few months.  Analyzing this one is more complicated.    

Reverse mortgages will increase.  Correct.  America’s Seniors hold $5.76 Trillion in home equity. As of September 2015 there were 53,372 reverse mortgages  issued as compared to 51,642 in 2014.   I guess those bumper stickers that say “I am spending my children’s inheritance” will be more common.  And rightly so.  These people worked hard so they should enjoy their retirement years.

The number of houses sold will increase.  Correct.  Sales increased by 6.5% in 2015.

There will be multiple offers on desirable properties.  Correct.  Though there is no database that tracks multiple offers it was my experience that there were multiple offers on most homes priced right for the condition and in good locations.  I received 11 offers on one of my listings.  My buyers were outbid at least a dozen times.  Lenders reported seeing contracts with the appraisal contingency waived. 

The bitter winter will drive retirees to buy second homes Phoenix. Correct. I worked with several buyers and sold several of my listings to people who wanted to escape the cold.  

Now looking ahead to 2016 here are the expert’s predictions.

Diana Olick, CNBC,  December 2015

  • Interest rates will increase thanks to the improving economy and the Federal Reserve.  (Ok we won’t talk about the dismal week the stock market had during the first week in January.) The Federal Reserve increased the interest rate on December 16, 2015 by one quarter point for the first time in decades.  This has a limited effect on mortgages (See article below on what influences mortgage rates.)  There are other reforms that may impact the mortgage industry including an omnibus spending bill that prohibits the Treasury Department from selling the government’s stake in mortgage finance giants Fannie Mae and Freddie Mac until 2018 without further legislation.  
  • Rents will increase as there will still be a shortage of housing despite the tremendous number of apartment complexes being built. The demand is still higher than supply which keeps rents high.
  • New home starts will not increase much as builders still struggle to find enough land and labor to build more houses.
  • The supply of housing will still continue to be tight which will in turn keep prices high.

Elliott Pollack, Phoenix Economist, December 2015

Millennials and "boomerang buyers" are among the forces creating the best conditions for housing since the boom a decade ago.  The state's real-estate markets are experiencing healthy growth.  Millennials, the generation whose oldest members are in their mid-30s, are marrying, with many becoming first-time homebuyers. Younger members of the generation are leaving their parents' homes and creating strong demand for apartments. As they grow older and marry, life events will create even more demand for more single-family housing, he said. On the other hand, people aren’t moving nearly as much. They are still locked into their homes or afraid to move. The big spending boomers are getting older, and fewer people are moving to Arizona. We grow about 80,000 a year now, but that’s slower than ever, and as a consequence fewer single-family homes are being built, and fewer apartments.

At the same time, many of those who left or lost their houses during the crash are newly eligible for federally backed loans again.  "The outlook for housing is quite exceptional, given the outlook for a post-2007 world," Pollack said in a nod to the housing crash. "The parade of horribles that have been affecting housing are almost all improving.”  The Phoenix area should have at least 15,000 building permits for single-family houses this year and at least 18,000 next year, Pollack said. Commercial real estate remains soft, but not in all parts of the Valley.

Arizona is expected to maintain its status as one of the faster-growing states in the nation, though other areas, many of them in the West, are doing better. The year ahead should finally produce enough jobs to replace the ones Arizona lost during the Great Recession, something the nation as a whole achieved by mid-2014.  Our economy is not as strong as it historically has been, and won’t be until it changes. Next year we will grow at 1.8 percent. Nationally, immigration represents 42 percent of population growth, but in Arizona it’s 20 percent because of the passage of SB 1070, which drove immigrants away.  

Pat Hune, Broker, 1st Southwest Realty

  • Interest rates are going to go up.  It may not be much be there will be an increase.  But this is ok as the buyers who purchased in 2015 will be happy they did so and will be bragging to their friends who sat on the fence.  The number of entry level buyers and boomerang buyers will increase as a result.
  • Prices will go up and inventory will continue to be low especially in houses priced under $250,000.  This is a very safe prediction as it is unlikely there will be an influx of entry level single family housing from any new source. The new home builders cannot afford to build, and quite frankly don’t need to build, cheap housing.
  • High density single family housing developments like town houses will increase especially close to the light rail and the ever expanding ASU Campus but they probably won’t be cheap.  Another safe bet as both Tempe and Mesa are anxious to see some owner occupant housing versus the huge rental complexes.  They want less tenants (who are transient) so the neighborhoods become more stable.  But buyers will pay a steep price for the convenience.
  • Prices will go up by 6% driven by the high demand and low inventory levels.  Another safe prediction as it is unlikely a tsunami of houses will hit the market.   


1)  STAT Newsletter 

2)  Rental Market  

3)  Multifamily and Commercial Real Estate Trends

4)  Highest Mortgage Rates Since July - But Don’t Panic

5)  Real Estate Briefs

     a)  Rent Hikes Stress Apartment and Single-Family Renters

     b)  Last Shot at a New Home In Fulton Ranch, Chandler, AZ

     c)  Phoenix Downtown Housing Finally Booms

     d)  Downtown Gilbert Now a Thriving Heritage District

6)  Tales from the Real Estate Trenches 

     How Solar Can Be Detrimental to a Home Sale - Real Life Example 



1) STAT Newsletter Link - STAT is produced monthly  by the Arizona Regional Multiple Listing Service - the database realtors use to list homes for sale and that have sold.   ARMLS® COPYRIGHT 2016

December STAT

STAT Newsletter and Real Estate Market Highlights

Commentary by Tom Ruff of The Information Market

November was both very typical and very interesting. When we looked back at the historical data, most metrics landed exactly as we expected, but something odd was brewing with the median sales price. In our last issue of STAT, we were scratching our heads when we reviewed our prediction for prices:

“Our math on the PPI is projecting lower numbers than logically acceptable, leaning more on the model than the logical prediction. The ARMLS Pending Price Index projects a median sales price of $206,400 for November. Using more ARMLS secret sauce and my own logic, I predict a median of $210,000. We’ll see if our model holds up.” — Our median sales prices landed at $209,000, which confirmed that something went haywire in our model. Conversely, our secret sauce prediction was off by a tiny 0.5% difference. What is in the ARMLS secret sauce that is missing in our model? TRID!

The data in November points out a temporary disruption in volume and the median sales price. This was a surprise as the conventional wisdom found through various Facebook groups was that a few closings were taking longer, but the overall consensus was much ado about nothing. In reality, we believe TRID has pushed back several hundred closings causing lower than expected sales volumes as well as a decline in the median sales price.

Just like measuring the weather, many of our metrics are daily. Two of these daily metrics involve the median sales price for pending home sale contracts as well as monthly homes sold. It’s a little bit counter intuitive but the daily measurements of the median sales price of all pending contracts will trend slightly below the daily measurements of the monthly closed contracts.  The gap between the monthly median sales price and the median sales price for all pending contracts narrows in October with the lines crossing in November. The disruption in these numbers can be attributed to TRID.

Why? TRID only affects purchases with a mortgage, in some instances delaying them. This causes a temporarily higher cash to mortgage ratio. Public records for November in Maricopa County tell us the price of a median resale home where the buyer paid cash was $173,000 while the median price for a resale home where the buyer obtained a mortgage was $215,000. 

Percentage of Cash Sales

This negative pricing pressure from the increase in cash sales in the cash to mortgage ratio accounted for the “lower numbers than logically acceptable” drop we talked about last month in the PPI. This will be a temporary disruption with numbers returning to their normal patterns.

If our hypothesis is correct we should expect to see the percentage of cash sales increase and they did. Here’s where it gets tricky! There are seasonal patterns that also affect the percentage of cash sales, however, the chart below shows that the percentage increase this year is clearly higher than normal seasonal trends.

ARMLS Pending Price Index (PPI)

We expect the lagging sales from November to record in December as the TRID effect wears off. We predict sales volume will improve to 6,750 and the median sales price will land around $214,000 in December 2015.

2)  Rental Market Check - Rent Check is an ARMLS's  publication tracking single family home rentals.  Click on the link for the statistics.

December Rent Stats

3) Multifamily and Commercial  Real Estate Trends

Current Phoenix market trends data indicates an increase of 3.5% in the median asking price per unit for Multifamily properties compared to the prior 3 months, with an increase of 13.8% compared to last year's prices. County-wide, asking prices for Multifamily properties are 5.4% higher at $62,012 per unit compared to the current median price of $60,859 per unit for Multifamily properties in Phoenix, AZ.  There has been an significant increase in the sales prices for duplexes, triplexes and fourplexes with very little available under $200,000.  

Loopnet Commercial Trends


4)  Highest Mortgage Rates Since July - But Don’t Panic

Matthew Graham, Mortgage News Daily, December 2015

(Editor’s note - Even though mortgage rates have gone up a bit they are still very affordable.  There are many of us who remember the interest rates in the 1980’s of 14, 15, 18 percent or higher.  Buyers should not feel rushed to buy a home.  But if you are thinking about buying a home do not wait. There is no way to predict if, or when, or how much, interest rates will go up.)

Mortgage rates moved up for the second consecutive day, but in an uncommon way.  Mortgage-backed-securities (MBS) are the financial instruments that mortgages ultimately 'become' when they're grouped together with other mortgages and sold to investors.  While the MBS market can be a complex thing to understand and explain, here's a simple fact: when MBS prices rise, rates fall, and vice versa.  Bigger moves in MBS result in bigger moves for mortgage rates.

With all that in mind, today's move in MBS was fairly small--the sort of move that would normally result in an almost imperceptible increase in rates.  It's somewhat surprising, then, to see that rates moved higher fairly abruptly.  In fact, today's average rate quote is as bad as it's been since July!  What's up with that?! 

First of all, keep in mind that rates were already operating fairly close to these multi-month highs.  Still, the move was definitely more abrupt than MBS suggested.  That abruptness was due to the nature of the holiday season in financial/mortgage markets as well as the timing of the MBS losses.  Yesterday was a much weaker day for MBS, but lenders didn't 'reprice' (adjust rate quotes in the middle of the day) as much as normal.  That meant today started off at a big disadvantage, simply by beginning where yesterday left off.  Additionally, lenders are simply far more conservative with rate sheets when market activity starts dying down for the holidays, and it's been dying down in a big way.

Unfortunately, all this means the highest rates in 5 months.  Fortunately, if you're on the fence about locking or floating, this is one of the few occasions where the odds are in your favor from a purely mathematical standpoint.  In other words, if MBS prices simply stayed where they were right now, rates could drop meaningfully by next week.  While there's never a guarantee about the direction of market movement, I am guaranteeing you there is extra "cushion" in lender rate sheets at the moment.

Loan Originator Perspective

"Rates continue to slightly worsen heading into the holidays.   If you plan to lock before Christmas today is the day.  If not, no reason to consider locking tomorrow as it is a short trading day and lender rate sheets will be conservative regardless of bond trading.  At this point, with the last couple days of bonds drifting higher, I would float until Monday."-Victor Burek, Churchill Mortgage

Today's Best-Execution Rates

•  30YR FIXED - 4.0-4.125%

•  FHA/VA - 3.75%

•  15 YEAR FIXED - 3.25-3.375%

•  5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

•  2015 has been largely about global interest rates rising unevenly from a long-term low brought about by the onset of quantitative easing in Europe.  European rates are most directly affected, but rates in the US have often taken cues for similar movement.  

•  As the European rate rally fizzled out, the Fed began telegraphing its intent to hike rates.  While the Fed rate doesn't directly affect mortgages, the two are still loosely connected over time.  They become more disconnected when the economy begins to contract.  This helps longer term rates like mortgages move lower even while the Fed rate his steady or rising.

  The Fed finally hiked on December 16th, but there was no immediate reaction in mortgage rates.  Some think that an economic contraction might not be too far away.  Others are concerned about a lack of inflation (which is good for longer term rates like mortgages).  Bottom line: the Fed rate hike has not been the death knell for low mortgage rates that many feared it would be, although the near term range is uncertain and rates could be more volatile than normal as we wait for a new trend to emerge.

As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method). 

Bonds are the key factor in mortgage rates

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result.  Mortgage Backed Securities (MBS), are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving (going lower) —and when they are moving lower, home loan rates are getting worse (going higher). 

To go one step further—the MBS can worsen or improve during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets lenders start with each morning.  Mortgage Bond prices have remained higher in recent weeks, keeping home loan rates near historic lows.


5) Real Estate Briefs

a)  Rent Hikes Stress Apartment and Single-Family Renters

Various Sources, December 2015

The recent strength in the new single-family home market has translated into more optimism on the part of the Blue Chip Consensus Panelists. The panel now expects about 15,500 single-family units will be permitted in Greater Phoenix this year: that’s up from fewer than 11,000 units last year. The panel also expects the single family market to remain strong. For 2016, the panel expects nearly 19,300 units (a gain of about 25%) and nearly 22,900 units (a gain of another 19%) in 2017. This would be exceptional strength over an extended period of time and would bring the market closer to normal. Such a significant increase of permits over a two year period is going to be interesting to observe. Home builders have already expressed concerns about an inability to get sufficient skilled workers to build efficiently even at the 2015 level of units. Ultimately, the problem will be resolved even if it means higher salaries and, therefore, higher home prices.

Apartments are also expected to remain strong. Permits are expected to approach 7,000 units this year, 6,800 in 2016 and about 7,200 in 2017. On the other hand, unit absorptions are expected to remain at about 6,000 per year through 2016 but increase to about 6,700 units in 2017. The result is that vacancy rates, as expected, will remain low for an extended period of time. This suggests higher rent and will, ultimately, lead to more construction.

Overall the construction picture is improving fairly rapidly. The single family market, while way down from the previous peaks, is certainly making a significant recovery from the levels of earlier this decade. Apartments remains strong and vacancy rates are expected to continue to decline.

According to Andrew Woo and Crystal Tseng, writers for Apartment List,  rents in the Greater Phoenix area have increased an average of 6.4% over the past twelve months.  The median rent for a two bedroom apartment is $730. But this is a relative bargain compared to the national average of $1100.  

The Arizona Regional MLS reports the overall rental market for November 2015 showed the median lease rate had increased to $1,245, the average lease is $1,380 and the days on market is at 32.  This is compared to January 2015 when the median lease rate was at $1,175, the average lease at $1,316 and the days on market at 37.  Every increase in rents will motivate tenants to stop throwing money away and become home owners. Tina Tamboer of “The Cromford Report” told KTAR’s That Real Estate Show the high cost of rent is forcing renters to take a closer look at putting money into property they can call their own.  “If you’re actually trying to control your monthly income, renting is probably not the best idea for you,” she said. “If you’re able to qualify, if you really want to fix your monthly expenses, get a 30-year fixed mortgage rate.”  Tamboer added the increase in average rent per month per square foot across the greater Phoenix area has accelerated more over the past two years than it did between 2000-2013.  “Rent is now the one thing in the American economy that is rising faster than anything else,” she said.


b) Last Shot at a New Home In Fulton Ranch, Chandler, AZ

Gremlyn Waddell, The Republic, December 2015

Always dreamed of living in a new home at Fulton Ranch in Chandler? Now may be the time to make your move.  Serenity, a gated, low-density, luxury condominium development that launched in July, has already had over 30 sales to date, according to developer Andrew Hickey of Serenity Development, a boutique firm that focuses on infill projects.  All the other subdivisions within the 520-acre, master-planned community full of parks, walking paths and lakes have sold out, he added.  “Serenity represents the final opportunity to buy a new home in this prominent neighborhood,” Hickey said. “You can purchase a resale home, but we are the final opportunity to buy a new home.”

Backstory - Like other condo projects around town, Serenity has a bit of a backstory to it. Originally built by another company, which completed and sold 56 units, the project had to be turned over to the bank in the last market downtown, Hickey said.  Serenity Development purchased it from the bank and then set about doing some redesign work to make the units more airy and in tune with today’s buyers.  Hallways were eliminated, bar tops were done away with in favor of expanded islands in the kitchens, and expansive swaths of glass really open up the great rooms, he said, many of which feature greenbelt views and a few which boast lakeside vistas.  The bedroom of one floor plan also was reconfigured to make the space more functional.

Four models, sporting Mediterranean-inspired architecture and ranging from 1,350 to nearly 1,900 square feet, are available; prices start at the mid-$200’s.  Each unit has a gourmet-style kitchen with stainless steel GE appliances, the gourmet-style kitchen areas include expanded islands, and an attached, two-car garage with direct villa access. At build-out, expected to be in late 2017, there will 32 four-plex buildings consisting of 128 total units.

“Condos don’t typically come in with this kind of square footage or appointed in the finishes we provide,” Hickey said. “For our buyers, it’s all about lifestyle. They’re looking for that lock-and-leave convenience but don’t want to compromise luxury. Here, you have proximity to world-class amenities within the community, you’re within walking distance to shopping, salons, boutiques and restaurants and all the outdoor activities you could possibly want. Serenity truly sets the bar in this price range.”

Active adults - Serenity buyers, he noted, are active adults who “want to spend their time wisely.” Many are second-home buyers and roughly 40 percent of sales thus far have been to local empty nesters who’ve ditched their large, maintenance-heavy homes in favor of a place where they can focus their time on living, not upkeep.  “Our owners prefer to lock the front door, go on a hike, play at one of the neighborhood golf courses or go on a trip to Napa Valley,” he said. “We call it ‘lock-and-love’ or ‘lock-and-live.’ ”  What’s more, he said the fact that so many Serenity buyers are second home owners means that the 20-acre community and its amenities really can be described as low-impact.

Speaking of amenities, the clubhouse’s interior also got a remodel and boasts multiple lounging areas and a full kitchen, a 70-inch TV, a small fitness facility and a heated, resort-style pool and spa with nearby ramadas and restaurant-quality barbecue grills.  The second phase of the project will also include a community gathering area with more grills and water features, Hickey added.


c)  Phoenix Downtown Housing Finally Booms

Catherine Reagor, The Republic, December 2015

Downtown Phoenix’s long-awaiting housing boom is finally here.  More than 20 apartment and condominium developments are going up across the city's core.  The urban projects range from penthouse condos at Portland on the Park next to Margaret T. Hance Park to 500-square-foot micro apartments near Roosevelt Row.  The old Quality Inn next to the Phoenix Art has been torn down to make way for the Broadstone Arts District apartments. Construction started earlier this week on an upscale apartment complex called The Muse on Phoenix’s most prominent vacant lot — the northwest corner of McDowell Road and Central. And there’s the affordable condo project called en Hance Park south of Burton Barr Library.  All the developments underway will mean more than 2,000 new housing units for downtown Phoenix. That’s more residential development than has ever been under construction in the central city.  Of course, in the Valley we always must do a gut check when there’s housing boom because too often a bust has followed.

David Krietor, CEO of Downtown Phoenix Inc., told me this much new housing and likely more is needed for downtown.  The longtime central Phoenix growth expert said there’s pent-up demand to live in the area, and everyone from college students to baby boomers want to rent or buy downtown now.  People are also willing to pay more to live downtown. The average rent in the area has jumped almost 50 percent during the past five years to $1,357, according to Phoenix-based ABI Multifamily.

Arizona State University’s expanding downtown campus is drawing more residents to the central city. The area’s growing list of restaurants, bars, cultural and entertainment hotspots are drawing others.  Then of course, there’s light rail bringing more people to downtown.  The 14th and top floor of Portland on the Park was topped off Tuesday. And it was announced one-third, or 54, of the condos, have already been sold. At an event to celebrate the project that drew Phoenix Mayor Greg Stanton, one of the developers made a dramatic prediction for downtown Phoenix.  “In the next 24 months, this area (downtown Phoenix) will double in size,” said Timothy Sprague of Habitat Metro. “It will become the densest area in the Valley.”

He cited 2014 Census data that showed 5,913 people living in downtown Phoenix. That means about 12,000 will call the area home in two years.  If he’s right, central Phoenix’s housing boom isn’t likely to go bust.  But the area needs more than just new homes for that many new residents. How about a downtown Phoenix grocery store for starters?  In fact, that was Krietor's Christmas wish, which he recently posted on Facebook with photo of himself standing with Santa at downtown's CityScape. "I asked Santa for a downtown grocery store," he wrote.



d)  Downtown Gilbert Now a Thriving Heritage District

Jessica Boehm, The Republic, December 2015

During the weekday lunch rush or weekend evening, the hustle and bustle of Gilbert's Heritage District echoes throughout the three central blocks of the downtown area.  A growing line of patrons can be seen through the windows of Liberty Market while couples and families weave their way across Gilbert Road, debating which restaurant to try. In warmer weather, a half-dozen kids jump in and out of the splash pad beneath the old water tower and their parents snap pictures on their iPhones.

But the Heritage District didn't always look like this. In fact — it didn't look like this five years ago.  Today, the district is best known for its cream-of-the-crop dining options — about a dozen restaurants, including Valley staples like Postino's and Lolo's Chicken and Waffles. There's also a small, but promising, university, a time-proven private theater and plans for a country bar, upscale bowling alley and more.

Just a few decades ago Gilbert's population was less than 10,000 and the town's once-agrarian downtown — which housed things like saloons, a dry-goods store and a meat locker — was beginning to dwindle and became rundown. Many were skeptical downtown Gilbert would survive the Valley's growth surge.  It was a consistent commitment to preservation and redevelopment — even in times of financial difficulty and uncertainty — that led to today's Heritage District, which is often dubbed a "30-year overnight success story" by town leadership.

"It hasn't been easy," said Kathy Tilque, president and CEO of the Gilbert Chamber of Commerce. "There's been a lot of controversy over the years. I hate to imply that we just waltzed our way in and 30 years later there it was."

But it will take a continued pledge of commitment by town leadership to ensure the ongoing success of the district. Without an eye toward expanding office and residential opportunities, some experts caution that Gilbert's downtown could shrivel as soon as a new, flashy downtown in the Valley makes its debut.

The freeway, extreme population growth and a shimmer of a dream

When people say nothing happened in downtown Gilbert until five years ago, Gilbert Historical Museum Executive Director Kayla Kolar has one thing to say: "That's bull-honky."  To Kolar, the success of the Heritage District — and the town of Gilbert as a whole — began 40 years ago.  Prior to 1975, Gilbert was made up of all of about 1 square mile of land near downtown. The surrounding area was unincorporated county land.

As the Valley's population began to boom, Chandler and Mesa started to quickly inch in toward Gilbert, leading the mayor and council to annex 53 square miles, effectively moving the town's boundaries out miles in nearly all directions and saving Gilbert from what could have been its demise, Kolar said.  That move coupled with the expansion of the U.S. 60 out toward Gilbert Road and beyond led people to move to the town in droves, she said.  

"Now people thought they could move out in the boonies, out to Gilbert ... and they could go to work in Phoenix," Kolar said.

And they did. Gilbert quickly became one of the fastest-growing municipalities in the country, doubling its population every five years from 1980 to 2000.  By 1991, the downtown strip was distressed and in need of a revamp. Town leadership decided to create a redevelopment district encompassing the downtown, which allowed for the town and the businesses to receive federal money for redevelopment efforts, former town manager Kent Cooper said. It was also one of the first public declarations of commitment to the downtown.

But as more and more people moved to Gilbert, downtown development took a backseat to other pressing community needs, Cooper said. Paving streets and putting in sewer lines shifted some of the focus away from the district.  

But year by year, the town would put small sums of money toward redevelopment and encourage businesses to come to the Heritage District. During this time, town leadership also purchased land whenever it became available, assembling pieces that it one day hoped to sell or lease.

Although the Heritage District has become more well-known in the past five years, there were some entrepreneurs taking a chance on Gilbert's downtown in the '90s and early 2000s. Ultimately, their successes and failures set the stage for what was to come decades later.  Growing up in the '60s and '70s, Joe Johnston drove through downtown Gilbert every day when he worked on his family's farm. He took coffee breaks in town, and his mother shopped at the Liberty Market grocery store down the road.  He briefly left Gilbert in his adulthood after starting the Coffee Plantation, a local chain of coffeehouses that grew to other parts of the country. He spent some time in Texas, where he discovered barbecue joint after barbecue joint.

He came back to Gilbert, knowing that his next venture would revolve around barbecue. He drove through the old downtown — which had become rather tired in his time away —  and saw a long, rectangular brick building.  "'This is a barbecue building,' I exclaimed to myself," Johnston said.  And so it became a barbecue building. Johnston opened the doors of Joe's Real BBQ in 1998.  It was successful beginning on day one, Johnston said. The community showed up in force to support the family-friendly restaurant with a nostalgic flare, Johnston said.  Nearly every town leader and Heritage District business owner credits Johnston for igniting a spark in the Heritage District and proving that new life could be breathed back into downtown.

It took some time, but little by little, others took a gamble on Gilbert, too. David Dietlein called his decision to open up Hale Centre Theatre in the Heritage District in 2003 a "giant leap of faith."  "It was 'Field of Dreams' — you build it, they will come," Dietlein said. "It was no different."  To the north of his newly purchased property was a boarded-up gas station and an "old, beat-up" trailer park with broken glass and windows littered throughout, Dietlein said. To the south was the rusting water tower surrounded by a barbed-wire fencing. To the west was an old tin shed with a caved-in roof that housed a diesel mechanic shop. It was not always easy, Dietlein said, and he often wondered what he got himself into. But eventually, he started to see success, and others in the area took notice as well.  "It (Hale Centre Theatre) started adding some energy to the district," Dietlein said.

Although Joe's Real BBQ and the Hale Centre Theatre are often pointed to as the earliest successes of the district, there were many other early pioneers who took a chance in the district during the same time period and failed.  "I think the businesses that came to this area before that didn't make it — they were just a little before their time," Tilque said. "It's too bad, I wish they could have stayed and been a part of it. But they helped us get there."  

'The food corner of the Valley'

The structure to the east of Hale Centre Theatre — on the northwest corner of Gilbert and Page roads — was home to five restaurants in 10 years beginning in 1998.  Before 2012, "it was vacant, it was ugly ... literally the neighborhood thought it was cursed," said Craig DeMarco, co-owner of Upward Projects.  After persistent calls from Gilbert's economic-development director Dan Henderson, DeMarco and his partners decided to open Postino's East in the Heritage District.  "I will tell you the vision he laid out for us has come true," DeMarco said. "And even more."  From day one, Postino's was flooded with patrons, DeMarco said.

He and his colleagues began calling up everyone they knew in the business and asked them to believe in downtown Gilbert as well. A rapid restaurant migration spread through the Heritage District, bringing branches of other local restaurants like Zinburger, Barrio Queen and Lolo's Chicken and Waffles.  "When you think of a unique, eclectic food center now, you think of Gilbert — and who would have thought it? I mean really," Tilque said.

The success of these restaurants is likely due to Gilbert's desirable demographics, town manager Patrick Banger said. Gilbert's median age is about 32 and the median income is near $80,000 — one of the highest median incomes in the country when adjusted for cost of living.  But with so many restaurants now crowding the district, Tilque said it's time for the town to determine when "you start cannibalizing instead of capitalizing."  "I personally think we're getting close," Tilque said.

But DeMarco isn't so worried. He said he thinks the district will run out of land for development before it hits a saturation point.  "Every new restaurant that opens we just get busier, because It's really created a destination and a district," DeMarco said.

The original Heritage District structures — like the Joe's Real BBQ building — are the only remaining pieces of Gilbert history left from the town's founding period, said Kolar of the Gilbert Historical Museum.  "There is very little history left," Kolar said. "If anything ever happened to those things in the Heritage District, I mean there goes our history. There's nothing left."  Although most everyone is happy with the success and modernization of the Heritage District, long-time Gilbert locals have fought — and continue to fight — to make sure the character and history of Gilbert's downtown remain a focal point of the area.  Johnston's barbecue restaurant and his newest Heritage District venture, Liberty Market, are both located in original structures.

Shortly after he opened Joe's Real BBQ, Johnston told the previous owners of the Liberty Market grocery store across the street, which had been in existence since 1935, to let him know if they were ever considering selling their location. He didn't want to see the brick building and accompanying iconic, neon sign demolished and turned into something like a chain drugstore, he said.  Eventually, the call came and Johnston and his partners arranged to purchase the grocery store and turn it into a market-style restaurant in 2008, keeping the name Liberty Market to preserve the history.

Today, Johnston can point out the black-stained brick above his pizza oven where the fire of 1939 damaged the building. He can show you where the early owner etched his name into the concrete and point to the spot where the cashier, Mary, would check out customers.  Johnston said he is very happy with the new development north of his establishments, but said he cherishes the genuine history that he and others have been able to preserve.  

'There's going to be another hot spot' 

Tilque says watching Gilbert's downtown bloom into the successful Heritage District has been "one of the blessings of my life."  But she says she knows there's still a long way to go if the town wants to stay thriving for decades to come.  "There's going to be another hot spot in another 5, 10 years," Tilque said. "What are we going to do to maintain our uniqueness for people to still want to be here?"  David Roderique, executive director of the Downtown Phoenix Partnership, stressed that downtown areas need to offer more than just dining and entertainment — they need to attract people on a daily basis by encouraging people to live or work there.

"You need office, you need hotels, you need all the other pieces, so I think that's probably something they're going to have to have to focus on is broadening the appeal of downtown and making it more of a 24/7 kind of environment," Roderique said.  Roderique said Gilbert will also have to think about creating density through taller buildings. Although building up is often controversial in communities, Roderique said it is a staple of most successful downtowns.  "If you want to create a walkable, urban area, you're going to have to go up, and from what I see it's like two- or three-story buildings is all you see in downtown Gilbert," Roderique said.

The town is aware of some of these concerns and suggestions and is making moves to add retail, entertainment, office and residential opportunities. The town has a substantial amount of input about what goes into the Heritage District because it is the largest landowner in the district. Nearly all the temporary parking lots in the district are town-owned land parcels that will someday be developed.  In the coming years, plans for the Heritage District include a Biltmore Union-like shopping center, 170 housing units and entertainment venues including Dierks Bentley's Whiskey Row fit with a small outdoor performance stage.

Already, the addition of the Gilbert campus of Saint Xavier University — a private Catholic university from Chicago — has brought a different element to downtown, Banger said.  "Universities are just huge economic engines for communities," Banger said. "Even a small one like that."  Kolar is looking for another way to shape the future of the district. The museum recently began a study to consider developing an arts and culture center across the street from its building at the southeast corner of Gilbert and Elliot roads.  Ideas for the venue include space for agriscaping classes and an outdoor amphitheater. If the study goes well, the museum will bring its pitch to the town after the first of the year and begin a capital campaign to fund the project itself, Kolar said. "It's time," she said. "We need more things."

But for now, Gilbert is reveling in the success of the restaurants in the district that have drawn the eyes of visitors from across the Valley and beyond. Ironically, it was a downtown restaurant that brought Mayor John Lewis to Gilbert 30 years ago.  When he arrived in the Valley from a small town in Texas, he drove to communities in each corner of the Phoenix metropolitan area with wife, 4-year-old daughter and twin2-year-old boys in tow.  When they got to Gilbert, they stopped at what was then one of the only dining options in all of downtown: A Dairy Queen.  On the way back to their car, Lewis said his daughter looked up at him with her sparkling blue eyes and said, "Dad, I've talked it over with the brothers. This is where we want to live."  The Lewis family still lives about a half-mile from downtown Gilbert — never wanting to stray too far from the Dairy Queen, or the other downtown attractions, of course, Lewis said.

In 30 years, the Heritage District has evolved from a fast-food stop to a destination point for families across the Valley. Lewis said that as the downtown continues to grow and thrive, his only hope is that it remains a place where families like his can find a place where they feel they belong.

(Note:  The Light Rail is scheduled to be built out to Gilbert Road by 2018.  It is anticipated the City of Gilbert will push to build a light rail track to connect downtown Gilbert to the light rail in the future.)


6)  Tales from the Real Estate Trenches 

Pat Hune, Broker at 1st Southwest Realty

How Solar Can Be Detrimental to a Home Sale - Real Life Example 

A few months ago I wrote a hypothetical article about how a solar lease can impact the sale of a home.  This month I got the real life lesson.  Pebbles and Fred were looking for a home in the Chandler area.  We found what we thought was a perfect home until we read the house had a solar lease.  This brought up a lot of questions like how much is it, how many years left and, the most important one, how much does it save?  The seller provided a copy of the solar lease and electric bills.  The key points were:

1) Term - The term of the lease was for 20 years.  The seller had entered into the lease in October 2011.  There were ~16 years remaining on the lease.  The lease states the solar equipment would be returned to the solar company at the end of the lease period.  The owners had to have a high speed internet connection installed so the solar lease company could monitor the output and make sure the panels were working correctly.  The owner was responsible for keeping the panels cleaned and in good working order.  The lease could be transferred if the buyers qualified.  The panels could be relocated to a different house for an additional fee and the owner would be responsible for all relocation costs.

2) Costs - The monthly lease payment for the solar panels is about $85.00.  This is nearly $1000 per year or $16,000 over the remainder of the lease.

3) Energy Produced - The lease contained a Energy Production Guarantee.  Over the 20 years the guaranteed kWh started at 8,608 and declined to 7,113 in year 20.  If the kWh were less than guaranteed the owner would receive a refund of the difference at the end of each year.  (Note the lease specifically prohibits heating a pool.)

4) Electric Bills - April was $106.02 for 91 kWh.  July was $295.18 for 2128 kWh.   November was $61.20 for 456 kWh. The buyers thought this did not reflect a significant savings when the monthly lease amount of $85 was added.  In reviewing the monthly usage for 2013, 2014 and 2015 the usage had increased every month.  Does this mean the occupants were less conservative because of the solar?  Or had something else made the usage increase?

Ultimately my buyers decided not to purchase the house because they did not see the benefit of the solar and therefore felt it was not worth $16,000 in additional payments.  So what recourse does the seller have to get the house sold?  None of them are pretty.  The seller can reduce the price of the house to reflect the additional $16,000 cost. But the buyers could still want more of a discount due to the solar lease.  The seller could relocate the panels to a new property which could be expensive.  (In this case the seller was moving out of state so this was not an option.)  The seller could pay off the $16,000 remaining on the lease.   This is probably the cleanest solution.

The moral of this story is home owners should think carefully before encumbering a property with a 20 year solar lease.  Everyone thinks they will stay in a house forever but that rarely happens.  No one can predict what will happen 20 years in the future.  Be careful not to do something that will make it difficult to sell a house or will hurt the resale price.