June 2016 Phoenix Real Estate Update

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. When you go to a new home development the very nice builder’s realtor is working strictly for the builder. You have NO representation.  If you know of anyone who is thinking about buying or selling please let me know.  

Do you have a rental property and need a property manager?  Please call or email Karen Van Vugt at 602-316-7028 or ftr9558@cox.net


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 by Pat Hune from Various Sources

There are several articles about how much rents have increased and speculation as to how this will impact the housing market.  Average rent for a one-bedroom apartment in Phoenix increased 13% this month, topping the national charts. Rent rose from $764 per month to $861, a leap that earned Phoenix the No. 1 spot, according to Abodo’s June 2016 National Apartment Report.  “The rent increase in Phoenix could result from a number of issues,” Abodo senior communications manager Sam Radbill said. “Some industry experts have suggested that landlords are feeling pressured because of increased demand for units while inventory is low.”

Sam tells us the US rental market hit historically low levels during the mortgage finance boom, but has been moving back toward historical norms. Homeownership rates are falling, so it makes sense for landlords to continue raising rents, especially in markets with tighter inventory, he says. “Phoenix, specifically, is following a trend that analysts and industry experts have seen in cities,” he says. “In cities with a large number of young adults who can’t afford to buy a home or don’t want the hassle of owning one, rental units are in extremely high demand.” That group of renters and retiring Baby Boomers who are downsizing and moving into metro area apartments are driving up demand, he says. The demand continues to drive up rent prices. The national average rent is predicted to increase another 3% to 5% this year.  To read the full article click the link below.

Increasing rental rates will potentially make the cost of renting too high when compared to buying.  When that happens more buyers will enter the market. If a buyer has good credit, can qualify for a FHA loan and has 3.5% to put down the principle and interest payments for a $200,000 house are estimated at around $1,000 based on a 4.5% interest rate.  Add in a couple hundred dollars for taxes, insurance, HOA dues and some money for PMI for around $1,200 to $1,600 total monthly payment.  Renters paying $900 per month for a one bedroom should consider buying a home.  I predict the demand for house under $250,000 will continue to grow and the amount of house a buyer can purchase for this amount will shrink.

Phoenix Average Rent Increase


1)  STAT Newsletter 

2)  Rental Market  

3)  Multifamily and Commercial Real Estate Trends

4)  Impact of Construction Labor Shortage in the Phoenix Metro Area 

5)  Light Rail Spurs Redevelopment in North Phoenix 

6)  Are Underwater Home Owners an Endangered Species?

7)  Tales from the Real Estate Trenches 

        What Happens to a Single Member LCC When the Member Dies? 



1) STAT Newsletter Link -(Note the numbers are reported a month behind.  The MLS has renamed to reflect the report is for the prior month.)  STAT is produced monthly  by the Arizona Regional Multiple Listing Service - the database realtors use to list homes for sale and that have sold.   



STAT Newsletter and Real Estate Market Highlights

Commentary by Tom Ruff of The Information Market

Exactly ten years ago, the median resale home sale price rose to peak prices at $253,400 in Maricopa County when looking at tax records. In April of 2009, the median resale home price fell to $119,000 but rose steadily through 2010 propelled by tax incentives. When those ended, the median fell back to $112,000 in August of 2011 hitting its natural bottom, around 56% below its peak. Today, we refer to 2011 as the bottom of our market. A common topic among housing reports is comparing home prices today with the peak prices of 2006 using this barometer to gauge how far along various housing markets are in their recovery. This month in STAT we will use this common metric as it applies in Maricopa County using tax data.

The median sales price for all resale homes sold in Maricopa County for May 2016 was $225,000, or 89% of peak prices. There are pockets in Maricopa County where the current resale median is very close to the peak median, places where the peak has been surpassed and parts of the county where the median price is only 50% to 65% of the peak value. Arcadia and north central Phoenix are examples of areas where current median prices compare favorably to peak prices. ZIP codes which report favorably are: 85018, 85014, 85013, 85016 and 85257.

Using ZIP code 85014 as an example of an area fully recovered, the peak annual median resale price was $268,000 in 2006. The median resale price fell 58% before bottoming at $112,500. Prices since the bottom have risen 240%. The median resale price for the first 5 months of 2016 in 85014 is $270,000 or 101% of peak pricing. There is currently only 2.4 months supply of inventory listed. It’s a hot ZIP with sought after neighborhoods — a central location in the Madison Elementary school district with short walking distances to some of the newest and hottest restaurants in Phoenix.

As our resale median home values continue to rise we need to men- tion one important difference between our peak prices in 2006 and our current prices, mainly the cost of money. In June of 2006, the 30- year fixed rate mortgage averaged 6.68% as reported by Freddie Mac, where for the week ending June 9, 2016 the average rate was 3.66%. Interest rates today are 46% lower than they were in June 2006. When we apply these rates to a $200,000 mortgage, the interest paid in June of 2006 would have been $1,113 per month compared to $610 today.

We hope that this data has helped kill off some broad generalizations about how the market has changed in the last ten years with our reporting. Even if all the experts can’t agree about what has happened in the last ten years, we can at least agree that we are all ten years older.

ARMLS Pending Price Index (PPI) 

Our last PPI projected a May 2016 median sales price of $223,839 with the actual median coming in at $225,700 - off by 1.3%. MLS sales volume in May 2016 was 8,676 landing at 176 more sales than our projected volume of 8,500. Looking ahead to June, we predict a median sales price of $227,000. We begin June with 7,551 pending and 4,329 UCB listings giving us a total of 11,880 residential listings practically under contract. This compares to 12,076 of the same type of listings at this time last year. We expect sales volume in June to be very similar to last year with an accompanying increase in the median sales price. Our projected sales volume for May 2016 is 8,400.


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

May Rent STAT

Rents continue to increase and vacancy rates are down. See above for additional commentary.


3) Multifamily and Commercial  Real Estate Trends

Current Phoenix market trends data indicates an increase of 6.4% in the median asking price per unit for Multifamily properties compared to the prior 3 months, with an increase of 16.4% compared to last year's prices. County-wide, asking prices for Multifamily properties are 6.1% higher at $66,700 per unit compared to the current median price of $65,639 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 $250,000.  

Loopnet Commercial Trends


4)  Impact of Construction Labor Shortage in the Phoenix Metro Area 

Lisa Brown, GlobeSt.com, July 2016

PHOENIX—During the downturn, a majority of the skilled workforce migrated to busier markets and that labor pool is still not confident enough in the economy to return to Arizona.  Despite the global collapse of commodity prices–including many key inputs to construction– overall construction costs continue to rise nationwide in large part due to labor supply and demand dynamics that first surfaced during the recession and still have yet to resolve, according to a new report from CBRE Group Inc.

In January 2016, average total construction costs in the US registered a year-over-year increase of 1.8%, according to the RSMeans Construction Cost Index (CCI). Since January 2011, the national CCI has increased by an annual average of 2.3%, resulting in a cumulative 11.8% increase during that period.  “The price of materials is just one driver of overall construction costs. The cost of construction labor tends to be much more variable across geographies and over time, so it typically has a larger impact on overall cost trends,” said Andrea Cross, Americas head of office research, CBRE. “The collapse of the housing market and subsequent recession affected supply-side dynamics for new construction throughout the country, as a substantial number of construction workers left the industry during the downturn and never returned.”

This is especially true in Metropolitan Phoenix, where construction employment fell by more than 52,000 workers or 40.3% between 2005 and 2015. Conversely, as development has returned to the Valley, the demand for construction labor has caused the average hourly wage in Phoenix to increase by 31.7% during that same time period–second highest among the markets examined in the CBRE report.  While the employment has increased the skilled labor is not available.  Builders are competing for workers reminiscent of the boom days when a contractor would drive up to a job site, ask the workers how much they were making and offer them more money.  The workers would literally drop their tools leaving their prior employer scrambling to find labor to complete the project.

Cross tells GlobeSt.com: “Despite the strong increase in construction wages since 2005, construction labor costs in Phoenix remain low relative to many other US markets, at 72.6% of the national average as of January 2016.” As demand for housing grows construction wages will have increase if the builder wants to retain their workforce.

Click to view the entire article on GlobeSt.com

Click here to view a related article Phoenix Gains Fourth Most Construction Jobs in US


5)  Light Rail Spurs Redevelopment in North Phoenix

Orion Investment Real Estate, June 2016

“19 North” is the name of a new collaborative faith, school, community and business alliance to spur redevelopment and cohesion in the light rail neighborhood from Montebello to Dunlap avenues and 15th to 23rd avenues. Using the light rail transit-oriented development zone of one-half mile on each side of the light rail line, representatives from the city of Phoenix, two business alliances, four neighborhood associations and members of the faith community have all joined in a branding effort to brighten prospects for the 19 North neighborhood.  Shannon McBride, pastor of community and fellowship for Open Door Fellowship Church, said that the group saw how light rail galvanized other neighborhoods and wanted to revitalize all that’s happening in their community.  “Valley Metro was catalytic in doing this during construction,” she said. “Now that their role is over, all of these groups wanted to take over the effort and do more.”

McBride’s enthusiasm is contagious, and her group has gotten owners of the Good Shepherd building, 19th and Northern avenues, to agree to open the second floor as a community art and cultural center. The city is offering an undeveloped lot on 19th Avenue near Las Palmaritas Drive as a community garden.  “We have several groups joining together to make this a beautiful and lush destination,” McBride said. “This whole process has become so exciting.”

The idea of branding 19 North is being bolstered by the city hanging logo banners in the area, and businesses are doing things to spruce up the neighborhood.  “We’re hoping the city extends its walkable community (zoning and development standards) into the area,” she said. “This would mean new development would front tree-lined sidewalks.”  The idea of trees lining the street and new buildings is something that has community residents excited, according to the pastor. In neighborhood meetings, the idea of a walkable neighborhood was a concept supported across all constituencies.

To read the full article click on 19 North


6)  Are Underwater Home Owners an Endangered Species?

Catherine Reagor, The Republic, June 2016

The era of owing more than your house is worth in metro Phoenix is nearing an end; only 12.4% of mortgages are still upside down. I say “only” because almost 50 percent of Valley homeowners were upside down with their mortgages in 2011, when the market hit bottom. Steadily rising home prices and falling foreclosures since 2012 have pulled many of us above water on our mortgages. Just a year ago, more than 17 percent of metro Phoenix homeowners owed more than their house was worth. I couldn't find an updated figure for how much equity metro Phoenix homeowners have accrued since 2012, but the area’s median home price has climbed 56 percent since then. There still are 115,000 metro Phoenix homeowners underwater. Valley home prices need to climb another 11 percent to reach the height of the boom in 2006. Metro Phoenix home prices climbed almost 10 percent last year. Maybe by next summer, prices will rise enough to right most of the rest of the area’s upside-down homeowners.

This means the opportunity to purchase homes just prior to going to Trustee’s Sale or as a short sale are limited.  As of July 5, 2016 a search of active short sales or pre foreclosure condos, town homes or single family homes in Maricopa County returned 244 properties. Prices ranged from $65,000  to $2,950,000.  Days on the market ranged from 0 to 999. Lender owned or HUD properties returned 186 results.  Prices ranged from $36,000 (in Wittman, AZ) to $2,125,000.  Days on the market ranged from 0 to a whopping 1,000.  The mortgage companies seem to be reverting back to asking above market prices for the foreclosed homes or coming up with very high values for short sales that need thousands in repairs.  Anything priced right will sell right away with multiple offers and often for more than list price.  There are still some bargains out there but the margins are very slim and they are very hard to find. 


7)  Tales from the Real Estate Trenches 

Pat Hune, Broker at 1st Southwest Realty

What Happens to a Single Member LCC When the Member Dies?

Limited Liability Companies (LLC’s) are great ways to protect assets. Owners of rental properties often form LLCs to limit their liability if a tenant sues them. The tenant would be limited to going after the asset in the LLC versus all personal assets.  In some cases LLC members will be other LLCs rather than an individual person.  Some states will allow single member LLCs like Arizona.  What a lot of people forget is whenever anyone forms an LLC, they should decide, among other things, what should happen to their LLC membership when they die.  With proper documentation the membership can transfer to the owner’s heirs and the dreaded probate action can be avoided.

There are four ways to avoid probate.  1) Create an LLC operating agreement stating who the membership will transfer to upon death. 2) Put the membership into a revocable trust.  The LLC operating agreement should provide the owner the capacity as an individual, not as a trustee, as the LLC’s manager.  This avoids confusion when the owner signs LLC contracts. 3) Joint-tenancy single membership is stated in the operating agreement that the owner holds membership jointly with another person but the owner is the manager until he or she resigns or dies.  The membership can transfer but management is not shared until death or resignation.  4) Create a joint tenancy membership by adding an additional member and automatically transferring the membership to the other party if something happens.  However if both members die probate would be required.  Please consult with your attorney to make sure your LLC is structured correctly.

Unfortunately one of my clients missed putting a sole member LLC into the family trust.  The member passed away.  When the heirs tried to sell the property they were forced to probate the LLC to clear the chain of ownership.  This was an expensive and time consuming process that could have easily been avoided.  Moral of the story is review all assets periodically and put the proper documentation in place to avoid headaches and expenses down the road.  And as alway consult with an attorney to  make sure the documentation is correct.